Lebanese economy in tatters

Shortly before the way, Hizbullah and Aoun mounted a vicious campaign against Siniora's economic reform plan, which, at the time, was still in the works. Plans for a Beirut 1 donor conference to tackle the national debt were put on hold, because of Nasrallah and Aoun, who organized a massive demonstration on May 10 calling for the resignation of Siniora's government, and to allegedly protest against the reform plan that, ironically, was pending the approval of the various political parties in the country, including Hizbullah and Aoun.

One of the main proposals fought by Hizbullah and co concerned public sector workers. The finance minister at the time proposed then quickly withdrew an idea aimed at reducing public expenditures by hiring public sector employees on a contractual basis. Hizbullah and Aoun both strongly opposed this idea, and threatened "street revolutions."

Well, fast forward to the present. The Daily Star is now reporting that the finance ministry has "enough cash to cover salaries of public sector staff for a few more weeks, adding the ministry has spent $1.5 billion since war broke out."

The Central Bank has reportedly intervened with $2.5 billion dollars (at least 2% of total deposits) to stabilize the pound, and the ongoing blockade is costing the treasury hundreds of millions of dollars in lost revenues from VAT and customs duties,usually collected at the Beirut port. (According to the finance minister Jihad Anzour, the 34-day war caused more than $3.6 billion in material damage and another $3 billion in indirect losses, especially in the tourism sector.)

Benefiting from all this? Not the Lebanese economy.

Thousands of shipping containers filled with vital imports have been turned away from Beirut Port by the Israeli blockade, causing commercial cargo bound for Lebanon to flow through Syrian ports. Containers destined for Lebanon have started arriving over the last few weeks at the Syrian ports of Latakia and Tartous, where they are being loaded onto trucks and moved to Lebanon on roads bombed by Israel in the recent war, port officials told Reuters.

The industrial, tourism and hospitality sectors were hit hard. The factories that were not destroyed by Israel are now operating at a 20% capacity. Many restaurants had to lay off their seasonal workers.

And unemployment is expected to rise.

Economist Kamal Hamdan forecast that unemployment could more than double from the official level of nine percent before the fighting to as high as 20 percent in the coming months…… Fellow economist Marwan Iskandar said: "In the short term, over the next six months, 50,000-55,000 people are going to lose their jobs."

Iskandar, not known to be a pessimist, notes that there is hope of a rebound.

"An economic rebound will allow 80 percent of lost jobs to be recovered if political stability is assured and a public aid program is enacted," he said.

Political stability? Tell that to Aoun and Nasrallah. They didn't want it before the war, and they don't want it now.  With Siniora overbidding Hizbullah by offering a $33,000 $40,000 compensation package to families who lost their homes, it almost seems as if Lebanese people will be paying Hizbullah and Aoun for co-destroying the country along with Israel.

Comments

[bad vilbel]

I ranted about Aoun in yesterday's comments, so I'll spare a repeat of my same points. But basically, I think both him and Nasrallah need to be seen for what they really are, by the Lebanese people.
The fact that either has any support left is beyond me, and is very very depressing.

[frencheagle]

the proposed plan to reform the economy was a nightmare since kais is coming back to this point.

the proposed plan, by increasing the VAT etc... was moreover attacking the purchasing power of the poors,
i was leading few years ago, in 2001 a study for a well known bank based on confidential datas at that time. the study showed that 90% of most of the bank accounts in lebanon were credited of less then LP 10 millions.
increasing VAT of course would impact this social class.

on the other side, there are 15 familes in lebanon which companies are making 15 billions of dollars of profit, one of them aimed lately to make the succession law being changed in order to avoid to pay, according to the lebanese law USD 2 billions and this family is .... the hariri

nom comparing the pre and post conflict has no meaning as far the economical situation dsidnt change as we are still a stage of economical comma bu the situation is just worst then before.
the problem today is how to compete with the hezbollah social services knowing that the lebanese state faces usd 40 billions of official debut and more then 58 billions unoficially.
however those who are appealing today the hezbollah to disarm, or to be disbanded are just leading us to the worst case scenario: the risk to have a civil war, they are not smart enough to build up a strategy in order to reach a goal
there are no ways to get ride of the hezbollah as i always said in the past in the short term, and the efforts must be made in the short term to decrease the risks of civils strifes and to be able to build and strengh a state in the long term to be able to disarm it.

