Lebanon on the crossroads to reform and prosperity
In democracies, parliamentary elections normally signal impending change at the policy-making level, and the prospects of change normally raise expectations and hopes. Lebanon is no exception and the business community is cautiously expecting that change would foster improvement. Attention is understandably riveted on the choice of the ministerial team, not only because it would reflect the consensus reached on power sharing, but more importantly because it may offer a clue as to the prospects of policy change.
As policy-makers, ministers are expected to inaugurate their term of office with the formulation of the policy they intend to apply during their tenure. Throughout the country’s history, very rare were those ministerial appointees who formulated a policy, and rarer were those who had any.
Examples abound of nations that are rich in resources but lacking in leadership capable of rallying national support for the adequate strategies and approaches that would harness raw wealth, natural and otherwise, to create, spread and maintain prosperity. Our worse fears are that Lebanon may skid into that category of nations.
On a purely pecuniary count, the numbers tell a story of wealth and international success. In effect, Lebanon has never been wealthier than it currently is. The nation’s gold stock is now worth close to $9 billion. Compared to the size of the country’s economy or its population, this precious hoard places Lebanon among highest ranking gold holding countries in the world.
Additionally, the country’s foreign exchange reserves have been on a sustained upward path for the past decade and presently stand at more than $19 billion, that is more than 70 percent the Gross Domestic Product. That measure of economic activity is in turn dwarfed by a banking sector that succeeded in attracting and keeping $83 billion in deposits, that is more than three times GDP.
Yet, despite this broad wealth base, Lebanon’s economy has been caught in a fiscal muddle from which successive ministerial teams have failed to free it. Unable to deflect the steep growth path of the public debt, policy-makers have stuck to an economic policy that was thought up for a different economic era – that of reconstruction – and a past regional context – that of peaceful settlement of the conflict.
The failure to adapt economic policy to the radical change in surrounding conditions has undermined the private economy’s competitiveness and potential for growth.
On no less than five major counts, the out-of-synch economic policy held back the economy and worsened both fiscal and social conditions.
For one, the uncontrolled growth of the public debt has done away with the option of using the instruments of fiscal policy to influence the pace of economic activity. This disadvantage is at present laid bare by the government’s inability to use fiscal policy to help the economy to ride out the secondary effects of the unfolding global economic crisis on investment and growth.
Second, by relegating monetary policy instruments to the task of achieving fiscal objectives, the current economic policy relied on maintaining inordinately high rates of interest, therefore directly restraining private investment spending.
Third, excessive public borrowing further restricted access to loanable funds to finance private investments, thus retarding growth and undermining competitiveness.
Fourth, over the past decade, fiscal stress has undermined the government’s ability to attain a level of social spending that would meet its obligations and the aspirations of the citizenry. This aspect of the failure in governance is the root cause of the financial shortfall at the National Social Security Fund and, more seriously, growing poverty.
Finally, the crushing weight of the public debt is dragging down country rating and by association the credit rating of otherwise solid business ventures.
Lebanon’s wealth surely spans beyond its monetary resources. The country’s natural resources are just as extensive and just as crucial to its development and prosperity, but there again lackluster governance and management continue to erode the competitive edge the country could have had.
The deteriorating environment; the unchecked depletion of non-renewable water resources coupled with prevalent failure to exploit renewable water resources; alarming levels of air, land and sea pollution; gross negligence in addressing the issue of solid waste disposal; and the shameless disregard for any and all advice regarding the necessity of formulating and putting into practice an environmental policy, are factors that led to the degradation of Lebanon’s regional positioning as a prime tourist destination and potentially the richest in water resources.
Will the coming government grasp the critical importance of devising policies that make optimal use of financial as well natural resources and clear the path to growth and prosperity? Not if history is any guide. But hope springs eternal despite past failures and disappointments.
Carla Rene Saade is the secretary General of the International Chambers of Commerce Lebanon.