Continuity in Economic Policy in Postware Lebanon: The Record of the Hariri and Hoss Governments Examined, 1992-2000

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INTRODUCTION

FOR SIX YEARS (DECEMBER 1992-NOVEMBER 1998), Rafiq Hariri and his economic team were in charge of managing the Lebanese economy. While some of Hariri's economic polices had popular support, most were controversial ones that triggered mixed and sometimes overtly hostile reactions. But despite official criticisms that Hariri's policies received between late 1998 and the summer of 2000, his detractors failed to articulate an alternative set of economic policies. The Hoss government continued most of the policies initiated by Hariri and in certain instances, as with privatization and foreign borrowing, pursued them with much greater vigor. Undoubtedly, the Hoss government introduced certain changes in specific economic policies. (1) Nevertheless, what was preserved from the Hariri years was far more fundamental than what was changed. In light of this basic continuity in economic policy from the Hariri to the Hoss years, Hariri's return to the premiership in November 2000 seemed quite logical.

THE LEGACY (OR HEAVY BURDEN (2)) OF RAFIQ HARIRI: 1992-1998

Hariri's record in office, particularly in the economic policy domain, generated both praise (3) and sharp criticism (4) Hariri's admirers credited him with at least five major achievements: 1) raising the Dollar value of the Lebanese currency (LL) after years of steady (and in some months very steep) deterioration (5); 2) bringing annual inflation rates down to single digit figures (6); 3) launching (and partially completing) a highly ambitious investment project for the reconstruction for the commercial district in downtown Beirut and the modernization of Lebanon's basic infrastructure; 4) simplifying the tax code, providing tax holidays for new investors, and lowering the maximum tax rate to 10 percent (all these measures were designed to increase incentives for local and foreign investors) (7) and 5) (perhaps most importantly) restoring regional and international confidence in the Lebanese economy.

Hariri's critics, on the other hand, brought forward a long list of charges against him. They accused him inter alia of: 1) betting on the quick success of the Middle East process, and subsequently spending billions of US Dollars (of largely borrowed money) to develop Lebanon's infrastructure, in the hope that borrowed finds can be easily repaid once peace arrived; (8) 2) allowing Lebanon's public debt rapidly to mount until it reached dangerous levels towards the end of his term (in 1998); 3) causing real interest rates on deposits in LL to raise owing to excessive government borrowing and the insistence on protecting the value of the LL; 4) overspending on infrastructure development, while under spending on productive projects in agriculture and industry and on social projects (i.e., health care and education; 5) lowering direct taxes which helped the rich, while raising indirect taxes (such as the gasoline tax) whose impacts were mostly felt by the poor and middle classes; (9) and 6) (perhaps most seriousl y) turning a blind eye to rampant corruption among ministers, bureaucrats, local and foreign businessmen bidding on state contracts, as well as among his closest aides. Critics alleged that widespread corruption during the Harm years cost the treasury vast sums of money, estimated by some sources at billions of U.S. Dollars. (10)

Reality is far more complicated than the claims of-either group. At the outset of his term, Hariri was able to generate wide support for his currency stabilization and reconstruction programs. As the costs of these programs mounted, and successive Hariri governments failed to tackle other economic and social problems (such as unemployment, low wages, poverty particularly in the outlying regions in the Biqa' valley and 'Akkar, administrative red-tape, rampant corruption in official circles and poor quality of social services) criticism of Hariri intensified. …