[hummbumm]

Simple economics, if govt expenditures, overwhelmingly payroll are not curtailed, taxes will have to rise. Yes VAT is regressive in many ways but the reality is that those taxes can at least be collected. A progressive income tax system would collect zippo in lebanon at least at this stage. So the best way to reduce the deficit is to cut the government payroll. Other benefits of a reduced payroll would be less red tap and graft.
More to Kais's point, Aoun and Nasrallah promised civil unrest before and after this conflict. One can argue about the best economic policy, but we can all agree that organized civil unrest is a guaranteed loser. Plus Aoun with his frigging carping, I would love to hear what his economic plan would be... If he talekd about hthis proposed change in succession law ( I have not heard of it) that would be somethign worthwhile, but to keep public sector employees on the payroll and to shoult wildly about corruption etc... and then impeding govt institutions from operating, plus entering into a military conflict that kills the country and then complaining about the slow response of the government is so ridiculous.

[R]

Add to all what abu kais said, the UNDP reports damages of around $15b, way more than what the government is announcing. If I recall correctly, they stated that 15 yrs of work in Lebanon where completely destroyed in a month... This is completely and utterly unacceptable. We can no longer live and act in a state of anarchy where militias with guns and rockets outgun the army and dictate war and peace, then complain about the government's response. Screw that.
We need to somehow capitalize on what happened to disarm HA and simultaneously collect the necessary cash and capital to rebuild. Not just the buildings, but whole damn system...

[charlie]

Aoun is by far the biggest flip-flopper selfish jackass I have ever seen. His short minded, self centered agenda boils down to nothing more than: either you make me the president or I will be as obstructionist as I can and bring the house down over our heads. This man was the sole responsible for keeping Lahoud in power, thus limiting the effectiveness of the new post Syrian executive branch of the government. He couldn't put the welfare of the country ahead of his so he threw his support behind the most dangerous agents of Iran and Syria and strengthened their hand at a time when the country needed these guys to fade away!!

HA and Aoun are entitled to be in an opposition, but when this opposition threatens the government with civil unrest at every step of the way, it becomes a national security threat that is actively destabilizing the country, as we have witnessed, and should be dealt with as such. Another thing, if they are in the opposition, then they should not be given Cabinet posts, they just can’t have it both ways.

Aoun and his HA buddies have yet to produce a single plan or proposition to constructively debate any of the issues that are plaguing the country. Their idea of an opposition is to take the other side of the March 14 alliance no matter what it is. This is pretty pathetic and a bankrupt political platform.

That being said, I also expect the March 14 forces to take advantage of their majority in Parliament and start legislating. They are responsible to put forward new laws and regulations that deals with a lot of the issues that is plaguing the country. By putting these bills forward for a vote it will start to create a record that should distinguish them from Aoun and the Amal-HA blocks. This is important so the Lebanese public know where their reps stood on the different issues when it was brought to a vote on the floor. Heaven forbids, but the Lebanese public may actually learn to vote these people on their record rather than their stupid empty rhetoric speeches and the amount of money they spread around in their voting districts

[bad vilbel]

I'll say it again (in jest): This country needs a strongman. Someone needs to come in, throw all these obstructionists in jail (Nasrallah for treason, Aoun, etc.) and abolish the system altogether. We need our own version of Attaturk and what he did to Turkey after WW1.

