Economists recall Rafik Hariri’s first term as Lebanese prime minister with mixed feelings. For when he headed the cabinet in Beirut, from 1992 to 1998, the charismatic billionaire, who made his fortune in the Saudi construction industry, enthusiastically set out to reconstruct the city known as the “Paris of the Middle East,” before it was ravaged by the 1975-1990 civil war and the Israeli invasion of 1982.
But, while Hariri was successful in restoring a much-needed national sense of self-confidence, he borrowed heavily from the international community and even used millions of dollars of his own capital.
Indeed, as Hariri begins his second term as Lebanon’s premier, one of his most urgent tasks is to reduce the national debt that he largely helped create. And it is massive, standing at between $22-$24 billion, or 135-140 percent of the gross domestic product (GDP).
This is not Lebanon’s only problem. While the infrastructure is considerably sounder than it was in 1992, it urgently requires both investment and private management. And the economy is under-performing, with low foreign investment and an unstable Lebanese pound.
During his initial “honeymoon” period in office, Hariri will be able to shift some of the blame for the moribund economy on the previous administration, which was headed by the dour technocrat, Salim Al-Hoss. With almost no business experience, the departing prime minister could boast only few economic achievements, most notably a 25 percent increase in foreign direct investments between 1998 and 1999.
But he was unable to accomplish any significant steps toward privatization, and the heavy foreign debt and an unstable Lebanese pound, compounded with a series of high-priced mismanagement and ongoing contract scandals, ultimately brought about his political demise.
Hariri’s new cabinet, which has grown from 24 to 30 ministerial posts, will need to instill confidence in both domestic and foreign investors and the public. And while Hariri works his considerable charm on the business community, the behind-the-scenes political squabbles will ironed over the head of state, President Emile Lahoud. But that’s assuming that Hariri and Lahoud are able to maintain a proper working relationship. The two men are known to have clashed in the past.
Hariri will have his work cut out for him. A recent report issued by BNP Paribas denigrated the local economy, targeting the T-bills and eurobonds, saying that, not only have they shown little or no movement but they actually are losing value. Merrill Lynch and Standard & Poor’s also lambasted the Lebanese government warning foreign investors to stay away, noting the threat of devaluation in 2001. Both lowered the country’s credit rating.
Hariri’s exact program for action is not yet known. But high on the agenda will be a program for the privatization of national assets and a campaign to boost foreign investments through a series of legislative measures. Entry into the World Trade Organization (WTO) is also of immediate concern, with 17 laws need to be passed before any consideration is given to Lebanon’s application for membership. Copyright, intellectual property and anti-dumping laws have already been passed by the National Assembly, but all received poor grades from the international community. Commentators say they are weak and need revamping.
The Lebanese cabinet recently rejected a $2.7 billion offer by the Cellis and LibanCell mobile telephone companies to convert their existing build-operate-transfer (BOT) agreements into licenses. Potential foreign investors are looking to the outcome of the cell phone dispute and Hariri’s handling of it before deciding whether or not Lebanon will provide a business friendly environment.
Other issues that will keep the prime minister busy include a number of running feuds with large companies and branches of the public sector, such as hospitals and energy companies, which claim to be owed large amounts of money. Hariri will also be heavily pressured to improve the transparency of the privatization process. It is no secret that Hariri is one to seek favors and offer favors in return.
But Lebanon, being Lebanon, will see its fortunes rise or fall on what happens in the geo-political arena. The situation in Southern Lebanon most probably is Hariri’s greatest challenge, and potentially his Achilles heel.
An escalation in the conflict between Israel and the Hizbullah, resulting once again in Israeli air strikes on Lebanese infrastructure targets, will expose the weaknesses of the national economy to the world in general. This could bring direct foreign investment to a grinding halt and put any privatization plans on ice. — (Albawaba-MEBG)
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