The dank and narrow hallway outside

the office of Ayman Oueidat,

Mount Lebanon’s chief bankruptcy

judge, is almost always cluttered with visitors,

some of whom wait in line for more

than an hour for the chance to see him.

“The country is falling apart,” shouts the

impatient judge to two lawyers bickering in

front of his desk. “Try to solve this problem the office of Ayman Oueidat,

Mount Lebanon’s chief bankruptcy

judge, is almost always cluttered with visitors,

some of whom wait in line for more

than an hour for the chance to see him.

“The country is falling apart,” shouts the

impatient judge to two lawyers bickering in

front of his desk. “Try to solve this problem

between yourselves.” Smart advice.

With the economy near comatose, some

of Lebanon’s five bankruptcy courts have

been working at full throttle. “We’re seeing

35 new cases a month,” says Oueidat,

busily flicking through files on his desk. In

Mount Lebanon alone, there are more than

1, I 00 bankruptcy cases currently pending,

up from 800 two years ago. Among the

more notable enterprises to have gone bust

in recent times are Mesir and Phoenix

insurance firms. The publicly listed company

Etemit, one of the region’s largest pipe

manufacturers, fi led for bankruptcy protection

at the beginning of last year after

suffering $25 million in losses between

1996 and 1998 (see box).

Bigger caseloads have put added strains

on the already overburdened judiciary.

Bankruptcies can get bogged down in

court for as long as a decade, although

most are resolved within three years.

Financially strapped business people often

flee the country before their case lands

before a judge, taking a sizable wad of

their lenders’ money with them. And at the

end of the whole expensive and time-consuming

process, a lender often gets back

only a tiny fraction of the money he is

owed. “Bankruptcy is good when you have

no other alternative,” says Rashed

Ghanem, central manager for Bank of

Beirut, explaining why banks are reluctant

to take a delinquent client to court.

Many legal experts believe that the bankruptcy

system is in desperate need of an

overhaul. “We have good laws but they

need to be updated,” says Andre Nader, a

bankruptcy lawyer. Lebanon’s bankruptcy

laws date back to the 1940s and were borrowed

from the French. But, unlike France,

Lebanon has never bothered to revise them

as business evolved. “One can hardly say that  the legal environment is adapted to the modem

economy,” says lawyer Akram Azouri.

Unlike the US, where scores of companies

file for Chapter 11 bankruptcy every year,

Lebanon’s bankruptcy laws provide faltering

businesses with little protection from angry

creditors. Companies or traders are usually

declared bankrupt only after the.y have been

sued for failing to pay their debts. The conditions

for filing for concurdui prevemi_f –

which allows businesses to repay their

Joans, in part or in whole, over one to three

years – are so strict that many legal professionals

cannot recall a single case when the

courts have allowed it. More than half of a

company’s creditors – claimants to no less

than three-quarters of the money owed –

must approve the tenns of the concordat

preventif. And the business must present

accurate and detailed books for the three

years prior to its bankruptcy declaration.

“The laws are harsh,” says Abdo Lahoud,

a bankruptcy attorney. “There is no system

to help the business person pay back his

debts.” Judges have limited flexibility in

dealing with an insolvent company. lf a

concordat preventif fails, a judge can do

little more than declare the business insolvent

and liquidate its assets.

This, when often a simple

restructuring of the company

might be enough to get it

back in the black.

The French, by contrast,

gave the power of redressement

to their courts in the

1960s. There, a judge can

appoint a receiver who has

the authority to change a

company’s management,

sell off assets or do whatever

it takes to keep the business

afloat and get creditors

their money back. “The

concept of bankruptcy at

the beginning of the century

was to liquidalt: Lht: l:Urnpany.

The concept in the 21st

century is to save the company

and liquidate only by default,” says

Azouri. ‘The interest of creditors is to gel an

enterprise back on its feet.”

Despite calls by both lawyers and judges for

bankruptcy refonn, parliament has failed to take action. But more than just new legislation

is required. Inefficient tax collection

(the rate of income tax evasion was recently

estimated by Banque Audi to be 75%)

means that businesses have little incentive to

maintain accurate books. The result is that few

struggling businesses qualify for bankruptcy

protection. The scarcity of official records also

makes it more difficult for the judiciary to

tral:k down assets or business persons once a

business has been declared insolvent.

