Senior economist, ministry of economy and trade
E Which sectors of the economy were most affected by the 2005 crisis? How is trade faring, given current relations with Syria? What are the government’s most immediate economic recovery plans? How does it plan to create growth?
In 2005, the Lebanese economy witnessed a slowdown in economic performance, after registering a 5% growth rate in 2004, despite growing regional and local instability. All economic indicators highlight the resilience of the Lebanese economy, which managed to avoid a prolonged activity contraction and was able to rapidly absorb a part of the negative repercussions. The real estate sector was most affected by the 2005 crisis, as construction and property sectors, both very important growth catalysts, regressed over the first nine months of 2005. The industry sector was also affected, as suggested by the drop in imports of industrial machinery, even though we witnessed a relative improvement in confidence in the third quarter of 2005. The economy also witnessed a slowdown in private consumption and a freeze in investment demand. Tourism activity was also affected, declining by 13% in the first nine months of2005, after registering record levels in 2004. The performance of the trade sector remained very much affected. Imports were relatively stagnant within the context of a slowdown in domestic aggregate demand reaching $6.9 billion, while exports progressed by 3%, totaling $1.34 billion, due to a rise in industrial exports in the last couple of months. The government is preparing a solid reform package that will put the country on a steady path. This includes a comprehensive economic reform plan with a significant component related to social policy, to improve the well being of poor and vulnerable people. The program aims at promoting economic stability and growth and will call for cutting public spending, increasing revenues, privatizing some state-owned assets and introducing new taxes. Undoubtedly, with greater stability will come more growth opportunities. The private sector has always been the driving growth engine of the Lebanese economy. The government has to make a greater effort to modernize the real economy, implement fiscal adjustment reforms, improve governance and reform the public administration. This will render the business environment more productive and will create greater business opportunities.
Dr. Raymond Khoury
Director of the Technical Cooperation Unit Office at the ministry of administrative reform
E Is it realistic to expect a successful program of privatization and administrative reform? Where are the areas of hope and where do the potential pitfalls lie?
At this point, it looks very promising. The most likely time for it to happen would be in today’s environment of political harmony and regional and global support. The thinking behind privatization and what should or should not be privatized has been put on the table for over six or seven years now. It’s high time [it is undertaken]. It’s just a question of the decision to proceed and the sequencing in terms of priorities regarding the privatization assets to be offered.
Privatization will have a significant impact. And the issue of the labor force comes into it. When I privatize an entity like the telecoms sector or Electricite du Liban, the current staff will be at a crossroads. Some will have the competencies and will be selected from the private entity to join. Others will be given a golden handshake to go home. This golden handshake brings with it a bill. It might be steep, mid-level, or low. And this bill is usually heavy up front. So you would need international support from a financing point of view to cover it. International support also comes in terms of good practices and lessons learned on privatization from the West. The UK had bad experiences in the privatization of some of its sectors. Other countries have better experiences. So that will help calibrate and put in place some technical assistance or transfer of knowledge on what should be privatized first and in which manner. Privatization by itself has different flavors: full privatization, semi-privatization, or corporatization. Liban Telecom will be a corporatization process whereby an entity will be formed partly owned by the government and the remaining stock will be floated for public buying. The will for administrative reform is there. And we have been working with the support of the EU Assistance for the Rehabilitation of the Lebanese Administration (ARLA) grant. On the institutional and technical requirements to set up the authorities, we have funded the telecoms regulatory authority through a procurement process that led to the award of a contract. It should be completed within a few weeks. We’ve launched advertisements for the recruitment of TRA board members under the direction of the prime minister. For the first time in the government, we’re opening up recruitment for senior government positions to non-government Lebanese, and we’ve received thousands of CVs, hundreds of them from across the world. The only obstacle could be political bargaining on what to do with all the employees. A good number are skilled workers and could be retained. But a good number were appointed out of political considerations.
Badri el Meouchi and Khalil Gebara
Co-executive directors of the Lebanese Transparency Association
E How much does the government lose in revenues every year to corruption? Has there been any change in the level of corruption in Lebanon and do you see the current government implementing any effective measures to curb it in the year to come? What needs to be done?
Providing an accurate assessment of the loss in revenue incurred by corruption is not possible – there are too many methodological problems. The most commonly used tool to assess a country’s level of corruption is the Corruption Perception Index. Lebanon continues to fare quite poorly in this ranking, with little improvement over the last few years. In 2005, it ranked 83rd out of 159 countries. However there has been an improvement in the level of confidence in Lebanon over the course of this year, due to all the political talk about reform and fighting corruption which ensued from the Syrian withdrawal and the legislative elections held. The few anti-corruption measures that have been passed over the years, such as the “Illicit Wealth” law from 1999, have done little to improve the situation. If anything, they have created an even less transparent environment. What is most urgently needed is for an access-to-information law to be passed. Previous attempts at doing so have failed. The ability to hide information is a major factor in enabling corruption to take place. Another measure is the promotion of e-governance. By taking out the middleman and computerizing citizens’ interactions with the public administration, you decrease the risk of corruption. It would also have the added benefit of reducing Lebanon’s bloated public sector. Furthermore, we need to introduce laws restricting campaign financing; reform the judicial sector so that it can handle financial crimes more effectively; and we must implement the Basel II measures for the banking sector, notably those pertaining to banking secrecy laws.
The current government doesn’t seem too different from the others, so we are not convinced extensive anti-corruption measures will be undertaken. Our hope resides first and foremost in the passing of a new electoral law. A law that changes the political mapping of the country could make the politicians accountable to their electorate. Their re-election wouldn’t be guaranteed and therefore they would be more reluctant to engage in corruption on a grand scale. No politician will willingly implement changes, unless forced to do so. In that sense, the upcoming donor meeting will also be an opportunity for the international community to give the Lebanese government a very clear message on curbing corruption.
E How seriously does the government link economic growth with security and political stability? If the issues surrounding Hizbullah and the Palestinian problem are not resolved, what impact, if any, could it have on the economy?
In any case, the government is obliged to present a plan for economic reform. These two security issues are not the kind of file that can be dealt with in the very near future. We hope that there will be an internal process of negotiation so that these two issues can be resolved satisfactorily without pressure from international resolutions like 1559 and external political interests. They definitely should be resolved in the medium term so that the government has sovereignty over all its territory. But this will take time because there is no well-defined national agenda for political and economic reform.
One mustn’t forget that these two issues already existed in 2003 and 2004, and yet Lebanon witnessed relatively high levels of growth. I don’t want to minimize the economic implications of a failure to resolve the two issues but at the same time I respect the empirical evidence.
I think that the key elements of economic reform are much more institutional than policy-related, rather than related to the issues of Hizbullah and the Palestinians. Issues like the reform of social security, or EDL and so on have much more impact on the investment climate than trying right now to deal with these two political issues.