The long and winding road to beirut

A cabinet crisis has blighted plans for a donor conference at a time when Lebanon can least afford to miss such a rare opportunity

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Between the first round of investigations by the Mehlis Commission and the killing of MP Gebran Tueni, the “Beirut I” donor conference briefly became news.

National interest peaked in September 2005, a week before the Annual Meetings in New York of the World Bank and the International Monetary Fund (IMF), when Prime Minister Seniora, surrounded by foreign ministers from several countries, talked about a “Made in Lebanon” government reform plan.

That was then. Today the plan is in tatters as Lebanon hurtles towards dangerous political polarization. It has been said before, but it should be said again and again: Lebanon can not ignore its horrendous economic situation and put reforms on hold indefinitely.

After the Paris II Conference, the late economy minister, Dr. Basil Fuleihan warned that Lebanon has a history of missed opportunities. He has sadly gone and his call has gone unheeded. Only now are we beginning to appreciate the special attention Lebanon received on that day in November 2002.

“National crime”

If one accepts that Paris II was a unique event for such a small nation of 3.5 million citizens, Beirut I must be seen as an equally rare opportunity and in my opinion it was a once-in-a-generation opportunity. Riad Salameh, governor of the Central Bank, is reported to have gone as far as saying that to miss [a donor conference] would be a “national crime.”

When the Lebanese team prepared for Paris II, it had its work cut out convincing world leaders that Lebanon had turned a new page and was ready for genuine reform. The United States, the IMF, and the EU weren’t buying it, the government’s plan remained embargoed until the last minute and was never actually endorsed by IMF. What was achieved at Paris II was down to the efforts of the late Prime Minister Rafik Hariri’s personal initiative and international connections that stretched from Malaysia to France.

In September the donors were more forgiving. Unlike the period preceding Paris II, when the government signaled its intention to hold another donor conference, the international community and international organizations couldn’t signal their support fast enough for a Lebanon they saw as finally being on the up. The message was loud and clear: “Tell us what you want, present a credible plan, and we are ready to help.” The international community was so convinced that Lebanon had turned a page that the government was no longer required to indulge in the painful rounds of lobbying it did in 2002. The only remaining question was whether Lebanon was ready to introduce reform and understandably a credible, national plan was requested by the international community.

Donors had learned their lessons too. Unlike Paris II when an upfront assistance package was offered, any aid from Beirut I would be conditional to meeting milestones in the reform plan, limiting donor risk if the government failed to deliver. This only added to the government’s determination to show political will, and a national consensus backing reforms by developing an economic reform plan was built. The idea was it would be debated in Parliament – instead of some cabal of technocrats – to galvanize national support and strengthen the ability to deliver on the commitments afterwards. There was no stopping the Lebanese government now. A competent team including senior officials from the ministries of finance and economy, the Central Bank and the prime minister’s office began preparing what was known as the “Beirut Paper.”

This plan included introducing structural fiscal reforms such as tax increases and the elimination of inefficient state programs, privatizing state-owned enterprises, trimming the public sector, modernizing and liberalizing the domestic economy, and committing to the integration of Lebanon into the global economy. The World Bank and the IMF were kept abreast of developments and a deadline was set for late October 2005 with the conference penciled in for late November.

No pain, no gain

The effectiveness of the reforms was judged by the ability of the government to meet through various instruments certain fiscal thresholds and multiple scenarios were projected. On its end, the ministry of economy and trade tasked an intra-ministerial working group, including all line ministries, to develop the social pillar of the Beirut Paper, as a decision, and it was a commendable one at the time, was taken to depart from previous plans whereby only fiscal and monetary chapters were covered, opting instead for a comprehensive socio-economic plan.

The government recognized it could no longer ignore social policy and more specifically the need to mitigate the potential negative impacts of reform measures on the poorest segments of society. Sadly, the initiative of developing an extensive social reform agenda, which was endorsed by the World Bank and welcomed by the public, was later deemed unattainable in the allotted time. As a result a more realistic downscaled approach was adopted.

And so the preparations for Beirut I went on into the last quarter of 2005, but there were often delays brought about by political upheaval. And then came the doubts. Observers began to wonder if, even with the apparent support by the international community, the government could deliver what were seen as painful reforms, especially when in November, flying in the face of economic sense, it bowed to political pressure to subsidize the price of fuel.

