Memories are short. Twelve years on, the man the people had brought down was invited to head a new government. For those who remember the burning tires and momentary anarchy, there was an uneasy, not to mention unwelcome, sense of déjà vu. It is also ironic that his path to power was, last summer, paved with similar scenes of violent public demonstrations that prompted his demise 12 years earlier.
That it should happen in the southern suburbs of Beirut is also not surprising. In fact, it is amazing that the rioting of last summer did not take place earlier. The area, according to social economists, has one of the highest population density rates in the Arab world. The percentage of youths per household is highest in the country. The supply of labor is the highest and local demand the lowest.
Elsewhere in Lebanon, the situation isn’t much better. A desk study carried out in 2003 by the Consultation and Research Institute for the ministry of industry put unemployment at around 13% to 14% of the active population in a country, which traditionally exports 25,000 of its skilled and semi-skilled workers every year. Given the level of migration and the resultant replacement of those who have left, the state of the Lebanese labor market in 30 years time in terms of skills and structure, is too scary to think about.
But arguably, the biggest cancer that is eating away at the economy is the huge waste of public money used to prop up the so-called geographical and sectarian equilibrium. When the country is in a de facto state of bankruptcy and has one of the highest teacher to student ratios in the world, plans to build new schools are madness, as is the apparent policy of the government to manage public expenditure with community and sectarian considerations. There is a difference between state intervention and state mismanagement, such as what is happening at EDL.
Granted, in terms of availability of public services, the Lebanese are better off than they were 12 years ago, but they are worse off in terms of actual access to these services. The 16 to 24 demographic faces discouraging job prospects in a country where the cost of living is high and where there is conspicuous consumption among a few.
None of this was helped by the appointment of Tripoli’s favorite son. In political terms, he was a dinosaur, and investors would not have been filled with confidence. Hariri was no angel but at least the Lebanese were buoyed by the panache with he signed $300 million deals at the drop of a hat. They felt they were part of a genuine emerging market. Karami reminds them of who they really are.
Essentially, Hariri’s connections with Saudi Arabia, Jordan, Egypt, France, the EU and the US had become a liability. He was seen as a modern, moderate Muslim, on whom one could count, and who defended freedom. In this context, Syria no longer needed a man like Hariri. What they did need was a man like Karami, who had no ties with anyone except Syria (even if those ties have been strained in the past) and who has, on many occasions, proved his obedience. He got off to a cracking start by insulting the US ambassador.
The consensus is that his government has neither the vision, the ability nor the time to carry out a focused, genuine economic policy. It has been in office for four months but in reality it is still carried along by the momentum generated by the Hariri administration, while the real power rests in the interior ministry. The effects of Paris II have taken the edge off the public debt and we have seen a decrease in debt servicing as a percentage of total public revenues and as a percentage of total public expenditure. We have also seen a decrease in interest rates. The debt that will come to maturity in April has been rescheduled. Fortunately, relations are good between the minister of finance and the governor of the central bank as well as the fiscal and monetary authorities, and the banking system. The atmosphere appears favorable to the postponement of the remaining part of the debt.
Rather ominously however, Karami has spoken of increasing salaries, frozen since 1996. Karami likes to increase salaries. He did the same thing under President Elias Hrawi, which led to devaluation of the Lebanese pound. He wanted to give too much even though the coffers were empty and it had an adverse effect on those unfortunate employees paid in Lebanese pounds.
The new government has also run into controversy with the announcement that it has unilaterally stopped the Manara conference center project. In reality the project is allegedly sited on one plot of land that belongs to the state and two others that belong to private individuals, both of whom are suing. An act of revenge or simply a messy project that got shelved? If it was the latter, then the government is one again guilty of sloppy communication and complete transparency..
Probably the biggest shambles was the appointment and justification of the new ministers and senior public officials. Karami’s “shall I bring them from the moon?” comment that was meant to highlight his despair at having to work with who he has, was neither credible nor a vote of confidence in his team, most of whom, given the providence of their boss, have, not surprisingly, been branded mediocre sycophants who have sought public office at any cost.
Who do we have? Minister of the environment, Wi’am Wahhab, was a minor employee for Ghazi Aridi and owes his job to his good relations with Rustum Ghazali as does minister of state, Yusuf Salameh. Talal Arslan’s appointment is easy to explain, given the current position of his neighborhood rival, while minister of culture, Naji Boustany, as a lawyer, is close to defense ministry and is by default a man of the intelligence services. Even Wafa Hamzeh, who is universally recognized as capable and modern, can be traced back to Nabih Berri.
Elsewhere, there have been changes at the head of the CDR and IDAL, all carried out to advance electoral goals or to develop administrative cronyism. Even Fadl Shalaq, whose reappointment to the CDR was seen as a positive move, is not untainted by controversy.
But the consensus is that there is only one person who is doing anything in terms of managing finance and that is Riad Salameh, whose mandate ends in July. It remains to be seen if the government keeps a man who has prevented financial meltdown and who at the very least has mitigated the economic effects of the financial crisis.
