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| ISBN 92-2-110692-6 First published 1997 |
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| ABOUT THE AUTHOR | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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1. HISTORY, DURATION AND FEATURES OF THE WAR A brief introduction analysing the history, duration and other features of the war |
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The war cannot be explained sui generis. The relationship between the past and the present situation has to be established. An historical perspective allows connections to be made between the creation of modern Lebanon, the underlying roots of the conflict and the aftermath of war which constitutes the framework of this report.
1.1 Pre-war Lebanon During the Ottoman period, the area covering present-day Lebanon was under the jurisdiction of governors residing in the coastal cities. The wilayets of Sidon, Tripoli and Beirut were under direct Ottoman rule. They were inhabited by the dominant orthodox religions of the Byzantine and Islamic empires. The province of Mount Lebanon enjoyed autonomy; the authority of the Ottomans was maintained through indirect rule and the area was governed by local Emirs. Christian and Muslim heterodox communities found refuge there from the persecution of the orthodox dominant rule.During the First World War, following the dismemberment of the Ottoman Empire, the League of Nations gave France the Mandate over Syria and Lebanon. In 1920, the creation of Greater Lebanon was proclaimed and the Lebanese Republic was created within its existing borders. The creation of modern-day Lebanon brought together areas and different confessional groups which previously had limited contact. The Maronites, the Druzes and the Shi'a of Mount Lebanon lived in relative isolation from the coastal areas inhabited by the Christian Melkites and Muslim Sunni, who attempted to dominate them. It is to the encounter of those two parallel societies, with differing histories and socio-economic systems, that the recent war (1975-90) can be partially attributed (Corm, 1992). France had helped the Maronite implement their national political programme: the creation of an independent Lebanon. In order to weaken the Arab nationalists, the mandatory power acceded to their demands. The Lebanese remained divided on their country's history and identity. The Lebanese nationalists -- mainly Christians -- put forward the claim to an independent Lebanon, but their views differed as to what borders the State should have; the Arab nationalists, largely Muslim but not exclusively so, aspired to see Lebanon as part of a larger Arab entity or an Arab-Islamic empire. After the creation of the Lebanese Republic in 1926, profound cleavages over the legitimacy of the State still divided the communities. For the Maronites, the new State was the culmination of their aspirations. For the Muslims, however, it meant the end of their project of a greater Islamic State. For the first time in their history, after having ruled for centuries, they became a minority. However, since 1943 onwards, they participated fully in the country's political life. The republican Constitution was created by French and Lebanese jurists in 1926. Political representation in the Government and in Parliament was to be based on the proportional representation on a confessional basis of the different sects as stated in article 95. However, the representation favoured the Christians who held most of the key positions in the Government and in the army. The perceived necessity to conciliate the interests and aspirations of its different communities[9] had led the country to adopt a confessionally based system. The sectarian identities were recognized by the unwritten agreement of the National Pact of 1943, an "historical compromise" on the identity of the country and on power sharing between the religious communities. The Christians had to renounce their special relationship with France and the Muslims would in return give up their aspirations for reunion with an Arab entity. The Pact established a complex scheme of power distribution based on the proportional representation of the various confessional groups, the highest post being attributed to the largest community. The President had to be a Maronite, supposedly the largest community; the Prime Minister a Sunni; and the leader of the Parliament, a Shi'a. The general ratio of 6:5 was favouring the Christians, and was based on the results of the last census held in Lebanon in 1932. The country's history has been characterized by successive periods of peaceful coexistence and instability, followed by the outbreak of the war in 1975 that was to last 15 years. In 1958, a serious crisis had developed into a civil strife mainly due to President Chamoun's collaboration with the United States against President Nasser of Egypt and the Soviet Bloc. This cooperation had antagonized the majority of the Muslim population. After the 1967 Arab-Israeli war and the defeat of the Arabs, the Palestinian refugee population of Lebanon became increasingly militarized. Guerrilla operations against Israel were launched from Lebanese territory which attracted disproportionate reprisals against southern villages. Thousands of villagers (mostly Shi'a) headed towards the capital where they formed the "misery belt" in Beirut's suburbs. The occupation of Cisjordan by Israel, and King Hussein of Jordan's victory over the armed Palestinian groups in his country, drew another wave of Palestinian refugees to Lebanon.
1.2 Causes of the war Many scholars from various disciplines have reflected on this major crisis (1975-90), but they differ in their analysis of the causes of the war and whether these were primarily exogenous or endogenous. The structural and socio-economic factors were a fertile ground for conflict, while the extraneous factors (regional and international interests and politics) were an important activator of existing dissension.Since the creation of Greater Lebanon, the legitimacy of the State was always put in question by a significant part of the population. The unequal participation in the new wealth generated in the country and in access to resources, education and capital, was to be a prime catalyst in the political mobilization of different groups against the existing order. Lebanon, and Beirut in particular, became the headquarters of conflicting political interests and factions of the whole region for much the same reasons it had been such an attractive place as a centre for business activity in the Arab world. The guaranteed secrecy regarding financial transactions and the tolerance for public expression (and for radical political discourse), made Lebanon a convenient stage for regional conflict. Regional actors fully exploited the discontent of those left out of the modernization process. In addition to socio-economic factors, a frail sense of common citizenship, strong religious loyalties, weak institutions and the abuse of the sectarian system by political leaders contributed to further undermine the legitimacy of the State. Other major determinants were the use of the country as a "surrogate battleground" by Palestinians and the expansionist ambitions and policies of Syria and Israel. With the increasing regional pressures, tensions reached a breaking point in 1975, when a series of incidents soon escalated into a full-blown civil war (Hanf, 1993).
