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Lebanese economy shows signs of recovery

BEIRUT - THE Lebanese economy is showing signs of recovery six months after the assassination of ex-premier and construction tycoon Rafik Al Hariri and the ensuing political crisis that shook the country, analysts say.

Hariri had spearheaded Lebanon’s post-war economic revitalisation and his death in a February bomb blast on the Beirut seafront delivered a fresh blow to an economy already battered by a long-running civil war that ended in 1990.

“The disappearance of a man whose name had been linked since 1992 to the reconstruction of Lebanon, which was emerging from 15 years of destruction and war, had a negative psychological impact on investment, production and consumption, although that impact only lasted a limited time,” said analyst Marwan Barakat of Audi Bank.

The five-time prime minister’s sudden death led to political upheaval, international pressure for change in Lebanon and the eventual April withdrawal of Syrian troops after a presence of nearly three decades.

However, analysts say damaging economic consequences of the turmoil have been lessened by a smooth political transition and promises of reform by a newly elected parliament.

“Despite negative indicators in the first half of 2005 compared to those of the preceding year, the Lebanese economy has emerged with relatively limited damage in light of the tragedy,” Barakat said.

The main economic indicators were grim in the first half, said Barakat, but “since May a distinct improvement can be seen.”

The new parliament, formed in June, and the establishment of a new government under Prime Minister Fuad Siniora had sparked optimism and signalled an end to corruption, said economist Roger Melki.

“The removal of the Syrian-led regime will encourage reforms — administrative, fiscal, privatisation — and an end to economic waste,” said Melki, who added that Siniora, Hariri’s former right-hand man, would benefit primarily from the trust of international institutions.

According to the head of the Lebanese Central Bank, Riad Salameh, the equivalent of six billion dollars was converted from Lebanese pounds to foreign currencies after February 14, the day Hariri was killed.

Some $2.3 billion were transferred abroad before the Syrian military began its withdrawal, which was completed in April.

Salameh told the Lebanese daily An-Nahar that the central bank’s foreign currency reserves had fallen by $1.6 billion since before the political crisis to $10.4 billion at end July, with about $4 billion placed in European fixed-term deposits.

Beginning in mid-April however, about three billion dollars worth of foreign currencies was gradually exchanged into Lebanese pounds. More than one billion came back into the banking sector, where total deposits rose to $55 billion.

The so-called “stability” of the national currency, which had lost 600 times its value during the 1975-1990 war, was regained.

Overall public debt reached $36 billion, compared with $34.5 billion at the end of June 2004, while the budget deficit remained steady at about $20 billion.

The trade deficit was $1.1 billion at the end of June, compared with a surplus of $265 million the previous year.

However, Lebanon may have difficulty reaching the five per cent economic growth rate it saw in 2004, as the number of tourists to the country slid 16 per cent in the first six months of the year compared with 2004.

There are also trade worries spurred by transport blockages at the Syrian border in recent weeks, limiting trade in agricultural and industrial products that exporters are trying to get to Arab countries, economists say.

Most importantly, according to the economist Melki, the new political leadership realises the need to maintain stability in order to continue to heal the economy.

“The political class understands the need to reform in order to avoid the worst and that fresh international aid will only come if Lebanon is internally unified around a plan to modernise the state.”