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Lebanon's Massive Debt Leaves Nation Unstable

by Peyman Pejman

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Lebanon after Hariri

(IPS) BEIRUT -- Former prime minister Rafik Hariri left a controversial economic legacy, and his killing has put a question mark over the future of the troubled country's finances.

Lebanon owes many billions of dollars in debt it might not be able to pay, is engaged in a huge post-war reconstruction effort, and many Lebanese fear that fading confidence in the country will pull the plug on Arab and Western aid.

Economists who credit Hariri with unprecedented boldness also blame him for unnecessary lavishness in spending. Hariri was prime minister twice, from 1992 to 1998 and then from 2000 to 2004.

"The connections of Rafik Hariri were very important in convincing Arab financiers. The disappearance of Hariri means that the confidence has been lost again," Nicholas Chammas, financial analyst in Beirut told IPS.

"In economy, expectations are extremely important. What are the expectations now? There is ambiguity, there is political bickering, and the fact that the person can be physically eliminated 15 years after the end of the civil war, this is terrible message that we are sending," he said.

Hariri's main legacy was rebuilding the old commercial area of downtown Beirut, a neighborhood destroyed by years of civil war and Israeli invasions. Hariri rebuilt that area at a whopping cost of $30 billion.

Lebanon's failing economy had no money to pay for it, so Hariri used a complicated banking system and a collection of loans from Arab governments and investors.

"I think that Rafik, because he was a (construction) contractor, was influenced by the Saudi model during the oil boom," Yusuf Shibl, professor of economics at the American University in Beirut, told IPS. Hariri was in charge of building many palaces for members of the Saudi royal family.

Others argue that while the cost could have been cut, Hariri's overall philosophy was sound.

"Yes, you can argue that he was interested in the infrastructure before he was interested in the people who would use them, but the other side of the argument is that unless Lebanon spent lots of money on the infrastructure, the overall economic system would not have started on the right track," Chammas said.

For many the question is where to go from here. Last year the country showed an unprecedented growth rate of 5 percent. Lebanon drew its largest number of foreign tourists, though most of those were Arab and not the Western tourists it wishes to attract again.

A future cabinet will have to cut spending and lower the budget deficit. Through Hariri's rule the country ran a deficit of 25 to 40 percent, depending on the interest on loans.

Some economists say Lebanon now needs to restructure its business model and become an export-orientated country, support agriculture and industry, stop the massive emigration of the young generation, help the middle class florish again, and attract more women into active participation in the economy..

Only about 35 percent of the active population is engaged in economy, compared to more than 50 percent in the United States. Only 20 percent of women are employed because traditionally older women have stayed home. A third of the population has emigrated in the past two decades. Lebanon had a population of 3.5 million in July 2000, with about 70 percent Muslims and the rest Christians.

Government figures shows that with an annual budget of about $5 billion, Lebanon's trade deficit stands at $7.7 billion.

Others argue that if Syria truly gives up control of the country, its deep-seated 'business mafia' will also have to disappear, and much of the money that goes to Syria now can be reinvested in Lebanon.

"The Syrians make between $10 and $20 billion a year from Lebanon. They are partners in everything. If the government wants to open a project to open roads, you have to have a Syrian partner. If you want to work on the harbour, you need a Syrian partner," Jibran Tueini, publisher of the respected An-Nahar newspaper told IPS.

"They have been able to create a network of money laundering, of business, of commission from business deals, a mafia, everything," he added.

But many remain optimistic that the country can put behind this challenge like they have others in the past. "Lebanon is a good and viable economy provided we ensure the proper political and legal environment," said Chammas.

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Albion Monitor March 9, 2005 (

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