1.3 The 1975-90 war There is a danger that such a short analysis will give undue prominence to one factor, for instance the religious factor and the Christian-Muslim divide, thus offering a very reductionist explanation. We will attempt to use three levels of narration: the local, regional and international.
1.3.1 The political and military actors This brief description of the main actors on the Lebanese territory does not reflect the complexity and the shifting alliances that were constantly forming and reforming between the various groups, between the local parties and their regional protectors. Considering the limited scope of the present report, giving each actor, whether local or regional, the right emphasis in the analysis, has proved to be a major difficulty.In pre-war Lebanon, the political parties played only a limited role in Lebanese political life but became major actors on the Lebanese scene following the collapse of the State. The Communist Party was founded in 1924 as the "people's party" and separated from its Syrian counterpart in 1966. It was anti-confessional and defended the Palestinian resistance. In 1970, its military wing, the Popular Guard was created. At the other end of the spectrum, another party with a supra-national ideology, the Syrian Popular Party (PPS), was founded in 1932. Its secular doctrine aims at reviving the "Greater Syrian" nation comprising Syria, Lebanon, Palestine and Transjordan, the Sinai, Iraq and Egypt. The Socialist Progressive Party was founded in 1949 by Kamal Jumblat and claimed to be anti-confessional. Its militia was estimated in 1996 at 3,000 men, most of them Druze. Another socialist party, the Baath, was created in Syria and is widely spread in the Arab world. It promotes an Arab nationalist ideology which sees Lebanon as part of a larger Arab entity. The Nasserist Party, founded in 1975, was opposed to the confessionalism of the Maronite ( Christian) leaders and claims a "rational modern Arab State". It has close links with Syria and Libya. With its military wing, the Mourabitun (the vigilantes), it played a prominent role during the war. Together these parties formed the National Movement but their military wings were largely integrated with Palestinian organizations. The other parties, on the whole followed sectarian cleavages. The most important Christian party was the Phalangists (Kataeb). Since its creation in 1963 by Pierre Gemayel, it has had a paramilitary structure. It was a key actor on the war scene. The National Liberal Party was later absorbed by the dominant Christian Party, which resulted in the creation of a single militia called the Lebanese Forces. In 1975, new Christian groups developed parties (e.g. Al Marada, brigade of President Franjieh, El Tanzim, the Guardians of the Cedars) and participated in the fighting. The Shi'a movement, Amal, succeeded to the "Movement of the Deprived" created by Imam Moussa Sadr. It remained neutral at the beginning but played a crucial role in the war. Later, Hezbollah was formed of Shi'a trained by Iranian Pasdarans (guardians of the Revolution). The coalition of militant Christians was the main opposition against the presence of the Palestinian Liberation Organization (PLO) that has been headed by Yasser Arafat since 1969. The presence and action of the Palestinians played a determinant role on the evolution of Lebanese politics since 1969 and even more so since 1975. The Palestinians form one of the largest communities in the country in terms of numbers. A "khaldunian Ghalaba, a struggle for domination, between factions more or less defined by their sectarian affiliations (Salame, 1991), was taking place in Lebanon. Regional actors: Syria has never fully recognized Lebanon's sovereignty. The country is still considered to be a province, arbitrarily severed from Syria by France, the mandatory power. Israel's policy, on the other hand, was to find a definitive solution to the Palestinian problem. With Menahem Begin in 1977, the reprisals against the Palestinian Fedayin became constant and were totally disproportionate to the attacks suffered by Israel. Israel also had, like Syria, expansionist ambitions.
1.3.2 First phase of the war (April 1975-May 1976)[10] Since 1969 tensions have run high in Lebanon. Constant clashes opposed the Christian parties and the army to the Palestinians and socialist parties. Israel's regular military interventions in the south added to the extreme tension.In January 1975 the leader of the main Christian party (Kataeb) addressed a memorandum to the President in which he accused the Palestinians of violating the sovereignty of the State and asked that their presence in Lebanon be regulated by the same terms and conditions as in other Arab States. A few month later the war had started opposing mainly the Palestinians and their allies, the coalition of the Progressive forces, under the leadership of Kamal Jumblat. This coalition also included the pro-Syrian movements, fighting against the Christian (essentially Maronite) parties of the Lebanese Front. The army played a minor role during this period. Perceived as being too Christian and therefore not representative, it fell victim to contradictions of the Government which was paralysed by internal dissension and thus lost its mandate to intervene and stop the fighting. It split along confessional lines: in 1976 some of its dissidents formed the Arab Armies of Liberation (pro-Palestinian), others joined the Christian camps, especially in the south where they formed a militia under the control of Israel. By then the war had spread to the whole country. An agreement was signed between the warring parties but was soon broken. The Palestinian-Progressive coalition was successful in encircling the Christian areas.