[Ghassan Karam]

The truth of the matter is that the Lebanese economy is in tatters but not because of the war. There is no doubt that the war has increased the probability that the patient will not make it out of ER but the patient was on critical life support way before this recent war with Israel.
It is important to remind some of the basic fact that the Lebanese per capita income in 2004 was LESS than what it was in 1973 when measured in real terms. I am willing to suggest that the current war, provided the patient recovers, which is dubious,will under the best of circumstances add another 10-15 years before Lebanon can get back to where it was in 1973. That will be almost a half a century lost. Stop to think about it , with lots of luck the country might have spent fifty years of running on the spot!!! That in itself is enough of a rationale to demand serious change in business as usual scenario. Unfortunately as we all well know, Lebanon is not a country where anyone is held accountable for their actions because the only thing that we care about is empty and bankrupt slogans.

To sustain the state of being in nether land i.e. maintain the existence of some vital signs is doable with lots of help from our freinds. Donations from the EU, US, Saudi Arabia and others will help the country avoid the economic abyss but we cannot depend on any of these teporary and transitory measures for recovery.

Recovery in the economic field is just as difficult if not even more so than the political sphere. I have argued in many academic papers that economic well being is difficult to maintain outside a healthy political environment. But that is another story. My point is that to deal with the economic challenges requires again, you have guessed ity, strong and decisive leadership, one that is willing to bite the bullit , face the facts and put the governmental sector in order. Unfortunately the current leadership has not been up to the challenge. Conveniently they have the war to blame for the current situation that has been agravated by the war but the problems in Lebanon go much deeper and affect the very social fabric of society.

We need a governement that will cut down on unproductive expenditures, collect taxes from those that have the ability to pay encourage education, invest in human capital, encourage productive investments , float the Lebanese lira and stop persuing projects that do not contribute to more social equality and a better income distribution. The present government has the best of intentions but they have failed to deliver in all fields. It is time for an overhaul. If some of you are going to justiry as many have done in the past this miserable record by saying that it is the best under the current circumstances of obstructionism by HA et al then I have a very simple answer to that wek defence. In time of crisis the strong shape their destiny, do not allow HA to obstruct and if they do then ask them to leave the cabinet and put together a coherent policy that can lift the nation from this state of lethargy.

[fubar]

Beirut, 30 August (AKI) - The deployment of regular Lebanese army in southern Lebanon, has ground to a halt over the last two days because of a lack of resources, according to a Lebanese military source. "Not enough money is available to pay our soldiers and also there's a lack of vehicles required to transport them," the source speaking on condition of anonimity told Adnkronos International (AKI). On 17 August authorities in Beirut dispatched 2,500 soldiers to the South, in accordance with UN Security Council resolution 1701's provisions for a ceasefire in the Israeli-Lebanese conflict.

[e]

Ghassan,
I agree with everything you say but just to make the argument clear let me be simplistic: If HA is asked to leave the government then there is a 30% chance that there will be a civil war. Maybe the chance is 70 or maybe it is 10 but it must be taken into account. How should the government prepare for this eventuality?
I am not saying not to do as you recommend, but I think your plan is incomplete unless it addresses this issue. It is something that has to be planned for in advance.
e

[Ghassan Karam]

e,
You have always been much more down to earth than I am regarding the challenge possed by HA and believe it or not I do agree with you that there must be a plan on how to deal with it. My only answer, and I am not trying to be evasive or smart alecky, is that it is up to the people in charge to work out the details because I do not posses as much information about their capabilities. One thing that I am sure of, however, is that I demand that they take up the task that they have chosen to uphold seriously and effectively. I have at various points in my life resigned from certain positions because I could not deliver on my promises. My resignations did not mean that I did not care or that I did not have my heart in the right place, they simply meant that I was not up to that particular task at that particular moment. I always thought that allowing other individuals a chance to deliver when I could not was the best that I could do for the team at that moment.

I have been warning about the economic repercutions of the failed policies pf this and other Lebanese adminstrations for a long period of time. This is not the place to get into any detailed discussions of the problem but let me give you only one example. The average Lebanese househols has an annual income much less than $10,000 and yet so many of the buildings and commercial enterprises in Lebanon have been geared towrds those who make ten times as much. These privileged represent less than 5% of the population.