Some, including Oueidat, feel that the

laws, although old, are not the problem. In

France, he says, there are growing calls to

reduce the judge’s power of redressemenl.

Hopelessly sick companies, says Oueidat,

are often kept limping along under the

court’s protection as their creditors wait

endlessly for the return of their money. In

the end, says Oueidat, “Lebanon’s bankruptcy

laws are good, it’s the economy

that’s bad.”

Eternit-gate

N othing demonstrates the shortcomings of the bankruptcy system better than

the story of Etemit. In what is probably the biggest bankruptcy case In postwar

Lebanon, the publicly listed pipe manufacturer filed for concordat preventif

in January 1999, after accumulating a debt of $25 miHion over thr8e years. The company

wants half its debts erased, but the courts have been mysteriously tardy in

issuing a decision on the case. “The court is very late and I find no explanation for

this,” says Akram Azouri, lawyer for Lebanon Holdings, an investment fund that

bought a 20% stake in Etemit. Azouri, along with the investment bank Lebanon

Invest, which sank $3.6 million into the pipe manufacturer, sued Etemit for fraudulent

accounting. But until the court agrees to either accept or reject the concordat

preventif, by law, any lawsuit against the company remains on hold.

Lebanon’s banknJptcy laws provide a specific set of criteria by which courts have

to decide whether to accept or reject a company’s concordat preventif. If the judge

agrees to the terms of the bankruptcy, he has 30 days in which to call a meeting of

the creditors, who must vote on the tenns. “The court did not

take a position on this case even though the law says that a

decision should be taken quickly,” says Azouri. Some individuals

involved in the Etemit affair say privately that they suspect

political interference in the case. The pipe manufacturer

has worked for some powerful clients in recent times,

including the Syrian ministry of defense. Bemartt Sham, one

of Etemit’s lawyers, fervently denies any political meddling.

“That’s not at all true,” he says. “The delay Is not unusual

because the company has many relations with parties both in

Lebanon and outside. It will take time for the courts to make

sure the concordat can be implemented.”

But the courts have recently started to move on the case.

Recently, some Etemit shareholders went to court to demand

that a judicial administrator be appointed to re-audit the company’s

books and run the company until a new board of

directors can be elected. Etemit’s board of directors, who have

been quarreling over control of the company for the last few

months, were reportedly split over the appointment of a judicial

administrator. Board members Riad Mrad and Salim

Khalifah were strongly opposed to the plan, while Tony Awad,

who became general manager after the former director Pierre

Abboud was forced to resign in June 1999 (Abboud has since disappeared), was

not. The court was supposed to rule on the appointment of a judicial administrator

at end of August, but the judge in the case, in a puzzling move, delayed her decision.

Meanwhile, a ruling on the concordat preventif remains on hold.

A t just 27 years of age, Halimeh is

the mother of six young children.

Her husband is a laborer and

looks for work on a day-to-day basis.

Sometimes there is none. With about $100

to $130 to survive on each month, life is a

constant struggle for this family of eight that

inhabits the northern village ofTekrit, high

in the remote mountains of Akkar. “We

manage to get by with enough food so we

don’t go hungry, but we can’t afford

healthcare or education for the kids,” says

Halimeh, adding that one child is handicapped

and requires extra medical attention.

While there is running water available, the

whole area is devoid of a sewage system.

Doubling as a bathroom with just a washboard

and bucket to one side, the family’s

cramped stone-floor kitchen adjoins a shed

that houses a cow. The stench of manure

permeates the air.

About half a kilometer up the road, lies the

town’s derelict public school, where annual

costs are about $ 130 per child. There

are no computers, no library, no gymnasium

and virtually no lab equipment or art supplies

for their learning. Squeezed in like sardines,

the kids sit three to a bench that is

meant to seat only two. The floors are bare

cement, the wall paint badly chipped and the

chairs and tables beat up. Naked light

bulbs provide dim lighting in the classrooms.

“I can’t tell you how difficult it is to

teach in such circumstances,” says Abdou

Ayoub, the school’s director. “And now

the government has created a new educational

program that is impossible to implement

with such facilities.”