1.3.3 Second phase (June 1976-81) Syria's attitude was changing vis-à-vis its partners. The cease-fire it imposed in January 1976 was the first manifestation of this evolution. However, this apparent volte-face was consistent with the country's policy in the region. Three principles motivated Syria's political programme: keeping Lebanon in Syria's sphere of influence, controlling the Palestinians, and preventing the partition of Lebanon which would lead to the creation of a Christian State, a potential ally of Israel. The division of the country into homogenous, contained zones would also confirm Israel's theory that a multi-confessional State in Palestine was not a viable option. Faced with the escalating tensions in Lebanon, the increasing independence of the Progressive parties vis-à-vis Syria, and with Israel's consent, Syria came to the rescue of the Christians of the Lebanese Front. Later, the Arab League decided to replace Syrian troops with an Arab Peace Force formed by 80 per cent of Syrian recruits.On the international and regional scene many events were to influence the development of the war in Lebanon: the elections of President Carter in the United States and of Menahem Begin in Israel (former director of the Irgoun, the Zionist terrorist movement), and the initiatives of Egypt's President Sadat to start a peace process with Israel. In Lebanon, Syria was faced with a strengthened Lebanese Front, and the risk of seeing the Palestinians expelled from the country. In 1978 the first clashes between the Syrian army and the Lebanese Front started and continued until March 1979. The consequences of this last war were serious: President Frangie allied himself with Syria and left the Lebanese Front which led to the massacre by the Lebanese Front of his family and a number of his partisans. A rapprochement between the Lebanese Front with Israel had more far-reaching political consequences. In March 1978, following a Palestinian bomb attack near Tel Aviv, Israeli troops launched a major operation across the Lebanese border. They occupied a self-defined "security belt" in the south of the country. This attack took hundreds of victims and provoked another massive exodus, mainly of Shi'a residents. The Security Council ordered an immediate withdrawal of Israelis soldiers and created the United Nations Interim Forces for South Lebanon (UNIFIL). Its mandate was to restore the Government's authority in the south. Following its forced retreat from the area, Israel handed the occupied zone to the forces of Haddad, a dissident from the late Lebanese army and whose militia was paid and equipped by Israel. In 1979, he declared the zone under his control "the free State of Lebanon". For the first time since the war had started, Israel and Syria confronted each other openly in Lebanon. Following the "Zahle incident", Israel's attacks multiplied in different areas inhabited by Palestinians. Only a vigorous intervention by the United States was able to put an end to the conflict. In July 1981 a cease-fire agreement was reached with the American mediation, between Arafat and Begin.
1.3.4 The third phase (1982-87) The Israeli invasion: Begin could not abide by this cease-fire as his aim was the destruction of the Palestinian resistance. Flanked by Ariel Sharon on one side and Itzhac Shamir on the other, he planned to get to the heart of the matter: Beirut. The United States did not discourage nor disagree. Later it blocked any decision of the Security Council and the General Assembly, asking for the immediate and unconditional retreat of Israelis troops. The operation, "Peace for Galilee", started in June 1982. The Israeli army encircled the capital. Despite the terrible shelling of the civilian population, and the neutralization of 10,000 Palestinians, Israel's aim was not reached. In August 1982, Israel finally accepted to abide by the so-called plan Habib: the Palestinians would be evacuated to Syria and other Arab countries -- 16,000 men left Lebanon, followed by Yasser Arafat.In the same year, Bashir Gemayel, a Christian leader allied with Israel, was elected President and his brother, Amin Gemayel was elected as Head of State. A withdrawal agreement was initiated between Lebanon and Israel under US patronage and finalized in May 1983. However, when Israel began its retreat it handed its positions to the Druze militias instead of the Lebanese army. This resulted in a bloody confrontation between the Druze and the Phalangists, and subsequently between the Druze, together with the Palestinians (supported by Syria), and the Lebanese army. This war provoked massive population movements. In 1985 the President refused to pursue the agreements with Israel who wanted a peace treaty, but an agreement was signed ending the hostilities between the two countries. Israel withdrew from the occupied areas to a security zone along the Lebanese-Israeli border. A multinational force (MNF) was sent to replace the departing Israeli troops. Years of mediation and negotiations between the different militias and with Syria were pursued around the issues of internal political reform and Lebanese-Syrian relations. These finally led to the formation of a National Congress for Reconciliation which met in Geneva and Lausanne in 1983 and 1984. A Tripartite Agreement was finally produced in December 1985. Subsequent negotiations were to lead, in 1989, to the creation of a Document of National Reconciliation, the Peace Agreement called the Taef Accords.
1.3.5 Fourth phase (1987-91) At the end of Amin Gemayel's presidential term, and with a parliamentary deadlock concerning his succession, the appointment of General Michel Aoun as head of the interim Government proved highly controversial. It was met with Syrian and Muslim opposition. However, the General was able to gather huge popular support despite the two catastrophic military campaigns he launched against the Syrians in 1989, and against the Lebanese Forces, his Christian rivals, in 1990. He also opposed the Peace Agreement signed in Taef, Saudi Arabia. He was defeated in October 1990 by the Syrian army with the support of the United States.President Elias Hraoui was elected in 1989. In September 1990 the political and administrative reforms that were decided in Taef were enacted into law. Accordingly, 140 new deputies were also appointed to fill the seats which were redistributed in order to reflect the demographic change and equally balance Muslim and Christian participation. The Agreement also provided for the demobilization of all the militias with the exception of the Hezbollah which was committed to be contained in the south as a resistance movement against Israel. The majority of the militias were to be integrated in the Lebanese army. In May 1991 Syria and Lebanon signed a Treaty of Brotherhood, Co-operation and Co-ordination; in September of that year they also signed a Pact of Defence and Security. Both agreements define in detail the nature of the very close relations -- policy, political and economic cooperation -- between the two countries. Different bodies were subsequently created to implement, supervise and coordinate the Treaty and the Pact, such as the Syrian-Lebanese Higher Council. However, Syrian hegemony in Lebanon has been actively rejected mainly by the Christian opposition, who also denounced the partial implementation of the Taef Accord as it perceived it to serve mainly Muslim interests, and denounced the restriction on Lebanon's sovereignty. The opposition has been increasingly marginalized by the Syrian-supported Government. Despite the implementation of the Peace Agreement and the reconstruction process, Lebanon is still suffering from the restriction on its sovereignty with the occupation of the south by the Israeli army and the presence on its territory of approximately 40,000 Syrian soldiers and several thousand secret service agents (Mukhabarats).
