The third Nordic conference on Middle Eastern Studies:
Ethnic encounter and culture change
Joensuu, Finland, 19-22 June 1995

The reconstruction of Lebanon

Kari Norkonmaa

The war in Lebanon 1975 - 1990 nearly finished the country. The physical and social infrastructure was destroyed. The state and the central government collapsed. What was known as a financial, cultural and trade center of Middle East ceased to exist.

During the period from the proclamation of an independent Republic of Lebanon in 1943 to the start of the devastating hostilities in 1975, Lebanon changed dramatically. It was transformed from a primary handicraft agricultural stage to a modern service economy . The service sector - finance, insurance, transport, commissioning, travel - amounted to two thirds of the gross national product. Lebanon prospered with a free economy based on a "laissez-faire" trend. The nature of its democracy was set to fit a pluralistic society where political power was - and still is - divided along the religious affiliations. The sectarianism or confessionalism is intended to guarantee the participation of the different communities in major decisions, and to avoid the predominance of one community over the others. This pursuance to the confessional balance is reflected in every stratum of the society and the mechanisms of power. As a cross-roads of civilisations and cultures Lebanon has exploited its diversity and liberalism as an asset to market its services to the external world. Thus it was able to play an intermediary role between the East and the West.

What was the war all about? Actually, nobody really knows. The spark that made the tensions between the communities explode was a sequence of unproportional revenges. It led to an accelerating spiral of violence and during the years even the slightest trace of logic of war disappeared of senseless fighting where a number of outside parties had unclear interests to look after.

The hostilities resulted in 170,000 lives lost, 300,000 were injured and 800,000 displaced. The physical infrastructure was practically destroyed. The direct damages were valued at US $ 5 billion. Emigration transformed into a genuine "brain drain".

In addition to the economic stagnation the social consequences were enormous. The displaced persons' disintegration grew to alarming proportions. The collapse of the public sector and its services deprived the citizens of their security, education, medical care, retirement insurance.

The worst was perhaps the fading away of confidence in the future.

The Taef Agreement ended the war in 1990 and the reconstruction could begin.

The first tasks were to restore the authority of the State, to elect the President of the Republic and the Parliament, the rehabilitation of the public administration and reunification of the army. The public security measures included the dissolution of the militias (with the exception of the Hezbollah in the southern zone occupied by Israel). The assessment of the damages had to be commissioned urgently. It is reasonable to expect the physical recovery to be achieved during one generation with the help of political and economic wisdom. The prospects concerning the mental recovery is a lot more complex matter even if one believes in Lebanon's capability to embody the legend of the "Phoenix".

In 1992 Mr. Rafic Hariri was appointed at head of a new government, where the major communities were represented in a balanced way. A two-fold economic restructuring plan came to life. It consisted of an adjustment macroeconomic policy, and a rehabilitation plan for the infrastructure.

The plan, known as "Horizon 2000", actually consists of securing, over the period 1995-2007, a cumulative volume of public investments of $ 18 billion. These investments are estimated according to a econometric simulation model to generate during the same period in the private sector investments of $ 42 billion. These investments are expected to maintain an average annual GDP growth rate of 8 per cent. This in turn should raise Lebanon's income level to the upper limit of the middle-income countries.

A debated issue (in fact it is the question of a passionate quarrelling) is the impact of these investments and growth rates on the macroeconomic balance, on the equilibrium of public finances and on the stability of the national currency. The government estimates that the indebtedness will grow, but all the time in a manageable manner and even in the highest point to an acceptable level, during this decade. By the year 1998 the government anticipates the public budget equilibrium to be attained and from that year onwards the budgetary surpluses will be used for further investments and debt servicing.

According to the World Bank and many of the local economists the public rehabilitation programme is dangerously over-ambitious and the priority set up ill-founded. Because of its large size in comparison with the country's resources it will endanger the macroeconomic stability and thus the internal and international confidence. That would in turn lead to highly unfavourable consequences in all sectors of society.

The World Bank suggests a core programme consisting only of the projects of the sectors of highest priority. The core programme would amount to about half of "Horizon 2000".

In additions to the above remarks some experts blame "Horizon 2000" of being too much concentrated on the rehabilitation of the physical infrastructure. The enormous social problems are not properly reflected in the programme.

The Council for Reconstruction and Development has been charged with the planning, implementation and supervision of "Horizon 2000". It is a public independent institution directly connected to the Council of Ministers. It does not depend upon the supervision of any Ministry. It is managed by a Board of Directors of twelve members appointed in line with requirements of confessional equilibrium. The office includes administrative officials and numerous economic and technical experts and consultants. The functional capacity of CDR is well below what is required to manage the programme. It is supported in the form of technical assistance provided by the European Union. There are several European consultants working on the basis of long term contracts.

Horizon 2000 has a two-fold task: 1. provide the private sector with an economic and financial environment conducive to the revitalization of its activities and to the resumption of its investments; 2. consolidate public confidence in the (one) state and the future of the country.

The recovery work is generally progressing almost according to the plan. The recovery plan covers the whole range of physical and social public infrastructure throughout Lebanon as well as institutional strengthening. Some delays have occurred partly due to unexpected conditions. CDR's initial priorities have been in the electricity, education, water, waste water, telecommunications and health sectors. 470 consultancy, construction or supply contracts are so far in operation. The total value of these is equivalent to $ 1.9 billion.

Some very large projects have been started. These include Beirut International Airport, Beirut Central District (its rehabilitation is a separate project organized in the form of a commercial enterprise), Beirut Port, Sports City and the Conference Center.

In addition to the infrastructure and social sectors attention is increasingly paid to the environmental questions. The situation was seriously deteriorated during the war. The current projects include the definition of the principles for a sustainable development and the preparation of a national environmental strategy. The former is supported by UNDP and the latter being part of the METAP programme also by the World Bank.

Lebanon has been fairly successful so far in attracting international funding for the recovery programme and nearly $ 2 billion have been agreed to date. External financing has been mobilized through grants and loans, contractor financing, Euro-bond issues and build-operate-transfer schemes. Securing further international finance remains a cornerstone in funding strategy and implementation of the recovery programme. The success measures the level of the international confidence.

The European Union and its members have covered about 60 per cent of the external financing. World Bank and the other agencies of UN as well as Arab Funds have played an important role.

The basic economic structure of Lebanon, based on a long tradition of free market economy, is still strong enough support a firm recovery. It can make use of a number of undisputed assets:

Kari Norkonmaa

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