By Gareth Smyth
Lebanon’s programme for recovery hinges on reducing the $43 billion public debt, which originated in the years of reconstruction after the 1975-90 civil war and has been exacerbated by years of fiscal deficits. But with crisis after crisis, the government has been drawn into disaster management rather than any real overhaul: 2005 brought the assassination of former prime minister Rafik Hariri and Syrian military withdrawal; 2006 saw Israel’s July war; and 2007 has been a year of domestic political infighting.
While other Arab countries have enjoyed cumulative growth as high as 20% over these three years, Lebanon’s has been around 4%, undermining belief it will meet the internationally-backed plan to cut public debt from 180% of GDP to 130% by 2012.
Political uncertainly is hardly a suitable backdrop for a serious reform programme that envisages privatizing electricity and the telecoms sector, and also includes fiscal measures over five years equivalent to 10% of GDP. Value added tax is due to rise from 10% to 12% in 2008 and 15% in 2012.
The programme’s success hinges on higher growth to increase government revenue and on a degree of public consent to facilitate readjustment. An IMF article IV consultation report in May stressed that progress required “a broad consensus behind the reform objectives”.
At popular level, there is a growing cynicism about politics. Some people complain about deputies taking salaries when not attending parliament. Others grumble about proposed VAT increases fuelling higher prices – they ask why they should repay the government’s debt when there is still no 24-hour supply of electricity or water.
But is public opinion moderating the stances of the politicians?
“There is a paradox,” Jihad Azour, minister of finance, tells Emerging Markets. “On the one hand, many people say they are disillusioned by the political class, but then demonstrations attract hundreds of thousands of people. This doesn’t encourage moderation.”
“People who demonstrate have a better idea what they are against than what they are for,” says a leading banker. “But, of course, they are reinforcing our leaders in their tough stances. Myself, I am doing more business in the region and much less here. I’ve also given up watching local television: for me, all our political leaders are just making noise.”
For analysis on the presidential selection deadlock, please see "On a knife edge".