1.4 Features of the war The State of Lebanon had started to disintegrate before the war, when foreign armies started fighting on its territory. Gradually, under internal and external pressure, the State collapsed. The army split, new forces emerged and imposed militia rule to replace state order, and became de facto governments. They succeeded in establishing order at the level of their respective communities. With the collapse of the state authority, the militiamen acted as surrogate police forces and administrators. The authoritarian militia systems were collecting taxes, nominating judges, organizing social services, and so on.Gradually, the breakdown of the balance between the various sects gave rise to a "new order". The country was henceforth divided into militia territories that could only be entered through check-points and were defended by armed men. On the social level, they set up generous assistance programmes to counter the ravages of war in the absence of a welfare state and the subsequent collapse of social institutions. The involvement of the militias in social programmes was mainly a strategic campaign for popularity. They none the less built roads, supplied water, organized public transport, education, and medical care (Piccard, 1993). The division of the Lebanese population along sectarian lines later materialized by their residential separation. The militias provoked massive population shifts to create homogenous self-contained zones and exclusive communities. This cantonization allowed for better control and defence of the communities. The planning of a demographic re-distribution has displaced hundreds of thousands of people who are now likely to be re-distributed again and sent back to their places of origin according to the programme of "voluntary return" set up by the Government. The II Lebanese Republic absorbed the militia heads and turned them into political groups. Former warlords were thus included in the reconciliation and reconstruction process. The incorporation of militiamen in the army and of most of their leaders in the Government was to be interpreted as a sign of reconciliation. |
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| 2. REHABILITATION IN POST-WAR LEBANON | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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2.1 The political context of reconstruction After a lapse of 20 years, parliamentary elections were held in 1992. A majority of Christians boycotted the elections and, as a result, found themselves underrepresented in the new Parliament. Despite some abstentions from the Muslim communities, the representation of Muslim groups was strong (Shi'a Amal and Hezbollah). The electoral law favoured those who approved the full cooperation with Syria, therefore most of the candidates and elected deputies were allies of Syria. This law also deprived the Lebanese abroad of their right to vote, accentuating the imbalance between Christians and Muslims. These controversial elections created strong tensions in the country and were seen by the opposition as a break from the spirit of the Taef Agreement.In October 1992, Rafic Hariri of Lebanese and Saudi nationality, was appointed Prime Minister. His main objective was to start a process of rehabilitation of the country's destroyed infrastructure, the reconstruction of the economy, the renewal of the Government's institutions and administrative reform. As provided in the Taef, reform of education, the development of all regions and urban planning are said to be the Government's priorities. But for the new, business-oriented Government the rehabilitation of the economy has been, and still is, the primary focus of the reconstruction effort in the post-war era.
2.2 Physical rehabilitation[11] The civil war and Israel's bombing of the cities and of agricultural areas in the south did untold damage to the country's infrastructure. Although the worst damage was recorded in Beirut, other areas suffered as well. In the public sector as in the private sector, hospitals, schools and residential buildings were destroyed. With the breakdown of the State, public services had collapsed; the economy and the infrastructure were shattered. The damage caused to the country's physical capital was estimated to be in excess of £10 billion.
2.2.2 Phases of the development and reconstruction programme The 1995-98 period was initially meant to cover the planning and implementation of the entire reconstruction and development programme.