But old habits die hard. One ex-government minister expressed surprise when his entourage regularly and openly fought against his nomination of competent people. He realized that they saw such people as ‘ambitious,’ and the feudal mindset cannot accept competent (or ambitious) people in the right place. The foundation of cronyism is allegiance and by and large these people are incompetent.
And so the Lebanese juggernaut rumbles on. If the economy is to have a chance, the state needs to adopt an economic policy with clear goals with respect to public service, wages, jobs, education, health care, Lebanon used to be a country of the middle class, of social mobility, since the 1950s. Things weren’t always equal, but there were opportunities. Shiites (and Christians for that matter) from Baalbek had the same access and attitude to education, culture, work and ethics. That was, and still could be the force of Lebanon, not just concrete projects. What is needed is a social democracy and not revert back 30-years to the actions of feudal lords operating above a national consensus. The Lebanese are still waiting.
(BOX)
In 1992, the last time Omar Karami held office, the country lurched, punch drunk into crisis. Inflation stood at around 120%. It may have been at the tapering off of an eight-year hyperinflation era (in 1987 was at 500%), but it was crippling the spending power of an already battered nation. Despite wage adjustments in the private and public sector, any gains were cancelled out as fast they were made.
After the riots of May 19, 1992, the state appointed a committee of eight economists to assess the economic and financial situation and propose a recovery program to deal with the deteriorating economic crisis. The team quickly proposed that public spending be controlled, especially those current expenditures with no developmental content such as the bill of wages and related expenditures on those institutions established to cope with the effects of the civil war and an introduction of radical reform in the public sector to cope with the increasing levels of poverty that were beginning to bite.
A middle ranking civil servant, such as a teacher at the Lebanese University, was earning a measly $30 a month. In a period during which the Lebanese looked for an improvement in living conditions after so many years of civil and regional conflict it is hardly surprising that, given the gulf that existed between the aspirations of a people mauled by war and the reality of the fiscal situation, that social unrest occurred.
However, honest and sober reflection of the so-called post-war boom initiated by Karami’s successor, reveals that growth was not as spectacular as we all thought. Considering the fact that the economy was so degraded, Lebanon should have been looking at 20% to 30% growth, instead of the modest 5% to 6% it registered until 1997.
But until then, people liked the way Hariri worked because he was servicing his local, regional and international contacts through various projects. Hariri was a way of giving people the impression things were working, when in fact they weren’t. He was successful when there was the Oslo Agreement and ambitious peace schemes in the region. There were visions of motorways and railways from Istanbul to Haifa. All the projects in Lebanon at that time were done within a regional context. But then the assassination of Rabin marked the beginning of Lebanon’s economic crisis. Investors began pulling out. Hariri bet big but failed to stem the growing power of the security services, failed to stop embezzlement and failed to address relations with Syria.
Growth became recession and slowly over a three-year period it dropped back to zero and it has climbed to the supposed 5% growth we have today, achieved mainly on the back of tourism and post 9/11 Gulf money, both of which cannot realistically lays claims to being the cornerstone of a serious national economic plan.
There once was a plan. In 1992, the CDR launched the National Emergency and Recovery Program (NERP) followed in 1994 by the Parallel Program for Reconstruction and Development (PPRD). The Horizon 2000, Lebanon’s major 12-year reconstruction program, followed in 1995. It was a period during which the government expected an average growth rate of 8%, during which time it would attempt to transfer the deficit in cycles and achieve a surplus in the budget by 1999.
So what went wrong? One of the reasons was that region had played catch while the Lebanese were at war. Where once Lebanon had confidently played the role of middleman in the 60s and 70s, the Gulf Arabs had developed their own infrastructure, ports and airports and had boned up on some of the major activities at which Lebanon excelled, such as banking and tourism. It was easy; they had money and they had a vision, while the Lebanese sat back and waited for the phone to ring. It didn’t.
To make matters worse, Lebanon’s policy was one that catered to investment rather than job creation and the development of the niche sectors in which they could still compete. The result is that today, agriculture and industry are both on their knees. Only recently, have Lebanon’s external obligations such as the Euro Med agreement, WTO membership and IMF meetings woken up the government to the needs of the real economy sectors. It was never part of a strategy.
In 1998, the then finance minister George Corm, did commission a quasi-five year plan by Monitor and Harvard business school. The report may now be gathering dust, but many of the proposals, at the time considered controversial, were dedicated to areas that had been until then, largely ignored by the government.
Essentially, the determinants of growth since 1992 have been driven by consumption and imports, heavy investment in the rehabilitation of the public sector and infrastructure and a traditional tendency to invest in the real estate sector.
According to economist Kamal Hamdan, this is the, “undeclared hidden philosophy of the Lebanese elite,” who he claims, “have, since the 50s, held the conviction that as long as there is was reasonable security, justice and some infrastructure, the economy, through the natural forces of the market, would yield a high growth rate which would in turn lead to social development and absorb any social antagonism.”
Whether one agrees with Hamdan, it would be hard to argue that there has been a real economic developmental plan, sectoral strategy, or job creation.