[charlie]

Ghassan,

>It is time for an overhaul. If some of you are going to justiry as many have done in the past >this miserable record by saying that it is the best under the current circumstances of >obstructionism by HA et al then I have a very simple answer to that wek defence. In time of >crisis the strong shape their destiny, do not allow HA to obstruct and if they do then ask >them to leave the cabinet and put together a coherent policy that can lift the nation from >this state of lethargy.

Totally agree with the principal of HA being out of the government, but I also think they need to revive the notion of sending Lahoud out packing. His presence is getting in the way of something very important which is reforming the Lebanese Army. As commander in chief he can hold up any attempts by Siniora to flush the army out of the Syrian agents in it. This is a necessary first step if the government is to rely on the army to disarm HA and prevent any potential civil strive the HA may cause.

[charlie]

Michael Young has an interesting opinion that echos much of what has been discussed here..

http://www.dailystar.com.lb/article.asp?edition_id=1&categ_id=5&article_id=75129

Ghassan and R,

We kind of touched yesterday on the need for 2/3 votes vs 1/2 +1 to seat the government, Michael in his piece makes mention of a deadlock scenario if the government is to fall. Do you guys think it is because of lack of votes or because the president can hang up the approval process of the selected ministers and their portfolios??

[dontgetit]

Perhaps I should be embarrassed to ask this, but is there any way for Hezbollah to be held liable. Why can't the government sure Hezbollah for the damage it caused. Surely, their possession of armaments is against Lebanese law and it is not hard to imagine that the damage to private and government property was the direct consequence of their illegal action.

[Ghassan Karam]

Charlie,
The phrase "deadlockscenario" has been is use ever since July 31 , 2005. My personal take on it is that the 72 votes for the Harriri-Jumblatt- Phalange-... is not solid. I still believe that 72 is more than a workable majority provided the support is solid. On the other hand 72 is not enough to move against Lahoud and a few other issues that do require a 2/3 vote.

Dontgetit,
I am no lawyer but whenevr I have had to deal with lawyers in Lebanon I always had the feeling that our judicial system is not developed or sophisticated enough as to handle certain matters. I am not sure that one can even sue in the US on the basis that you suggest but I will be very much surprised if that can be done in Lebanon. I am willing to bet that we do not have the statutes for such law suits. As most developing economies Lebanon is not a litigious society yet. I am not sure that consequentiolism is an accepted legal principle even in the very legally sophisticated cultures. The cigarrette companies were not fined because smoking causes cancer but because they attempted to misinform the public about the effects of smoking.

[Ecclesiastes]

It could get much much worse before it gets any better.

Israeli said it isn't leaving until ALL the particulars of the UN resolution are in place, and in fact, they haven't really pulled out yet.

HA is refusing to "unconditionally" return the two Israeli soldiers. It's really not "unconditional", Israel is agreeing to stop beating up HA.

Evidently HA isn't satisfied with the current state of devastation of Lebanon.

If you're thinking that Israel wouldn't dare start a war over just two soldiers, well, that's what Nasrallah thought too.

Personally, I would bet half my country on the Israelis being "reasonable".

[R]

Charlie and Ghassan,

I think the deadlock is due not to the lack of a majority, and I also think, unlike Ghassan, that the majority is in fact solid. Of course that depends on the definition of solid in this case.
More precisely, I think the majority is cohesive in terms of its "broad" goals and the like. On the other hand its functioning is severely impaired by the usual insecurities of Lebanese politics. For example, as far as roles are concerned, Jumblatt is the hardliner of the majority. He is more radical and demanding... The Hariri camp, Siniora included, appear as the moderates of the group because they always have Sunni-Shia tensions (among other things) in the back of their minds. The disappointment to me has been in the Christian component of the majority. There is a need for the Christians of the majority to take a leadership role and rally their constituents. Lebanon being the sectarian shit-hole that it is, under the circumstances there is no alternative. It will simply not do for the Patriarch, Nassib Lahoud, and even Jeajea to appear as though they are followers of the Sunni and Druze leadership. They must take initiative. The Christian street cannot be left to Aoun...