2.2.3 The rehabilitation phase (December 1991 -- five years) The five year plan, 1991-1996. In 1977, shortly after the outbreak of the war, the Government set up the Council for Development and Reconstruction (hereafter CDR). Reconstituted in 1991, the CDR acts as coordinator for the various ministries and mobilizes external finances. The same year, a five-year rehabilitation plan known as "The Priority Plan" was prepared by a US-based conglomerate, Bechtel Inc. with a local partner, Dar al Handasa. The Plan covered 126 projects identified in 15 economic and social sectors, envisaged expenditure allocations on the following basis:
Table 1
First change The three-year plan 1992-95. In December 1991, the Priority Plan was presented to the World Bank and other international donors. Damage assessment missions were conducted and financed by the World Bank and the European Union. These formed the basis for the amendment of the Priority Plan which was renamed in 1992, the National Emergency Reconstruction Programme (NERP). It called for an expenditure of 2,238 billion over a three-year period, covering a series of high impact rehabilitation projects. The programme also included strengthening of the existing institutions and the provision of technical assistance.The total funding raised for NERP was $23,337.3 million, and was distributed as follows: in $ (million): foreign loans: 1,582.5; foreign grants: 396.8; Lebanese government contributions: 358. The NERP emergency rehabilitation expenditure was planned as follows:
Table 2
Within the NERP, another plan which was proposed in 1993 by the World Bank, led the way for foreign financing of Lebanon. The Emergency Reconstruction and Rehabilitation Plan (ERRP) was financed with a loan of $175 million which had a grace period of five years and maturity of 20 years with standard World Bank terms and interest. The ERRP supported the NERP overall objective. Its total budget of $217 million (and additional Lebanese government contributions: $52 million), supported the following sectors in percentages terms:
Table 3
In financing theEmergency Reconstruction and Rehabilitation Plan, the World Bank recognized that there was not only widespread damage to the physical infrastructure, but inadequacies in major sectors such as housing, neglect in the health sector and falling quality in the educational sector. There was widespread environmental degradation due to uncontrolled solid waste disposal around the country, heavy pollution and unsatisfactory water quality -- all of which posed risks to public health. In addition, the environment had been further damaged during the war due to the abandonment of the agriculture and widespread deforestation. Apart from a basic aim to restore the war-damaged infrastructure, the World Bank loan was designed to encourage the Lebanese Government to undertake what the Bank considered to be essential institutional and financial reforms. In parallel with NERP and for the same period, the Lebanese Government initiated the Parallel Programme for Recovery and Development (PPRD) which complemented the NERP in supporting medium to long-term recovery. Similar in size to the NERP, this programme devoted one-third of its expenditures to expanding the NERP projects while focusing two-thirds of the expenditures to new projects. The expenditure main sectors were as follows:
Table 4
Second change Since the appointment of the Hariri Government in the Fall of 1992, a comprehensive plan (1993-2002) was formulated which not only included the NERP (the immediate rehabilitation phase) but also the PPRD. The Horizon 2000 Plan covering ten years, envisaged that the GDP in 1995 would reach the same pre-war level as in 1975 and thereafter redouble in the year 2002 so that Lebanon would reach the level of upper middle-income countries. The plan was based on three lines of action which were: the re-establishment of the basic social infrastructure to stimulate production; the balancing of the regional distribution of the public investment; and finally the promotion of the private sector by creating incentives to stimulate savings.This plan splits the programme into two periods which are years one to five and years six to ten Expenditures during the first period total $7 billion while the second period total $4.67 billion, making the total of $11.67 billion. This plan would increase the total indebtedness of the country to 50 per cent of the GDP in 1992, 84 per cent of GDP in 1994 before falling to 39 per cent of the GDP in 2002. The foreign debt component would peak at 37 per cent of the GDP in 1994 before falling to 16 per cent of the GDP in 2002. It is also hoped that the private sector, including the expatriate Lebanese, would contribute $20 billion in the economy during this time period. This Horizon 2000 planned expenditure is as follows: (in $millions)
Table 5
2.3 Developments in 1996 According to the World Bank Country Assistance Strategy Report (1994-96) the Bank's future lending would concentrate heavily on the social sector. The World Bank has supported selected projects in the physical infrastructure during the reconstruction and rehabilitation phase (a similar policy has been initiated in Bosnia by the World Bank). The Bank has suggested that the private sector investment in physical infrastructure and in the social infrastructure (health and education) should be increased and that thecore investmentplanshould not exceed $3.5 billion for the period between 1995-1997 bearing in mind both the financial and social costs which are involved. Furthermore, they see their role as a catalyst in emphasizing the role of the private sector.The EIU in its Country Report 3rd quarter (1996) predicts that there will be a fall in the rate of economic growth in 1996 with a slight increase in 1997. This will impact on the development plans which would also delay the contracts that need to be prepared due to a time lag in implementation of the Horizon 2000 plan. The recommendations of the World Bank were to scale down the role of the Government in the reconstruction and to concentrate efforts on a shorter horizon and a core set of projects, and increase the involvement of the private sector. In December 1996, with the declared aim to strengthen Lebanon's reconstruction process, political independence and security, the United States, the European Union and several other countries and international institutions headed by the World Bank, have decided to infuse the sum of $3.3 billion. The first tranche of $1billion is to be provided immediately. This sum is earmarked for development assistance, reconstruction loans, police training and military equipment. In 1997, the United States will increase its direct assistance tenfold, to more than $20 million. The package will be distributed as follows: $12 million in development aid, $6 million in agricultural credits, and $2.1 million for the American University of Beirut which was severely affected by the war.[12]
2.4 Political and administrative reform In 1989, the Taef Peace Accord was adopted by the Lebanese deputies in Taef (Saudi Arabia) as a result of an intensification of the civil war in the country. It was not only on the military level that the crisis had reached its peak. A constitutional impasse was also reached as a result of the coexistence of two separate governments. A Higher Tripartite Committee created by the Arab Summit of 1989, proposed a solution to the Lebanese problem in a document discussed by the Lebanese deputies in Taef on the 30 September 1989. This document received Arab as well as international support.The document aimed at covering the Lebanese problem in its internal and external dimension and thus presented a very comprehensive approach to political, constitutional and social reform and to issues of restoration of its sovereignty, territorial integrity, and national unity. The abolition of political confessionalism is declared a national goal. The annulment of the sectarian-based representation was implemented in the public sector (but maintained in the Government) and replaced by an equal distribution for Christians and Muslims (except for the first category positions). Under the Agreement, the authority of the President was curtailed and reduced to almost a representative role. However, the prime minister and the Council of Ministers have seen their power considerably enhanced.
