Lebanon's general elections, which will take place at the end of May, have created enormous expectations in the country and throughout the international community. Beyond the political implications of these elections, Lebanese officials and experts agree that these elections will be crucial in determining the country's economic future.
According to observers, a key question in Lebanon's economic revival prospects will be the line which the main political players, and especially Hizbullah, will adopt following the elections. There is no doubt that the southern Lebanon situation and the sporadic clashes between Hizbullah fighters and Israeli forces have a risky potential for Lebanon's future stability and economic reconstruction efforts. A flare up between Hizbullah and Israel in that area has already taken its economic toll of Lebanon. During the 1990s, Israelis chose to strike at areas all the way up to Beirut, deliberately damaging the Lebanese infrastructure - such as roads and electricity plants - in order to place the government in Beirut and its rebuilding efforts in dire straits.
Lebanese Prime Minister Najib Mikati has recently stressed the need for "safeguarding Lebanon's economic and political credibility as a top priority." Speaking at an economic and monetary meeting in Beirut, the Premier tried to draw a “rosy picture” by saying that recent statistics and figures show that Lebanon attracted in the past few weeks, "significant foreign deposits and money transfers, most of them from the Arab world."
However, the economic situation, on the ground, is far from being positive.
Lebanon has an unemployment rate of at least 20 per cent and a national debt of $34 billion, or 184 per cent of GDP – this is one of the highest levels of public debt in the world in terms of debt to GDP ratio. Short term debts are put at over US$3.5 billion. The economic and political situation keeps foreign investors away from the Lebanese market. In 2004, FDI was estimated at just US$358 million.
In addition, Lebanon has been experiencing an economic period of shock following the February 14 assassination of ex-Prime Minister Rafik Al-Hariri. The brutal killing of the billionaire, who drove Lebanon's economic revival, had an immediate negative impact on investor confidence. This was translated into a higher rate of withdrawal in bank deposits. According to official figures, deposits of Lebanese commercial banks fell by $1.5 billion following the assassination.
The slowdown following Hariri's death was not only felt in the banking and finance sector. The Head of Lebanon's Association of Industrialists, Fadi Abboud, for instance, has disclosed that economic activity has slowed down considerably since February 14. "Industrial sector activity, concerning consumer goods, has decreased by between 20 to 30 per cent," Abboud was quoted as saying by a French TV channel.
Lebanon's tourism industry, which once contributed 20 percent of the nation's earnings, suffered in the past two decades from criminal Israeli bombings as part of the conflict in southern Lebanon. This sector has received another blow as the massive blast that killed Hariri also wrecked a section of Beirut's seafront. Several other bombing attacks took place in Lebanon in the aftermath of Hariri’s death.
Indeed, Lebanon’s chances to gain economic recovery have been boosted last month when the Syrian occupation ended after three decades. Syria has exploited Lebanon's economy for years, and about 20 per cent of the Syrian economy was based on Lebanese sources of revenue. Some 400,000 Syrian workers in Lebanon transfer each year to their homeland some US$2 billion, without paying any income tax in Lebanon.
Under the eyes of Syrian agents, corruption and graft became a daily reality in Lebanon. The Lebanese research company Information International estimated that Lebanon wasted over $1 billion a year due to corruption. Bribes were necessary to clear containers at Lebanon's ports, to process applications and were common also in the banking sector.
Senior economic decision-makers in Lebanon understand that now is the time for reform and shake-up. "A program should be set, the economy must be activated and structural reforms in public finances must be made that improve confidence in Lebanon's economic future," Lebanon's central bank governor was quoted as saying by Reuters on May 17.
Furthermore, in order to increase investment prospects, Lebanon's Finance and Economy Minister Damianos Kattar has called for the creation of an independent monitoring committee to improve the transparency of all companies listed on the Beirut Stock Exchange, the Beirut-based newspaper, The Daily Star, recently reported. However, to achieve this, Lebanon will need a strong government, acceptable to the majority of the population as well as to the international community.
Lebanon will also need to neutralize political forces which can discourage investors. Analysts agree that a strong showing in the elections for the Iranian backed Hizbullah movement, which refuses to adhere to the UN 1559 resolution demanding its disarmament, could block Lebanon's hopes for the much needed foreign investments.
It is clear that the international community will be an important component in enhancing Lebanon's foreign investments. However, it is also clear that the American administration will join these efforts just after the demand to disarm Hizbullah is fulfilled.
Thus, the task of the new Lebanese government in coping with Hizbullah will not be an easy one. This Shiite movement is a popular political party, with 11 Members of Parliament, as well as an helpful charitable arm. According to Newsweek, some sources estimate that Hizbullah receives $60 million in annual aid from Iran. This sum helps Hizbullah in financing its military operations but also operating an efficient network of social services - financing orphanages and food-distribution centers for poor Shiites. This "country within country" situation was caused due to the central government's weakness to help this segment of the population. But, as some Arab sources claim, "the Hizbullah-Iran axis can bring a political chaos to Lebanon in the medium and long term."
Currently, following the end of the Syrian occupation, the Lebanese government should clarify to Hizbullah, that it must choose a way which will match the Lebanese people's will, namely - full sovereignty and a prosperous economy. Hizbullah has shown a commitment to Lebanon's local politics, as one Western diplomat in Lebanon said, "Hizbullah has shown pragmatism in the past, but now, following the Syrian withdrawal, its leaders should accept the lay down of arms in order to help Lebanon out of its economic doldrums and in order to improve the standards of living of the common Lebanese." "There is no doubt that Hizbullah's biggest achievement was its victory over Israel and the latter's flight from southern Lebanon. This development was glorified by all of Lebanon's political parties and streams. But, now it seems that the movement needs to lay down the arms and join the national efforts to make the local economy prosperous. The Lebanese people want this and need this".