The reason that I have to go into this sectarian crap is because the Lebanese function this way. If we are to move on and infringe on what the Shia consider their turf, you have to have your back covered...

By the way I am completely surprised at what I am saying now. I have to point out here that I am completely opposed to sectarianism. On the other hand, maybe we need to recognize Lebanon for what it is, and in our efforts to change it, factor its facts into consideration.

[R]

Charlie,

To answer your question concisely, the deadlock is because they will have to divide the seats and hackle and negotiate with each other on the government. At that point the big Shia two and Aoun will cry foul, as will the president. They have grounds for that, simply because the Taif calls for national unity governments interpreted as representation of all sects (via their elected (?) leaderships) fairly. Naturally, this will polarize the Lebanese people much more...
Simply put, its just a scenario nobody wants to see for the time being..

[bad vilbel]

R,

Believe me, I can sympathize. I've made similar posts, and then found myself wondering wtf it was I was saying, being a die-hard anti-sectarian person.

I think people like us find they get sucked into sectarianism, whether we like it or not. It's either that, or be alienated from the world of Lebanese politics.

[charlie]

Ghassan and R,

Thanks for your inputs.

R,

You are right about the sectarian make up and its reality on the ground. So it will be idealistic and unrealistic to ignore it. Like you we all hope the Lebanese will rise above this tribal mentality and rally around a national identity, hopefully some day soon. Don't feel bad...:-)

The problem with a so called “National Unity Government” is that it results in producing yet another forum for these so called political leaders to argue and fight each other rather than govern and improve the lives of all the citizens, therefore there should be another way to allow for the government to operate while taking into account the sectarian concerns or fears. I think the Lebanese constitution along with Taif permits the establishment of a Senate that is made up on a sectarian basis to preserve the interest of the different sects. This legislative body of house of representatives and senate has worked well for the US. I think Lebanon should give that a shot.

[bad vilbel]

I agree with Charlie here. This concept of "national unity" needs to go away. I'll explain.

1. Democracy = Rule of the majority (like it or not).
2. There is a mentality in Lebanon of "make everyone happy". Well, that doesn't work. You can never make everyone happy, Unless it's done at the expense of a strong centralized state. We've seen exactly that. Making everyone happy results in a weak government who is practically impotent. Any policy such a government decides to pursue, will be automatically undermined by those who disagree with it. ie, there's always SOMEONE who's not happy. And trying to make everyone happy results in paralysis. We've seen this since 1943, basically.
Time for a new system. The Lebanese politicians need to understand the concepts of "ruling" and "opposition".

[R]

I think the Taif idea of an upper house is great. Its prerequisite tho (as stipulated in Taif itself) is the abolishment of what they call "political sectarianism", which means that government offices including the entire lower house are not to be according to sectarianism.
I think thats a fight for tomorrow, against the people we are siding with today (Jumblatt, Hariri, ...). But for today, we need to play with the hand that we are dealt...

[bad vilbel]

R,

I disagree a bit. I think that's a fight for TODAY.
Well, maybe not this month, but ASAP. It's the only way to break out of the cycle we're stuck in.
Things like disarming Hezbollah and peace with Israel become somewhat irrelevant (or trivial) once you do away with our sectarianism.
If political sectarianism was abolished tomorrow. And new elections called for, say, Sept 15th. Elections in which anyone can run for any post, including President, PM and Parliament, you'd see a whole new landscape out there.

[R]

Bad Vilbel,

You think so? I really doubt it at this point. I have a hunch that give the Lebanese people full democracy now without any sectarianism legalized into the system, and they will be sectarian themselves anyway...
Still if we can get it now, I'll take it now.