2.5 Political developments/constraints 1996 The reconstruction of the country's infrastructure is heavily dependent on foreign assistance. In order to cut down on state expenses, the Government tried to finance its rehabilitation plans through foreign loans (Eurobonds) and aid. Despite the formation of this new Government and the confidence that the Prime Minister inspired due to the strong backing of the Saudis and the United States, the inflow of capital has been slow. The Lebanese expatriates who represent a vital source of income remained cautious in their investments. The climate of political instability that has prevailed in Lebanon and generally in the region in 1996, has affected the reconstruction progress and economic recovery while seriously delaying prospects for further foreign investment.The Israeli operation "Grapes of Wrath" in April in 1996, the election of Benjamin Netanyahu in Israel the same year, the Lebanese parliamentary elections and the stalled peace negotiations are responsible for these delays. According to the EIU, the direct damage of Israel's operation "Grapes of Wrath" on the south is estimated to be $500 million, in terms of infrastructure, properties, loss of business and delays in reconstruction alone. An example, the Israeli attack on the two electricity stations is estimated to have cost an additional amount of $40 million. The World Bank gave an emergency loan of $50 million but the Arab and European countries have not delivered the promised aid. The economy in the predominantly agricultural areas of the south and the Bekaa suffered most from Israel's bombing. According to the same sources, an estimated 45 per cent of 1996's tobacco crops were destroyed, the livelihoods of some 20,000 families were thus affected. Losses also occurred in other sectors such as fishing. Israel's attack in April 1996, and the continued conflict in the south, have far-reaching political and economic consequences on the country. The tensions in the area have discouraged foreign investments, thus slowing hopes for rapid recovery. Tourism was also affected by Israel's shelling that reinforced the perception of Lebanon as a dangerous site. With Netanyahu's premiership increasing tensions are perceptible. Mr Netanyahu's election is delaying the peace talks and hampering hopes for a regional settlement which could allow Lebanon's rapid recovery. The strained relations between Syria and Israel also affect Lebanon which is excluded from decision-making at the regional level -- its foreign policy being indirectly controlled by Syria -- while remaining the potential battleground for all regional confrontations. Another factor of tension was the Lebanese parliamentary elections which created a climate of serious dissatisfaction in the country. The elections were denounced as fraudulent by the opposition (mostly Christian) and by the majority of people who were interviewed during fieldwork. The amendment of the electoral law was seen as creating the necessary framework for undermining the opposition. Despite rising tensions, Syria and the reappointed Prime Minister Rafic Hariri, act as guarantors of domestic political stability. The reconstruction process seems to be focused on physical infrastructure at the expense of broader socially oriented programmes. Access to education, health care, training, research and credit should receive much more attention. Environmental protection and improvement should also be paramount, given the damages caused by the war and the chaotic attempts at reconstruction afterwards. The real quality of life of Lebanese citizens could be greatly improved by an amelioration of the pollution of air and water, the reduction in congestion and reforestation. Efforts have been made in that direction, mainly with foreign aid, but remain small scale. It is important that development and not merely growth be sustainable, to give all groups in Lebanon a sense of sharing in the efforts and benefits of reconstruction. |
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3. THE ECONOMIC SITUATION A brief synopsis of the Lebanese economy from the 1960s to the present[13] |
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| In the modern economic history of Lebanon we can distinguish three phases, determined by the civil war that lasted from 1975-90. The first phase, the pre-war economy, which was characterized by a sense of prosperity and the hope of a lasting development; the war economy, which has been characterized by a widespread loss of human and physical capacity; and finally, the post-war economy or the reconstruction phase, in which a mixture of hype and scepticism is creating an active but speculative environment still subject to sharp reversals.
3.1 The pre-war economy The image of a prosperous Lebanon is mainly due to its success in the late 1960s and early 1970s, in using adequately its human, institutional, and geographical resources to benefit greatly from the rapidly expanding wealth of the oil-rich Arab Gulf countries. The development of a modern financial and service sector that channelled the flow of income from the oil boom, the use of its ports, airports and transportation and communication networks for the transit of goods to and from the Arab countries, the large remittances from the supply of an educated and entrepreneurial workforce to the Gulf economies, and finally the exploitation of the beautiful natural environment for luxury tourism and real estate investment, created a dynamic and rapidly modernizing economy.Lebanon's role as a necessary intermediary in this period can be understood as arising from three main factors that ought to be assessed in relation to their characteristics in the region as a whole. First the natural geography of Lebanon, with a coastline open to the West at the cross roads of Europe and the Arab countries, established its prime locational advantage for the transit of goods. Second, with one of the most highly educated population outside the most industrialized countries, and the existence of an advanced and diversified university system catering to the whole region, Lebanon had a growing supply of human capital. That supply provided the Lebanese and Arab economies with a skilled labour force and qualified professionals able to take advantage of employment opportunities offered by rapid regional development. Finally, on the institutional level, the combination of a politically liberal democracy and a market oriented economic system, in a region constituted mainly of autocratic political regimes with centralized economies, created an environment capable of tremendous dynamism and adaptation. Beirut was thus able to attract the human and material resources of the region, in search of a relatively familiar safe haven, in which banking secrecy, a modern financial and communication structure, political tolerance and a free multilingual media were in operation. The interaction of these factors made Beirut the centre for international companies wishing to do business in the region, while at the same time having access to modern infrastructure, information and qualified labour. All these factors contributed to an impressive record in the last decade before the civil war, characterized by a low inflation-high growth path (around 6 per cent annual real growth of GDP and an average inflation level around 5 per cent), with a high balance of payment surpluses and even a fiscal surplus in the last years before the war. The GDP per capita in 1974 was 2,980 Lebanese pounds ($US1,279). As a result, the confidence in the Lebanese economy was rising as witnessed by the steady appreciation of the Lebanese pound against the dollar, averaging 25 per cent between 1965 and 1974. While the Lebanese economy had a clear comparative advantage in services, the existence of sizeable agriculture and expanding manufacturing sectors provided some balance to the development of Lebanon. The sectoral breakdown of GDP (and employment in parenthesis) in 1965 was 12 per cent (29 per cent) in agriculture; 21 per cent (24 per cent) in manufacturing and 67 per cent (47 per cent) in services. The oil-rich Arab countries accounted then for 61 per cent of Lebanon's exports.
