Economic Brink: (Lebanon's Economic Conditions)

By Azzi, Pierre | Harvard International Review, Fall 1999 | Go to article overview

Economic Brink: (Lebanon's Economic Conditions)


Azzi, Pierre, Harvard International Review


Abstract:

Reconstruction projects in Beirut, since the end of Lebanon's civil war, have drawn international attention and prestigious investors. Examples include the Four Seasons Hotel and the waterfront Marina Towers, which sit on land worth over US$300 million. However, such apparent prosperity is undermined by the fact that 60% of the Lebanese population lives below the poverty line.

Text:

Reconstruction projects in Beirut, since the end of Lebanon's civil war have drawn international attention and prestigious investors.

Examples include the Four Seasons Hotel and the waterfront Marina Towers, which sit on land worth over US$300 million. However, such apparent prosperity is undermined by the fact that 60 percent of the Lebanese population lives below the poverty line. Lebanon is an economic paradox. Skyscrapers stand next to devastated churches and mosques. Upperclass citizens tote cellular phones and dress only in the latest European fashions; while close by poorer individuals sell vegetables and crackers in the streets to survive. If serious economic reform is not implemented soon to deal with Lebanon's tremendous economic challenges created by its civil war and subsequent spending, Lebanon's economy will be headed for collapse.

The eruption of a civil war in Lebanon in 1975 can be traced to the historical presence of Palestinian refugees in Lebanon. After 1943, Lebanon accepted 300,000 of the one million displaced Palestinian refugees. By 1975, these refugees had developed a sizable arsenal due to Soviet backing, and the Palestinian Liberation Organization decided to dislodge the Christian-dominated government, which by then controlled a population more Muslim than Christian. Foreign intervention by Syria and Israel prolonged the civil war, which lasted 15 years.

The economic consequences of the war were devastating. It destroyed the major infrastructure and reduced the work force: 200,000 workers died, 1.5 million fled abroad, and 100,000 were permanently disabled. Foreign debt rose to several billion dollars, and a majority of foreign businesses and a large percentage of domestic businesses left the country. Not surprisingly, the civil war has required extraordinary reconstruction efforts. These efforts, advanced by the former Hariri government in power from 1992 to 1998, led to an external debt that now stands at US$20 billion, or 120 percent of Lebanon's current GDR. Yet only part of the massive reconstruction effort (estimated to cost US$60 billion) has been completed. The government of President Emile Lahoud, elected in November of 1998, faces major economic challenges requiring immediate attention.

The previous government, led by billionaire businessman Rafiq Hariri, focused primarily on economic improvement in order to regain Beirut's pre-war status as the leading business and financial center of the Middle East. To accomplish this goal, Hariri's government needed to rebuild Beirut as a technologically advanced city, develop a modern infrastructure, solicit foreign investment and business by creating an open free market, stabilize the Lebanese pound, and offer the lowest corporate tax of any non-oil country in the Middle East. These objectives required great financial expenditures that the cash starved Lebanese government did not possess and could not generate from taxes in the post-war years. The Hariri government's solution to this problem soliciting foreign loans and investment was simple and in the short run achieved the government's goals at minimal political cost. Unfortunately, this policy has created the present economic peril.

The drive to modernize Beirut cost US$7 billion in interest on the national debt between 1992 and 1998 and is estimated to cost US$2.6 billion for 1999 alone, an increase of 21 percent from the debt accumulated in 1998. Meanwhile, an expected partnership agreement with the European Union that will assign specific tariff reductions should make the Lebanese economy more open, However, this tax reduction could pose a major problem as customs dues constitute more than half of the government's current revenues. …

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