The inhabitants of this remote village are

some of Lebanon’s seemingly forgotten people. And while there is no official poverty

line that adheres to international standard

measures, experts on the subject say poverty

is becoming a growing concern in terms of

a deprivation of basic needs and a drop in the

resources of households. “I think that the situation

is getting worse,” says RandaAboulHosn,

assistant resident representative of

the United Nations Development Program

(UNDP). “I don’t think we’ve hit the roof yet,

but it is pretty bad.”

About one-third of the Lebanese population

falls below the deprivation threshold,

while about 7% to 8% are living in abject

poverty, says Adib Nehme, project manager

for improving living conditions with the

ministry of social affairs (MoS). That

stands roughly in correlation with a 1998 survey

by the central administration for statistics

(CAS), in which 37 .1 % of households

stated that their income was not sufficient to

cover their needs. Some 40% of five-person

households earn less than LLS00,000 a

month, according to the latest nationwide survey by CAS in 1997, while another 19%

earn under LL550,000 a~d 6% make less

than LL300,000. Economists are quick to

point out, however, that these income figures

do not include money sent from relatives

abroad. The general labor confederation

recently issued a report stating that 48% of

the Lebanese population is livmg below the

poverty line, but that study has been branded

as overstated and politically motivated by

economists and others working in the field.

Lebanon isn’ t Burkina Faso or Ethiopia.

Nonetheless a significant portion of the

population endures poor living conditions.

Many talk of the two faces of Lebanon – the

center and the periphery. This means that the

further an area is from large centers, especially

Beirut, the poorer it tends to be.

Compared to the national average of 32%,

more than 60% of households in Akkar,

Herrnel and Bint Jbeil are considered to be

living below the deprivation threshold,

according to a joint UNDP-MoS study on

the satisfaction of basic needs. (These

include housing, water and sewage, education

and income-related indicators.) In

another six districts, largely on the peripheries,

40% to 60% falls into that category

(see maps below).

But because these areas have relatively

small populations, in absolute numbers the

poor are m~stly concentrated in urban

areas – the southern suburbs of Beirut,

Baalbek, the northern suburbs of Beirut. The

one exception is Akkar, which at 12.5%, is

the district that is home to the largest number

of Lebanon’s poor. “This is because

Akkar is the only exception in the rural

population where the people are still living

there,” says Nehme. “Registration of those

urban areas showed that they are largely

from rural areas and migrated to the cities.”

As is generally the case for Lebanon’s

outlying areas, the poor living conditions of

Halimeh and her fellow inhabitants of

Tekrit is not simply the result of the economic

recession: Their deep-rooted poverty

is the consequence of decades of

neglect. Even before the civil war, this

country was marked by unbalanced

regional development, with a concentration

of high-income generating activities in Beirut and Mount Lebanon and higher

levels of poverty on the peripheries. “But

the war caused the major breakdown of the

standard of living conditions,” says

Nehme. Some 800,000 citizens were displaced

and 170,000 housing units were

damaged or destroyed. Rampant inflation

wreaked havoc on people’s purchasing

power, education and health standards

deteriorated and losses to infrastructure

and production facilities were in excess

of $25 billion.

Now with the continued recession, high

unemployment and high cost of living, people

are being dragged even further down.

“There are certain levels of intervention

that need to be done immediately and that

should be pure charity for those way down

there. Other levels of interventions are

required in order to keep people from

falling into poverty,” says Aboul-Hosn.

“And there’s a third level of intervention that

is needed to keep the rich from getting richer

at the expense of the poor.”

To be fair, some measures are being taken

by both non-governmental organizations

(see box) and the Lebanese administration,

including the creation of the ministry for

the displaced, the development plan for the

South and the opening of health centers in the

regions. But the impact of such projects is

mostly weak because of limited finances,

political interference and bureaucracy.

There is no national plan dedicated to

reducing poverty and redressing disparities.

But according to those working in the

field, that is precisely what must be included

in this country’s economic development policy. “If we don’t have ecgnomic growth

and productivity, we cannot have social

welfare,” says Nehme. “But it’s not

enough. We should have a more comprehensive

policy that deals with both the economic

and social components.”

Lebanon’s post-war economic policy has

focused on monetary stability, eontrolling

inflation and rebuilding infrastructure. At the

same time, there has been

increased taxation, minimal job

creation, little effective social

spending and higher prices on

public services despite their ineffectiveness.