[bad vilbel]

Well, obviously it ain't gonna happen tomorrow.
And i think you might have sectarianism for a while (because they're used to thinking that way)...
But if the people running for office were not running based on filling the sunni seat, or the shiite seat...but rather on an economic platform, say, or on making peace with Israel, say...your voter base would be voting on very different premises, I think.

[Ghassan Karam]

Bad & R,
The above exchange provides another opportunity to suggest that if we are to take , and we must, your positions to their logical conclusion then the RESL issue in Lebanon is not the greed of the politicians as a class or the corrupt system but it is us, the electors. The irony is that no system is being imposed on us by force, we have chosen to live under this prevailing construct, we love the way it works, we identify with it and we wallow in it.
Change in such countries as Eastern Europe, Poland and many of the central Asian republics was easy to achieve because a whole system of beliefs and socio/political structure was imposed from above through the exersice of raw power andthe terrorizing of the population. In Lebanon change will be so much more difficult because if it is to happen then it requires a wholesale change in the behaviour of the voters, who do not seem to be ready to shed away sectarianism, traditional zuama structure and to adopt democracy beyond the franchise in any significant numbers. As a result those who were calling for changes in settings of artificially imposed systems are often welcome but those who call for change in systems that are acceptable to the grass roots, such as in Lebanon, will be resisted. In the absence of an authoritarian unjust regime, people get the government that they deserve. Real change in Lebanon, in a democratic setting, requires above everything else changing the attitudes , beliefs and behaviour of the individual. It ain't gonna be easy.

[M. Simon]

Consider this a track back:

Lebanon's Cash Flow Problems.

Beirut to the Beltway is discussing the Lebanese economy post war. Before the war an economic plan was presented by Siniora which was vigorously resisted by Hizballah and its allies in the government.

[M. Simon]

You might also find this of interest:

Strangled by Socialism

*

[Anoymous]

I second the blame for Aoun who allowed weapon shipment to Hizbollah as late as Januray 2006!
Oops that was siniora ... sorry sorry for crashing your party.

The majority rules and the opposition gets the blame when things go wrong! Only in Lebanon.

[bad vilbel]

Ghassan,

The citizens are ultimately the ones who's shoulders it all falls upon. You are correct. You and I have been repeating it ad nauseum.

However, I will add that these citizens also need to be educated, exposed to real democracy and made to understand its benefits. It is no coincidence that many of us who ended up in the US, Canada or Europe are far less sectarian and far less stuck in that 18th century mentality. Don't you think?

Could it be that this populace we expect more from simply doesn't KNOW that there are better options out there than to follow the Zuama? You have to keep in mind that these people have been brainwashed, for lack of a better term, to think that the current system is good for them, and that they would be lost without their zaim. Someone needs to show them that this isn't true.

[vyuigioh]

Ghassan Karam

MUST BE GETTING HIS INFORMATION FROM FOX OR TEL AVIV BOB

[Ghassan Karam]

vyuigioh,
Please feel free to point out the erroneous information. That would benefit me and everybody else greatly. I look forward to the new light that your information will shed on the subject matter. Don't keep us in suspense for too long.

[vyuigioh]

HA is refusing to "unconditionally" return the two Israeli soldiers. It's really not "unconditional", Israel is agreeing to stop beating up HA.

100% of Hezbollah destroyed

FACTS ! Undeniable facts….

Israel gets back the two soldiers.

Israel disarms Hezbollah.

Israel stops the rocket attacks.

Israel does not give-up any land.

Israel chases Hezbollah to the north.

Israel Doesnt lose any tanks, helicopters or war ships in the six day war.

must be true if Ghassan Karam, Bush and Tel Aviv Bob said so!

[Olmert Fudd]

HOW YOU CAN TELL ISRAEL IS LOSING

"The US calls for a cease-fire get louder when it appears Israel is losing, when they are winning you hear nothing at all." - Olmert Fudd, 2006