The new Lebanese government of Prime Minister Rafiq Hariri, which came to power at the end of October 2000, will be primarily concerned with lifting the country out of recession and boosting economic growth, according to the Lebanese Minister of Finance Fuad Siniora. In an interview with MEES Publisher Basim Itayim, on January 4 in Beirut, Siniora explained the government’s strategy for economic management and outlined some of the major issues concerning the future of the Lebanese economy.
The Lebanese Government has embarked on a new liberal economic policy designed to create “positive shocks” aimed at kick-starting the economy, according to the minister of finance. Siniora told MEES that the policy is a comprehensive blueprint for the future which will have to be implemented in stages, because it is not a “one-shot process.”
The minister explained that as a result of the Lebanese civil war, which ended in the early 1990s, the size of the public sector grew at the expense of the private sector as the state stepped in to fill the vacuum caused by the withdrawal of private businesses. Consequently, the government was forced to levy new taxes to finance its expanding role which, in turn, led to a contraction in economic activity and, rather than opening up to the outside world, the Lebanese economy became inward looking. This situation worsened in the past two years and led to severe recession and negative growth.
To escape this vicious circle, the new government has adopted a new approach based on openness, deregulation and liberalization. Siniora said that Lebanon enjoys “special conditions” which allow it to have a comparative advantage in a number of fields. He cited educational facilities, health services, a skilled labor force, a potentially strong tourism sector and a moderate climate as amongst the country’s key assets. Lebanon should, therefore, capitalize on these conditions and seek to maximize its potential, he said, notably as a future provider of services for Middle East countries.
The minister pointed out that the government has already introduced a number of measures aimed at reviving the economy, including an open sky policy and a reduction in import duties on most products, including motor vehicles. Further measures are envisaged, such as a new customs law, which will come into effect in April 2001, and a foreign investment law and a public accounting law, which are being drawn up.
These are intended to facilitate trade, create a better investment climate and streamline administrative procedures. Also, the government is working on the privatization of the electricity sector and telecommunications and intends to seek professional advice in this respect shortly.
Siniora admitted that the reduction in import duties will lower state revenue in 2001, but stressed that with the revival of economic activity revenue is expected to increase in 2002, offsetting the short-term decline. The government also intends to introduce a value added tax (VAT) of around 10 percent in 2002, although the rate has yet to be finalized. Siniora said that the introduction of VAT was to have taken place at the beginning of 2001 but has been postponed until 2002 due to the current recession.
Asked about fiscal policy, Siniora said that the government has no intention of raising taxes and may even lower them, stressing that “we are seeking growth and anything that would lead to it.” With regard to monetary policy, he explained that the market determines the level of interest rates and that these rates “cannot be brought down by force,” as is believed by some. Siniora expects that the recent fall in US interest rates will help to bring down the high level of domestic interest rates on the Lebanese pound. To encourage the implementation of small-scale projects, the government has recently increased the subsidies on interest rates for soft loans.
With regard to bank reforms, the minister said that the government will maintain banking secrecy as much as possible, but will at the same time put in place the necessary mechanisms to assure depositors of healthy banking practices. He pointed out that in the past two years there has not been a large increase in private deposits above what could be attributed to accrued interest. “So where is the money laundering?” the minister asked. “We do not want our country to become a haven for illegal activities.” The cabinet has recently approved a law that will lift banking secrecy for the first time on some suspect accounts. The law is due to be presented to parliament shortly.
Turning to the foreign exchange market, Siniora stressed that the government was pursuing a policy of stability and that to achieve it, it was prepared to defend the current exchange rate. Discussing the 2001 budget, the minister said that it is being finalized and should be made public in the next two to three weeks. He also said that the new Hariri government had withdrawn the 2001 budget prepared by the outgoing government so that “we can issue an amended budget which reflects the exact situation. There is no point in projecting a low deficit, only to end with a higher one at the end of the year.”
Siniora observed that some of the measures taken by his government could lead to an increase in the budget deficit in the first year or so, but that at the same time these measures will improve economic performance and bring about growth subsequently. For the year 2001, the economy is expected to grow by about 3 percent, compared to a contraction of 1 percent in 2000, according to the minister.
As for Lebanon’s public debt, Siniora said that the government expects the debt to fall as growth picks up and proceeds from the privatization of state companies start coming in. He added that the government will continue to tap the Eurobond market this year and will pursue its policy of converting local debt into foreign debt in order to benefit from the interest rate differential, with a target mix of 60/40 for the local to foreign debt ratio. According to the Central Bank of Lebanon, public debt stood at 33,808 billion Lebanese pounds ($22.53 billion) in October 2000, of which local debt was LP 24,112 billion ($16.1 billion) and foreign debt $6.43 billion. — (MEES)
© 2001 Mena Report (www.menareport.com)
