Is Lebanon At A Cross Road?

Observers and diplomats are watching with great concern the tense parliamentary elections in Lebanon, fearing that the outcome of these landmark elections will determine the political and economic future of this country.

With less than two weeks before voters go to the ballot, rival political groups claim that they will win the majority in the parliament. These elections are also very delicate because they will have an impact on foreign investors and donor states who will decide if the next cabinet will continue economic reforms. Some Western diplomats are worried that any victory by the opposition, led by Hizbullah, could trigger a new round of fighting with Israel.

"Any investor who plans to finance projects in Lebanon wants to make sure that the country is stable," a businessman said. Some ministers in the cabinet also believe that any party which wins the elections must rule without the one third voting bloc. "Any new government that emerges from the June 7 parliamentary elections in Lebanon will not serve the country well economically if it adopted the blocking third formula, Finance Minister Mohammed Shatah said.

"We regrettably had shown in the last nine months that the cabinet is not capable of taking important decision including appointment of high level officials," Shatah said. Observers agree that the current national unity government which was formed after Doha accord has failed to adopt important economic and financial decisions due to the sharp political rift between March 14 forces which control two third of the seats and opposition who have the one third bloc. According to Taif accord, no cabinet decision can pass if one third of the present government ministers voted against it.

In the last cabinet meeting, the cabinet has failed to appoint high level officials to certain posts in the government. "Reform is not just a slogan. People have to undertake reforms and the heads of bureaucracy and not the ministers are the ones that will implement reforms," the minister said.

The donor countries that met in Paris in January 2007 have pledged nearly $7.6 billion in grants and soft loans to the Lebanese government to help authorities reduce the cost of debt servicing and implement important reforms.

The government of Prime Minister Fouad Siniora received a big chunk of the promised assistance but the rest of the money, according to conditions agreed in Paris, is conditioned on the implementation of reforms and privatization of the telecom sector, another key element in Paris III paper.

Asked if the donor countries and investors will change their outlook to Lebanon if the opposition won the parliamentary election, Shatah said this possibility will depend on a number of factors.

"It not a secret that some groups may be affected by the outcome of the elections in Lebanon in terms of their investment decisions and the money they were ready to give us to support reforms. He added that some of the countries are adopting the wait and see approach before making any decision now.

"People believe that economic and financial policies are not going to shift with the change of governments," Shatah said.

He also believes that implementing reforms by any new government, irrespective, who’s running it, is very crucial condition to donor countries. But Shatah said that law, order and security risks are among the important factors which govern the relations of countries with Lebanon.

"In addition to these factors, investors want a good business environment and a good infrastructure in any country before making any commitment in the future." The minister reminded that Lebanon has undergone many serious security incidents over the last three years such as the fighting in the refugee camp of Nahr al Barid. "All of these incidents are taken into consideration by any investor in the future."

He also repeated that the GDP growth in Lebanon in 2009 may exceed the three percent ceiling if economic indicators in the oil Arab countries and the United States improved in the future. "We revised growth to three percent from the earlier projections of five percent. This all depends on the how will the economies of the region perform in 2009," Shatah said.

He added that if the economies of the gulf suffered a setback then the economy in Lebanon will surely suffer because there thousands of Lebanese working in the gulf region. "Up till now, capital inflow and deposits in Lebanon are on the rise and this is expected to continue unless something dramatic happens."

Despite the severe economic slowdown in the emirate of Dubai and the suspensions of dozens of projects, the number of Lebanese working in the gulf region was relatively small.

It is estimated that more than 300,000 Lebanese are currently working in UAE, Saudi Arabia, Qatar, Kuwait and Oman. Lebanese expatriates channel between $4 to $5 billion each year to Lebanon and this represent close to 25 percent of the country’s GDP.

Central Bank governor Riad Salameh seemed upbeat about the future of the country irrespective of the outcome of the elections. He predicted that banking sector deposit growth of 12 percent for 2009, increasing its projection from a previous estimate of between 7 and 10 percent growth. Salameh based the forecast on deposit growth of 15 percent in the first quarter of the year compared with the same period of 2008, according to a central bank statement.

Growth in bank deposits is seen as supportive of the borrowing needs of a Lebanese state facing one of the heftiest debt burdens in the world. The total public debt currently stands at around 162 percent of gross domestic product (GDP).

The International Monetary Fund said in its last report on Lebanon that despite its large vulnerabilities, Lebanon has so far weathered the global financial crisis and succeeded in maintaining financial stability, raising international reserves, and reducing public debt in 2008. The economy achieved record growth, and Eurobond spreads are now lower than the emerging market average. Fund engagement in Lebanon through the EPCA (which was broadly on track at end-December) has contributed to this performance.

Despite the severe economic slowdown in the emirate of Dubai and the suspensions of dozens of projects, the number of Lebanese working in the gulf region was relatively small.

Another report projected a rise in the number of tourists coming to Lebanon this summer. "One year after emergence of relative internal calm in May 2008, the longsuffering Lebanese tourism industry could now be at the start of a long and fruitful summer with potential to exceed last year’s tourism performance by half," a tourist operator said. Nada Sardouk, director general at the ministry of tourism, sees the country on course to set a new record for annual visitors. Based on a count of 500,000 visitors by May, "I expect 2 million visitors by end of 2009. It will be a great year," she said.

The official number for visitor arrivals in the first quarter was just announced as a record 434,418, an increase by 56.79 percent from 277,054 in the same period of 2008. Two million - Lebanon has never counted that many visitors in a single year, not even in the so-called golden years in the 1960 and early 70s.

The country has for a long time looked to boost its tourism status to that of a worry-free center of savoir vivre for which the country was renowned decades ago - before the start of internal warfare in 1975 ruined this reputation.