3.2 The war economy As has been noted, the war which broke out in 1975 had a devastating impact on the economy. The intensity of the conflict, and its longevity has had deep human and structural effects. More than 5 per cent of the population died, twice as many wounded and an enormous amount of immigration out of Lebanon has seriously reduced the human capital of the country that was an essential part of its previous development. It was estimated that during the war more than 200,000 professionals and skilled labourers emigrated to find employment outside the country. A very large amount of capital flight has accompanied this massive human migration, depriving the country of much needed financial resources. The destruction of public infrastructure, buildings and communication networks was large scale and has been estimated by the United Nations as valuing $25 billion.But the actual damage is certainly larger. The war removed the primary reason for the initial success of Lebanon, the confidence in the stability of its system in a politically unstable region. Much of the industrial equipment and productive capital spared is obsolete due to the lack of maintenance. For an economy-servicing regional capital in search of minimal political risks and uncertainty, the civil war was devastating. Lebanon missed most of the potential benefits and opportunities from the oil boom of the mid-seventies to the early eighties. It lost most of the foreign companies doing business in the area to neighbouring countries, and lost its role as the regional business capital. At the end of the war in 1990, real GDP was at 33 per cent of its 1974 level of $3.5 billion. The fluctuations in output from 1975-90 reflects the varying intensity of the war in Lebanon. The initial drop in output in the first two years of the war was of the order of 65 per cent, but it recovered half of its loss as soon as the situation stabilized in 1977. The Lebanese pound depreciated slightly but held up quite well during the initial years of the conflict. Inflation was up at about 20 per cent a year. Output started increasing slowly but steadily until the Israeli invasion in 1982. The invasion wrought huge destruction in Beirut and south Lebanon and created a serious crisis of confidence leading to a 4 per cent depreciation of the currency with respect to the dollar, attaining its lowest level at 5.49 pounds to the dollar in 1983. This started the phenomenal slide in the value of the pound all through the remaining years of the war. Although GDP started to pick up again in the succeeding years, recovering in 1987 up to 92 per cent of its 1974 level, the confidence was not restored.
3.3 Post-war economy The passing into law in 1990 of the reforms agreed by most warring factions of Lebanon in the Taef meeting put an effective end to the civil war and ushered a new phase in the economic history of the country. The Hariri Government's priority is economic rehabilitation. At the time of writing, positive results have been seen from both government and private initiatives. Still, doubts remain over major issues.Broadly speaking, the economic plan of the Government has the following objectives: first, achieving political and fiscal stability in order to restore the credibility of Lebanon and confidence in its economy, as a precondition to the repatriation of capital and skilled labour. Second, the reconstruction of the public infrastructure of roads and communications and utilities network and the strengthening of the public institutions and administration are preconditions for the growth in business activity, finally attracting foreign financing and investments and the rehabilitation of Beirut as a modern commercial and financial centre for regional businesses and tourism. As explained in Chapter 2, the Government has developed ambitious reconstruction and financing plans for the country aimed at achieving these goals. Initially, in 1991, the Government commissioned consulting firms to prepare a $3 billion national emergency reconstruction plan to be implemented in three years. Slow progress has led the new Government in 1993 to release a more ambitious ten year plan (Horizon 2000), involving some $13 billion in planned investments and debt charges. The Plan's targets seemed too ambitious and will need to be revised downwards. The most obvious sign of the regained stability and the partial restoration of confidence in the Lebanese economy is the recent reversal of the slide in the value of the Lebanese pound against the dollar and of the dollarization of the economy. After reaching a very low value against the dollar at the end of 1992, the Lebanese pound has been steadily appreciating since then. The stability of the pound was put through a test after the Israeli attack in southern Lebanon in April 1996, and showed surprising new strength in the face of a short-term crisis. The dollarization of the economy that has followed the depreciation of the pound against the dollar quite closely has declined significantly. The ratio of deposits in foreign currency (mainly dollars) to total deposits decreased from a high of 90 per cent in 1988 to around 60 per cent in 1994. As a consequence of, and also partly as a cause of, the appreciation of the currency, the inflation rate in the economy has slowed down from a high of around 125 per cent in 1992 to 15 per cent in 1995. Underlying these reversals are a tighter monetary and fiscal policy since the end of 1992. An increased discipline in the controlling of the fiscal deficit has been requested by the World Bank and the IMF as a condition for increased loans to Lebanon. In large part, the improved expectations of economic agents reflected in the financial indicators above, are based on the improvement in the real productive capacity and performance of the economy. After a plunge of 45 per cent of GDP in real terms in 1989, followed by a decrease of 14 per cent in 1990, the economy rebounded in 1991 by 38 per cent, and has since experienced annual growth rates of real GDP between 5 and 8 per cent. Future output growth is tightly linked to the renewal and expansion of productive capital. In 1994, gross capital formation represented 28.3 per cent of GDP, reflecting a positive long-term prospect from the part of the local industries, investing in new capital to replace and expand their productive capacity. The sectoral composition of GDP is not very