Salim Hoss, his face filled with a look of rejection, conceded
defeat even before the final election results were in. A five-time
head of government, Hoss was the first Lebanese prime minister
ever to lose his seat in parliament, and defeated by a large margin.
On the other side of West Beirut, at the Koraytem palace, the
mood was decidedly different. A festive Rafic Hariri could be seen
kissing babies, shaking hands and sharing laughs with his allies in
victory. The victory was an unprecedented landslide. After two years
of desperation and hopelessness, the message was clear. The
Lebanese population was fed up; people wanted to hope again. “The
people of the nation began to feel that this is a very impotent government,”
says Marwan Iskandar, an economist. “This kind of
atmosphere without a doubt encourages people to call on Hariri.”
With his clean sweep in Beirut and strong showing by allies
around the country, it looks as though Hariri will become the next
prime minister, although it’s still not guaranteed. Regardless, a new
government is on its way. Expectations are high and the challenge
of turning the dire economy around is daunting. Can it deliver?
The incoming government will have to defuse an economy that
has become a ticking time bomb. The debt has now reached about
$23.5 billion – a dangerously high 140% of GDP. The deficit
increased to more than 51 % in the first eight months of 2000, much
higher than the 42% for the same period of last year, and the
target of 37.3% for the year will undoubtedly
be missed. Most economists predict zero
growth for the year. Some 450 jobs have
been lost per month in the last year, according
to Bank of Beirut and the Arab
Countries. No wonder so many are leaving
Lebanon. The outgoing government has
left the economy in a much worse condition
than when it took office two years ago.
Up to now, Lebanon has been riding this
out in relative isolation. But the secret is
out, and the message is loud and clear. “I
think everyone realizes we are on the
verge of economic collapse,” says Farid
Khazen, head of AUB’s political science
department. As predicted, Standard &
Poor’s (S&P) downgraded Lebanon’s sovereign
rating and warned that more could
come if the situation doesn’t improve (see
box). On top of the deteriorating fiscal situation,
S&P was not impressed by the
government’s failure to pocket $2.7 billion
from the cellular companies for licenses and
by parliament’s inability to pass the VAT
draft law. In early September Moody’s put
Lebanon’s sovereign rating under.review
for possible downgrade. The donor conference
for the South, scheduled for
October, has been put off indefinitely due
to a lack of interest. According to
Iskandar, Lebanon can ill afford to ignore
the warning signals from abroad:
“Lebanon is coming under international
scrutiny and can no longer disregard it,
especially since the country might be a
member of the WTO in a few years. If
they do it’s like committing suicide.”
Analysts agree that the incoming government
must move quickly. “We can no longer
postpone difficult debt management decisions.
We can’t survive with the trend of the
fiscal situation. It’s unsustainable,” says
Marwan Barakat, head of research at
Banque Audi. “The new government will
either give confidence or not give confidence;
there’s no middle ground.” The place
to start is in undoing the Hoss administration’s
biggest blunder: mend relations with Cellis
and LibanCell and convert their contracts
into licenses. That would bring a quick infusion
to the state’s empty coffers and lay the
groundwork for future licenses and more
cash. Next up: With the general privatization
law on the books, the sell-off of state assets
should get under way. Complete the necessary
preparations and move on privatizing the
telecom – 25% of the fixed network is
expected to be the first on the block.
From its inception, the new government
must inspire confidence. “Investor confidence
was dented in the last two years,” says
Nadim Shehadi, director of the Centre for
Lebanese Studies at Oxford University. “A
change of government always attracts attention,
so its signals must inspire confidence.
They need to make investors feel that people
are helping them
rather than the contrary.”
And confidence is key in attracting investment, both foreign
and local.Kamal Shehadi, an
economist, emphasizes
that the new government must have a
vision and immediately set an agenda
with both short-
term targets that
help gain momentum and long-term
reforms. That is indeed a tall
order. Is there anyone who could possibly pull it off?
Most analysts say that
Hariri is the best option. “Name someone
other than Hariri and the country will probably
not even do a semi-takeoff,” says one
political analyst. “Mikati is the only other
choice – a semi-credible candidate.” The
country is in a kind of hiatus until the
prime minister is chosen by parliament,
while deals may be struck and alliances
can shift. Meantime, President Emile
Lahoud – who has been a big disappointment
for many – still has his say in the
matter. And with relations between Hariri
and Lahoud anything but friendly, it’s
understood that the former prime minister
would never accept to be as docile as Hoss.
