Countries of the World/COUNTRYS.BIN/dp/0215/02154.txt

Text File | 1991-06-25 | 30KB | 491 lines

$Unique_ID{COW02154}
$Pretitle{224}
$Title{Lebanon
Chapter 3A.   The Economy}
$Subtitle{}
$Author{John Roberts}
$Affiliation{HQ, Department of the Army}
$Subject{government
million
lebanese
bank
billion
economy
economic
beirut
central
lpounds}
$Date{1987}
$Log{Olive Press*0215401.scf
}
Country:     Lebanon
Book:        Lebanon, A Country Study
Author:      John Roberts
Affiliation: HQ, Department of the Army
Date:        1987

Chapter 3A.   The Economy

[See Olive Press: Symbolizing the agricultural productivity of Lebanon.]

     As the Lebanese state fragmented, so too did the national economy. Many
observers have argued that because of this fragmentation, there was not one
economy in the late 1980s, but several. Areas held by some militia groups,
most notably the Maronite (see Glossary) Christian heartland controlled by the
Lebanese Forces, appeared well on their way to becoming de facto ministates.
These militias were successfully usurping basic functions of government such
as taxation and defense.

     Despite the fragmentation, there were still some shreds of the official
economy. In late 1987 the main port of Beirut and Beirut International Airport
were subject to intermittent government regulation. The Central Bank (also
cited as Bank of Lebanon or Banque du Liban) maintained sizable financial
reserves, although these declined sharply in the mid- 1980s. There were
spiraling budget deficits as the government attempted to reestablish the
credibility of its security forces and maintain at least some social services.

     Measuring the government's impact, however, was another matter. Although
the government's financial role in the economy was growing, its role in the
daily economic affairs of the Lebanese people was declining. The importance of
the official economy in the late 1980s depended on where one lived and how one
felt politically. But the economic collapse could not be separated from the
human tragedy. For example, two of the most salient facts of life in Beirut in
February 1987 were the collapse of the Lebanese pound to less than
one-hundredth of a United States dollar and the request by Palestinian
religious authorities for a ruling on whether or not it would be permissible
for the besieged refugees in the camps at Burj al Barajinah and Shatila to eat
their dead. In a country where violence had become endemic, where some 130,000
people had been killed and a further 1 million--a third of the population--had
been injured, calculating the impact of the central government on the economy
would be impossible.

     In the years that followed the outbreak of the 1975 Civil War, political
developments dominated economic affairs. Improved security conditions-- such
as from late 1976 to early 1978, or from September 1982 to January
1984--yielded considerable economic benefits, as relative peace enabled the
recovery of commerce. Peacekeeping forces--Syrian, Israeli, United Nations,
United States, and West European--brought with them favorable economic
conditions in the communities where they were stationed. But the positive
effects were frequently shortlived. For example, when Syrian troops entered
Beirut in February 1987 (the first time a recognized power had attempted to
enforce its authority in the capital since the February 1984 collapse of the
Lebanese Army), there was a brief flurry of guarded economic optimism. The
upswing of the Lebanese pound lasted only three weeks. But overall instability
was the norm from 1975 to mid-1987, and it became clear that nothing short of
a total change in the country's political and security structure--in effect,
the end of sectarian partitions and militia rule--would lead to any sustained
revival of what had once been one of the world's most vibrant economies.

     By 1987 Lebanon had entered an era where reliable statistics on the state
of the economy were usually absent. Lebanese economists were sometimes able to
compile a few indicators, but the numbers were often based on incomplete data.
But even without complete statistics, the downward trend of the national
economy was obvious.

     Bearing testimony to this trend, the Lebanese National Social Security
Fund reported in May 1986 that 40 percent of the 500,000-strong private sector
work force was unemployed. Industry was running at barely 40 percent of
capacity, and per capita income was down to around US $250 a year in 1986, five
times lower than eleven years earlier.

     In 1985 estimates of the gross domestic product (GDP--see Glossary)
varied from LPounds 30 billion to as high as LPounds 48.3 billion (for value of the
Lebanese pound--see Glossary). In either case, GDP was no more than half of
what it was in real terms in 1974.

     Although the collapse of GDP began with the start of the Civil War, the
fall of the Lebanese currency began much later. On the eve of the war, it
required only LPounds 2.3 to buy a United States dollar. Currency values declined
over the next several years, but it was not enough to destroy the basic
Lebanese confidence in the pound, which was backed by substantial holdings of
gold and foreign exchange. Whereas in 1981 the exchange rate had averaged
LPounds 4.31 to the dollar, by the end of 1982, with the new government of President
Amin Jumayyil (also seen as Gemayal) in office, the exchange rate was back to
LPounds 3.81 to the dollar.

     The pound, however, began depreciating rapidly in the aftermath of
further Beirut clashes in early 1984 and the withdrawal of the Multinational
Force (MNF) of peacekeeping troops from the capital. Although there was
widespread currency speculation, the Central Bank could do little to
investigate this problem became of Lebanon's tough banking secrecy laws.

     Between January and December 1984, the pound lost just under half its
value against the dollar, while in 1985 the trend gained speed, resulting in a
further 60-percent erosion in value. The Central Bank was widely criticized,
especially by the commercial banks, for failing to act decisively to halt the
pound's slide. But even greater criticism was directed against commercial
bankers and leading politicians, who were constantly accused of speculating
against the national currency.

     By 1986 the country was on the verge of hyperinflation as the pound lost
almost 85 percent of its already shrunken value during the course of the year.
On February 11, 1987, the currency crashed through the psychologically
important barrier of LPounds 100 to the dollar and continued its fall. By August the
pound was trading at more than LPounds 250 to the dollar. Compounding the problem
was that these events occurred after a year in which the dollar had fallen
sharply against most major international currencies.

     The fundamental principle of the Lebanese banking system had been a
freely convertible pound. Citizens were free to hold foreign currency accounts
in their banks, and remittances received from friends and family living abroad
could be processed with relative ease through banking channels. As the pound
began its decline, the importance of foreign currencies (particularly the
United States dollar) grew, and a "twin currency" economy emerged. Complex
systems were soon set up to circumvent the banking system, not for fear of
governmental interference but to prevent the loss of deposits or of letters of
credit through bank robberies. In the twin currency economy, foreign cash and
drafts on bank accounts held outside the country became increasingly common.
It became impossible, however, to calculate how much foreign cash was entering
the country once transfers began to bypass the banking system. But it was
clear that most people were not receiving enough to retain their pre-1975
living standards.

     By 1987 ordinary Lebanese were living in a very strange economy. Public
services functioned according to the ability of the government to pay staff,
the ability of different groups to tap into utilities (with or without
official permission) and the ability of local groups (wit