Jihad Azour, a former finance minister, has called on the Lebanese government not to be deflected from free-market reforms by international turbulence.
“Let’s not waste time talking about the collapse of capitalism, or the ‘end of Wall Street’,” he told Emerging Markets. “Some sectors need better regulation. ... The global economy will adjust.”
Although the Beirut stock exchange has slipped in the past two weeks, the fall is far less than the regional average.
Analysts and bankers argue that Lebanon is well-placed for international shocks. It has bank deposits of $75 billion, foreign reserves slightly higher than GDP at $29 billion, and tight regulation of bank lending.
“There is a crisis of confidence internationally, but in Lebanon we still have confidence,” said Azour. He pointed out that the economy had remained liquid despite the 2006 war between Israel and Hizbollah, the militant Shia Muslim group.
Lebanon has not suffered the sort of “meltdown” that other emerging markets have, Azour argued. “Having been protected from the first wave, it is important that we keep the system sound in order to reduce any impact from a slowdown internationally.”
Azour, who stepped down as finance minister in July after a reshuffle brought a government of “national unity”, is considered a strong supporter of the reform strategy agreed by Lebanon with international donors and bodies at the so-called Paris 3 conference of January 2007.
The former minister said it was now important for Fouad Siniora’s government to combine monetary, fiscal and economic measures – including privatization – rather than retreat because of any international fears of deflation.
“The Banking Control Commission should extend its existing control of the [Lebanese] banks’ risks to cover their growing regional roles,” he said. “In monetary policy, the government should keen its eye on inflation, despite the fall in oil prices.”
Azour said the decision to increase wages for government employees by the equivalent of $133 a month in September should not be allowed to “weaken the system”.
In fiscal policy, he said the government should not be deflected from reducing the deficit, which is likely to rise to around $3 billion this year, and which has already pushed the public debt to $44.5 billion.
Azour insisted the government should “accelerate reform” in order to “create additional space for growth” rather than adopt or allow an expansionary fiscal policy.
He said plans for privatisation should be implemented, including the sale of the two cellular licences, “even if the markets are not favourable internationally” as sufficient liquidity existed at home.
“Privatization is ready: it is time to push the button,” he said, and urged parliament to expedite around 20 draft laws required for economic liberalization.
Marwan Barakat, head of research at Audi Bank, one of Lebanon’s largest, shares Azour’s optimism. He told Emerging Markets he still expects 4-5% growth over 2008.
“There has been some drop in the bourse, with Gulf investors leaving, but most investors in Lebanon are not risk averse,” said Mr Barakat. “And if remittances from the Lebanese abroad fall to $5.5 billion next year [from $6 billion this year], this will not lead to a slowdown.”
Domenico Fanizza, division chief in the IMF Middle East and Central Asia Department, last week praised the supervisory role of the Lebanese Central Bank, but warned against complacency. “All the indications [...] are quite positive,” said Fanizza, visiting Beirut. “If the Lebanese government manages to implement all the reforms then the economy will continue to grow.”