different from what it was before the war. In 1992, agriculture accounted for 12.6 of GDP, manufacturing 18.5 per cent, construction 10 per cent, commerce 28 per cent, non-financial services 17.5 per cent, financial services 8 per cent, and about 5 per cent for public administration. Transport equipment alone represented more than 11 per cent of total imports in 1995. Agriculture has always represented a bigger share of employment than of GDP, hence its importance in the social and economic situation of Lebanon. In 1985 it employed 23 per cent of the labour force while only contributing 9 per cent of GDP. Its share of employment is probably larger now. Furthermore, agricultural exports have been a stable source of foreign exchange, as are those of the agriculture-based processed food and beverages. Various irrigation projects are being studied to increase the productivity of the land in various areas. After having suffered great losses during the Israeli invasions of 1978 and 1982, and the subsequent ban of Arab countries on agricultural imports of Lebanon, due to the suspected infiltration of Israeli products, the exporters are regaining their traditional markets now. The sector still suffers from lack of systematic irrigation, small land holdings, qualified labour, and especially a lack of access to credits which prevents modernization. In 1994 agriculture received only 1.25 per cent of loans distributed to the private sector. The manufacturing sector has been trying to recover from the destruction of productive capital, and started reinvesting in modernization and replacement of equipment, without government support. These investments reached $170 million in 1994. The great majority of Lebanon's exports originate in the manufacturing sector. The sector, and especially labour-intensive industries like clothing, textile and furniture, have benefited from the reduction in labour costs and the devaluation in the currency, making their exports competitive. Between 1991 and 1995, exports rose by 51 per cent, from $545 million to $827 million. This good performance has been accompanied by an increasing diversification of the manufacturing sector with new firms established in the chemical, cosmetics, paper, solar equipment, pharmaceuticals and food processing. Access to credit is still very restricted; only 9.5 per cent of bank loans to the private sector were awarded to manufacturing. In 1994 the construction sector accounted for 10 per cent of GDP, it employed local skilled workers but mainly foreign unskilled workers. After being one of the most dynamic sectors in the recent years, the construction sector has slowed down in 1996, due to an over-supply from the boom of previous years, very high interest rates and too little credit to consumers. The banking sector was consolidated after having gone through a crisis in 1991 and 1992, when the Central Bank withdrew the licence of 15 banks and seven other banks ceased operation. Mergers among commercial banks also contributed to the consolidation process. Total bank assets rose from $15 billion in 1994 to $19 billion at the beginning of 1996 and a few banks recorded profit increases exceeding 20 per cent. The insurance sector has not shown signs of strong revival, mainly due to excessive damage during the war and strong competition from other regional companies. Tourism has started to pick up again, after a complete halt. Major hotels have been reopening in Beirut and plans for the expansion of capacity are being implemented. The advertising sector has boomed in the nineties, with more than 150 advertising firms and an annual expenditure on advertising of $152 million in 1993, up from $26 million in 1992, fuelled partly by the explosion of television broadcasting stations and other mass media. Construction and general trade received more than 66 per cent of all banking loans to the private sector.
3.4 Conclusion The overall picture drawn by these figures reflects a definite renewal of economic activity in Lebanon. They should not, however, cause complacency concerning the potential problems threatening the sustainability of the development path that Lebanon seems to be taking. The sustainability of progress has to be understood in its economic, political, social and environmental sense. Nowhere more than in Lebanon is the interdependence of these factors so critical, especially in the context of analysing a post-war development path for the county. The belief that Lebanon's prosperity will derive from the development of services and in particular financial services is leading to a neglect of agriculture and manufacturing. These are vital components of the economy, especially in terms of employment and exports and have definitely not reached their full potential. The danger of the current bias is that it reflects an image of a future of the country that has more to do with perceptions of its past prosperity rather than with reality.On the socio-economic side, the issue of unemployment, wages and the distribution of income are the most important. The rate of unemployment has been estimated in 1990 to be 35 per cent. As noted, the average duration of unemployment for 66 per cent (EIU 1995) of the unemployed is longer than six months. In agriculture, this is true of 79 per cent of the unemployed, 51 per cent in services and 44 per cent in industry. During the period 1974-93, real minimum wages in terms of Lebanese pounds and dollars have declined 86 per cent and 43 per cent respectively. While good for exporters, it puts most of the weight of the cost of reconstruction on those who can bear it the least. This issue has been the source of most internal troubles since the end of the war. The Government has repeatedly offered wage increases, but fall quite short of meeting the demands of the Confederation of Lebanese Workers. For progress to be sustained in the country, the economy needs to more inclusive and designed to reduce income inequality. The belief that the trickle-down effect of successful growth will resolve most of the social issues of poverty and unemployment is dangerous, especially in light of the experience of Lebanon before the war. The risks associated with a social-political explosion are too high and Lebanon should have a real sense of its potential cost. |
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Naila Nauphal
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