The ghosts of Paris II returned to haunt. Could we really now expect major reforms, including painful tax hikes to be approved a priori by Parliament when the country had just witnessed the government buckle so easily during the fuel debate? Would any national debate of the reform plan lead to one retreat after another, effectively emptying the Beirut Paper of all its reformist identity?

But still, the international community continued to show support for Lebanon and the nation waited for the publication of the Beirut Paper and the setting of a date for Beirut I. But the process dragged and the momentum slowed. By October, the government, which had not publicly divulged the main recommendations of the Beirut Paper, had to accept that the Melhis Report had stolen its thunder.

No public debate

After originally planning for late November, December 15 was set as the new date for the conference but Melhis’s second installment pushed it back into January 2006. The government put a positive spin on the delay, arguing that it would buy it more time to firm up its plan and engage a wider spectrum of stakeholders. In any case, it would be foolish to rush things, do a botch job and lose international support. Then MP Gebran Tueni was assassinated on December 12 and a new political crisis crash-landed on Seniora’s in-tray. Donor conference? What donor conference?

So there we have it. Was it all bad luck or did the government commit cardinal errors? It may have been hesitant or delayed for political reasons a proper debate over economic reforms but the media and civil society are also partly to blame as they had a role in mobilizing public opinion, and did not apply enough pressure on decision-makers and politicians. Why wasn’t there been any debate and discussion about the donor conference? Had they forgotten that the national debt had surpassed $37 billion? With the exception of some half-hearted attempts to discuss economic issues, often with a socio-popular twist, when was the last time a forum or a televised debate properly addressed economic reform? The ministers of finance and economy had tried to ring the alarm bell but their public interventions and press conferences were obviously not considered newsworthy as they were barely covered.

But the nagging feeling is that the government doesn’t have the stomach to push through the Beirut Paper. Does it really think it can hold a donor conference in such a volatile national atmosphere, be it in February or March? The security situation is troubling but what is equally worrying is the real risk of international support fading away. The international community has sometimes shown more enthusiasm for Beirut I than the Lebanese themselves and foreign diplomats have not missed an opportunity to remind us that the proper time to hold this event is now. That message was repeated over and over since day one but we should not fool ourselves thinking that interest in Lebanon will last forever and that the international community will wait indefinitely for the government to give the green light for them to start pouring billions of dollars in financial and technical assistance.

Window of opportunity

Obviously, the postponement was not a decision the government wanted. But credibility is a fickle mistress. Already we are hearing whispers from many circles that Lebanese officials are not serious. Why are they not acting? We have a window of opportunity where the whole world, including previously reluctant parties, is offering its full support, requesting in return only that we introduce and implement reforms Lebanon itself recognizes as of paramount importance. As they say in America, it’s a no-brainer. The urgency is not internationally-imposed, but domestically-driven. The ills of the economy are home made and maybe insurmountable if we are left to our own devices.

The reply of some pundits and policy-makers, using real politic logic, is that the issue of launching the debate on the Beirut Paper is essentially a matter of proper timing and, they claim, forcing the economic agenda during turbulent political times may undermine the economic reform efforts and destabilize the climate further, hence the delay. In short, necessity pushed the government to gamble – and lose – on a risky date.

But, by the same logic, others argue, equally compellingly, that the government is guilty of a major miscalculation. Should it not have predicted – in the midst of the Mehlis investigation – that its plans would be upstaged by more dramatic political events? In not doing so, it has rallied the international community only to tell them to stand down. Patience is being tested and it is a commodity in limited supply. If the holding of a donor conference was indeed a strategic must, as foreseen in the New York last September, could the government not have set a viable timetable – say for Spring 2006 – rather than embark upon a series of cancellations?

Sadly, the political crisis in Lebanon looks like it might actually derail the efforts of reform and silence the voices of change by politicizing any economic agenda irrespective of its content and objectives. The alternative is probably a Plan B, whereby the ministry of finance adopts a “shock and awe” tactic in the shape of presenting for approval, and without any further delay, before the Council of Ministers a bold, reformist 2006 budget proposal – as it is expected to be, – while the prime minister goes public with the Beirut Paper and schedules the conference for the earliest date, putting the ball in the court of the general public, thus cornering the non-reformists and forcing politicians to face their national responsibilities. They have nothing to lose.

Dr. Joey Ghaleb was formerly the chief economist and senior advisor to the minister of economy and trade. He wrote this commentary exclusively for EXECUTIVE.