Then there’s the Syrian equation. The
neighbors appear to have stayed clear, or at
least played a lesser role than usual in the
recent parliamentary elections. There’s
speculation that could signal non-involvement
by the Syrians in selecting the prime
minister. But they could dictate their wishes.
Najib Mikati, the current minister of
transport and public works, is close to the
Syrians but has said he doesn’t want the job.
Adnan Kassar, chairman of Fransabank
and head of the International Chamber of
Commerce, is another name being
bandied about (see box),
Hariri’s past record is certainly not free of
blemishes. The current debt comes to you
largely thanks to Hariri and his propensity
for big construction projects at any cost.
Large deficits were par for the course. “The
economy will collapse if we get. the same
Hariri policies,” says Kbazen. By the time
he left office in late fall of 1998, the recession
had already begun. His Saudi way of
doing business doesn’t appeal to everyone.
Critics dislike him for his favoritism,
cronyism and conflicts of interest.
On the flip side, his presence is believed
to inspire confidence. “Who Hariri is will
bring confidence first and foremost,” says
one analyst. His contacts and pro-business
approach are expected to have a greater
possibility of attracting foreign investments.
He is also seen as someone who can
push through the quick remedies like the cellular
licenses. Hariri, who is the founder and
believed to be one of the largest shareholders
in Solidere, could probably solve the permit
problem and get the Beirut Central
District project back on track.
But that’s the easy part. Success over the
long haul will require bigger and more
important changes to reinvent Lebanon.
And this is where things get difficult. Legal
and administrative reform should be at the
top of the agenda, along with further privatization
of state-run entities. These are
things that are needed to make Lebanon
compatible with a 21st century economy.
Some point to the need for a peace agreement,
but peace will never be a panacea.
“Peace is not enough,” says Sarkis Naoum,
political commentator for An-Nahar newspaper.
“If we have peace and don’t reform we
will achieve nothing. We need to begin by making
achievements inside the administration,
inside the political institutions.”
Here problems come into play with the
vested interests, when decisions are made to
please certain politicians and their fiefdoms
and not to serve the interests of the
nation. Economist Sarni Atallah explains
that the Taif accord shifted executive
power from the president to the council of
ministers, a body whose lack of unity renders
decision-making difficult.
“Motivation at that level is for power, it’s not
for the interests of the nation, economic or
social,” says Atallah. “Thus the council of
ministers is unable to deal with an economic
crisis.” According to K. Shehadi,
the council of ministers is a major bottleneck.
“We have tended to centralize all
decisions at the council of ministers -even
the most mundane decision has to go to the
council of ministers for approval,” he says.
“A country in the 21st century cannot continue
to be as centralized as our political
government. It is stifling to the economy and
is completely antithetical to the most common
norms of public administration.”
The sectarian divide that is pervasive
throughout the government and determines
who fills a position is conducive to inefficiencies
and creates discord. “Our system is
based on the consensus of three presidents –
the president, the speaker of the parliament and
the prime minister, each representing a community
as well as a certain political weight in
parliament,” says K. Shehadi. “There’s no
transparency and anyone of them can block
something that’s good for the country simply
because he’s got other demands, sometimes
very selfish, and he’s bargaining with the
other two.” Sarkis advocates abolishing the
system based on confessionalism.
Be it the army, Middle East Airlines or another state entity, Lahoud, Nabih Berri,
Walid Jumblatt and others will have to
accept cutbacks such as layoffs and an end
to kickbacks that keep their protectorates
happy and their power base safe. It goes
without saying that their Syrian backing is
vital, and the level of neighborly interference
in the future will go a long way in determining
what changes can be made.
So while many are optimistic that Hariri
can provide the band-aids for the short-term,
there is doubt whether he or anyone
else can make the difficult long-term
changes that would affect the sway of
those in power. But changes are precisely
what’s needed to create a more workable
government. Without that, long-term sustainable
growth for the economy will
remain a dream.