The negative repercussions

of these have been felt

more acutely in the less privileged

segments of society. “The majority

of the annual budget goes

toward salaries, but the impact and

output of this administration is

minimal, meaning the private sector

charges you for services that the

state cannot provide, regulate, delegate

to civil societies or decentralize

to the municipalities,” says

Aboul-Hosn. “So you’re paying

on both ends. One of the main

causes of the rise of poverty is the

fact that we are spending more for

much much less.”

Combating poverty through a

national plan will be no easy task. It will

require the coordination of numerous ministries

as well as NGOs in order to address

a wide range of issues. These include

basics like running water, electricity and

sewage; a readjustment of wage scales; a

more equitable taxation system; job creation

and improving agricultural infrastructure.

And despite the perceived advance of

Lebanon’s education and healthcare, these

are two sectors that need special attention,

according to experts. Two areas where the

private sector has picked up the public sector’s

slack, education and healthcare eat up

more than 20% of the household budget.

Education is considered to be one of the

most important factors in breaking the

cycle of poverty, but the entire Lebanese

educational system is seen as inadequate for

the demands of today’s marketplace. And for

those who cannot afford private schools,

the public system – although substandard at best – still costs an average $300 a year per

child. The illiteracy rate in Lebanon is

13.6%, according to Nehme, but climbs as

high as 30% in the district of Akkar.

Despite efforts to improve the health sector,

estimates put the out-of-pocket portion

of the total national health bill at more than

50%. The high participation of the private

sector is reflected in the high cost and disparities,

while accessibility to primary

health care is still problematic. For example,

the infant mortality rate is about three times

higher in the North than in Beirut, while 58%

of the total population are not covered by any

insurance scheme.

For a country that has made little headway

since the end of the war, such wideranging

structural changes are indeed a

tall order. Many believe it is simply a

question of management and priorities.

Back in Tekrit, where Halimeh and other

villagers fight a daily battle to make ends

meet, it’s a question of whether this country’s

leaders are sincere in their apparent

desire to improve the living conditions of

the less privileged.

Providing solutions

While those in the capital argue the merits of wide-ranging reform, the YMCA is

quietly working the beat to improve the living conditions of Lebanon’s underprivileged

through its community development programs. “We are among the major

promoters of rural development, because the rural areas in this country have been

the hardest hit and the most deprived since independence,” says Ghassan Sayah,

head of the YMCA’s Lebanon chapter. “We are helping people to make a living where

they are, rather than them quitting the area.”

The YMCA’s program addresses developmental issues through its six cluster programs

in Akkar, the Bekaa and the South. The communities

themselves are expected to provide 30% of total

funding, while $6.5 million is provided by USAIO. They

are also expected to set their own priorities and

decide where the money should be spent. The idea

is to make the inhabitants of these areas responsible,

accountable and partners in the project, so that

they are in charge of their own development.

Inhabitants of these areas are also aided in finding

ways of earning a living. One example is the recent

creation of a cottage industry for processed food in

Akkar, in a town whose only source of employment

had been the army, agriculture and the school.

Run by a cooperative, it counts over 80 products,

including sun-dried tomatoes and fruits, herbs,

vinegar and rose water using newly introduced

techniques for standardization, quality and

hygiene. Selling under the brand name Rural

Delights, its products are being sold at small health

stores and Monoprix, while negotiations are underway

with Bou Khalil, Idriss and Spinneys. One

achievement was in convincing the conservative

Muslim community that women should be fullfledged

members of the cooperative.

In the village of Akkar el Atika, massive road works

are underway to improve access for agricultural vehicles, while a potable water network

has been installed for the area. Higher up in the mountains of Akkar, a three-kilometer

irrigation channel with accompanying agricultural access has been installed. This

project directly benefits four villages and some 3,000 families, while reduced water loss

has allowed the cultivation of additional land. The YMCA also has a medical aid program

for the chronically ill that the government funds with $2 million a year. Through

more than 300 dispensaries, the YMCA is helping some 16,000 chronically ill patients.

“I think the Y is lighting a candle,” says Sayah. “We believe that lighting a candle is better

than swearing against darkness.”