Magazine article Business Credit

Hot Spots: Lebanon

Magazine article Business Credit

Hot Spots: Lebanon

Article excerpt

While the International Monetary Fund (IMF) is pressing the authorities to implement the Paris III agenda, Prime Minister-designate Saad alHariri is still struggling to put a unity government together. He is grappling with the task of governing with the terrorist group Hezbollah (in Lebanon, a potent political force), but at least some of the conflicting pressures from the outside appear to be diminishing.

The IMF has publicly urged "the new Lebanese government" to implement the remaining conditions of the Paris III donor conference in order to reduce the public debt and overcome all the negative effects of the global credit squeeze. The admonition was contained in a report by the IMF's Emergency Post-Conflict Assistance (EPCA), which assessed Beirut's efforts to tackle the fiscal deficit. The report said that "the new government should strive to quickly restore the fiscal consolidation agenda set out under Paris III," since "further postponement of this agenda would risk seriously undermining its credibility." Top priorities include a reduction in the need for budgetary transfers to Électricité Du Liban (EDL) and an increase in the value-added tax rate.

The problem though, is that, as these very lines are being written, the country does not yet have a new government, since Prime Minister-designate Hariri, in the wake of the June 7 elections, is still pursuing the difficult goal of putting together a national-unity cabinet that comprises all major political parties. Hariri, whose Sunni-led so-called March 14 Alliance won a convincing election victory, insists that the formation process is moving forward, but no one to date has been able to remove the biggest stumbling block arising from demands by Hezbollah and its allies that they be granted veto power in any unity government: demands that Hariri, well aware that it would stifle his administration, has rejected.

The opposition is in no hurry to reach an agreement, as is evident from instructions given by Hezbollah leader Sayyed Hassan Nasrallah to his people not to pressure Hariri into quickly forming the government. The problem, of course, is that the longer Lebanon remains without an effective government, the longer politically difficult decisions, such as a proposed increase in the value-added tax, will have to be postponed. Hariri has sent reconciliatory messages since his election win, even replacing campaign posters that evoked memories of recent turmoil with others emphasizing the need for national unity. He has been bending over backwards to come to terms with rivals allied to neighboring Syria, the state suspected of having orchestrated his father's assassination in 2005.

Hariri has the support of Arab and Western states and he has even called for the contentious issue of disarming Hezbollah to be set aside. Also being sidelined, or at least dealt with quietly, is support for a tribunal investigating the death of the Premier-designate's father, which Hezbollah and its allies oppose. Still, it was virtually certain from the outset that the complex nature of Lebanese politics, where most voters support only candidates from their own religious group such as Armenians, Maronites, Druze, Shiites and Sunni, would make for weeks of infighting before a government could be forged. On the positive side, relations between two key Lebanon power brokers, the U.S. and Syria, have lately improved, so much so that the U. …

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