Despite serving 25 years with the International Monetary Fund (IMF), Mounir Rached bucks the stereotype of the cosseted economist for whom statistics are sacrosanct. Although his new office in the Ministry of Finance is littered with economic studies and proposals, he gives the impression of distrusting most of them.
Searching through stacks of papers, he says many of Lebanon’s statistics are unreliable. “We have statistics issued in an IMF document showing that…from 2000 to 2005 we having cumulative inflation of only 1.5 percent. How can that be possible?” Skepticism, he says, is key to understanding Lebanese economic figures. “In Lebanon some people collect statistics when they are sitting at home,” he half-jokes.
That same critical eye must be applied to Lebanon’s main inflation measure – the consumer price index (CPI). Last week Executive revealed that, because of a dispute between the government and the Central Administration of Statistics (CAS), no data had been collected since December. This means the country has no inflation statistics, making policy-making incredibly difficult.
Rached suggests that the problem is bigger than just the short-term, alleging that the system is flawed and government officials are unimpressed with the CAS’ methodology. “The CPI has been misunderstood – especially more recently,” he declares flatly. If you break the index down into its components, he explains, you find that housing stayed the same from July 2009 until July 2012, before abruptly jumping 44 percent – “a rather unbelievable one-off rise.”
Since that jump the CPI has hovered at around 10 percent year-on-year – at least until the index was suspended in January. “What’s behind these numbers? If you look at the other numbers in the CPI, the rate of increase for the whole year is 3.8 percent, which is not really much different from previous years.”
Of course, which number you use for inflation might depend on your political objectives. Since the CAS falls directly under the Prime Minister’s Office, political interference is a potential problem. In the past, Rached claims, “some [prime ministers] who came to office had an interest to exaggerate the numbers in terms of their improvement. They would have high growth and low inflation. [Others] don’t have that instinct.”
Currently, among Lebanon’s biggest issues are protests over pay scales for teachers and public servants, whose salaries are not linked to inflation and have not been adjusted for years. The rate of inflation has become a key tool for union leaders in their arguments for higher pay.
“The higher the CPI, the better for [teachers and civil servants], so they were quoting a CPI of 10 percent” during strikes and negotiations with the government earlier this year, says Rached. He adds that this “was putting pressure on the government without anybody…from the government elaborating on why the CPI has increased and why [housing] was included now and not any other time.”
To pay for the public sector wage increase, the government has proposed a list of some 20 new and adjusted taxes, ranging from increased value added taxes on certain items to higher stamp duties – a list that hints at several dysfunctions within the government.
Most obviously, says Rached, “there are too many [proposed tax measures]… to try to remember these taxes is a headache by itself. To implement them would take about a year, so you are losing time.”
The large number of tax measures also speaks to the government’s backwards approach to debt and deficit management. “If you want to address the fiscal situation, you address the total deficit, not [only] this deficit. I’m not applying new taxes because I have a new deficit coming from increasing the wages of teachers of civil servants; I have to look at the tax at the fiscal [level] as a whole…. [The current proposal] is a piecemeal approach.” If this is a procedural problem, though, a deeper issue lies in the tax measures’ substance. Rached claims they’re “not organized and not studied carefully.”
Although Rached is an advisor to the Ministry of Finance in addition to being vice-president of the Lebanese Economic Association, he doesn’t pull his punches. “[The] Lebanese government is notorious for not having enough economists. There are [only a few economists] in the Ministry of Finance; there’s one or two advisors and myself, and one or two junior people who have studied pure economics – very few professional economists at the senior level. The same applies to even the central bank…it doesn’t have enough.”
At the root of the problem is education, he posits, with few Lebanese being truly economically literate. The result of this is a sorry trail of missteps: poor understanding and explanation of CPI, politicization of economic statistics, ad-hoc approaches to budgeting, and economic planning done by those with no training in economics. And aggregated, he says, it leads to “a cumbersome and complex system that makes the government less efficient and the private sector less efficient.”