A view towards the future: 
Determining Lebanon's economic and political identity

by Rafic Al- Hariri

          Over the past 20 years global and regional economic developments, including the information technology revolution and its impact on productivity, the emergence of the Asian Tiger Economies as major economic powers has altered the global competitive structure. The almost universal acceptance of free market economics, and the decline in transport and telecommunications costs have led to the globalization of production and marketing. At the same time, Arab economies have developed significantly. Consequently Lebanon faces new challenges that must be addressed in the context of the war decades and the post-war revival period that rendered Lebanon, once again, among the group of advanced middle income countries. 

          Furthermore, these global and regional developments have altered the rules of international comparative advantage. Production, trade, and finance have become far more dependent on human talent, initiative, quality, and innovation rather than on natural resources, geographic location or mass production. As a result, many countries across the globe have experienced rapid economic growth despite the paucity of their natural resources.

          The economic fate of nations is no longer determined exclusively by the availability of natural resources. Countries can now play a far more active role in creating their own comparative advantage. Hence, small, resource-poor countries, like Lebanon, now have broad opportunities to grow and develop. It is therefore imperative to convert these new challenges into national and economic opportunities. The main challenge facing Lebanon today is the revitalization of its economy so as to enhance its competitiveness, create job opportunities, and improve the standard of living of the Lebanese through balanced development. Achieving these goals depends on the following factors.

1. Maintaining democracy, freedom, the rule of law, and the independence of the judiciary:

          It is by now obvious to all political leaders, international civil servants, fund managers, and investors that economic revival is contingent on the rule of law, a total and complete respect for
individual freedoms, including those of convictions, belief and expression, and the complete independence of the civil and administrative judiciary from political interference and pressure.

2. Renewing confidence in the Lebanese economy and reinforcing its attributes:

          In this context, it is crucial to reinforce Lebanon's fundamental economic strengths namely:
  • Support for individual initiatives.
  • Free mobility of capital.
  • Freedom of currency exchange.
  • Legislative and tax stability.
  • Banking secrecy laws.
  • A free and liberal market economy.

3. Establishing a foreign policy with economic returns:

          The global economic developments mentioned above have intensified economic competition between countries, which in turn has transformed foreign policy into an effective tool in the economic contest and in the race to open markets for national products, to attract foreign investments, and to obtain grants and concessionary loans. Consequently small countries such as Lebanon can no longer afford to ignore this new economic tool, which is based on an effective foreign policy in the service of the national economy.

4. Addressing the fiscal situation:

          Economic growth is the best vehicle to combat the fiscal deficit as it will allow the government to increase its revenue share from a growing economy without adversely affecting the current income level of the Lebanese people. On the other hand, attempting to increase the ratio of public sector revenues to GDP is not feasible in the context of a contracting economy, as it would only lead to a decline in total revenues and an intensification of the recession. Consequently, there is no alternative to placing the economy on a sustainable growth path and thus providing new job opportunities for thousands of young Lebanese.

          Clearly a combination of a modern basic infrastructure, sustained confidence in the economy, expenditure stabilization, revitalization of private sector activity, and a revised public sector role constitute together the appropriate policy mix that promotes economic growth and encourages capital inflows. This in turn would have lead to a reduction in domestic interest rates - while preserving exchange rate stability - and to the ability to increase treasury revenues from the national economy while expanding job opportunities. In summary, this policy mix allows for a soft landing of the economy and for a gradual and orderly reduction in the deficit and in the debt burden.

To reduce the costs of production, the following policy initiatives are required:

A : Privatization: 

          Naturally, greater private sector participation in the provision of public services such as electricity, telecommunications and water promises to improve productivity and efficiency, while providing the necessary additional investment. Enhancing the role of the private sector in these areas could also provide additional support to the treasury. Nevertheless, any private sector participation in these sectors should be predicated on a strategic view of the particular sector and on the condition that the quality and cost of these services be far more attractive to consumers. This, in turn, will increase the productivity and competitiveness of the private sector and thus enhance economic growth.

B : Administrative reform:

          Lebanon is now at the stage where serious efforts to modernize the public sector can be considered. Naturally this should be coupled with a major drive to expand the role of information technology in the provision of public services and the electronic transfer of documents and information between citizens and the public sector. Only through the simplification and modernization of our systems and procedures, along with reducing the need for excessive interaction between citizens and employees, by minimizing and eventually excluding middlemen, will the public sector become transparent and efficient.

          n addition, it is now time to redefine the role and size of the public sector and the extent of its co-operation with the private sector and civil society.

C: Encouraging the productive sectors

          One of the main policies that would enhance the competitiveness of the Lebanese economy is to encourage the productive sectors. However, this also requires simultaneous movement on other fronts, including privatization and administrative reform. Clearly, reducing the cost of electricity, water and telecommunications through privatization would significantly promote the productive sectors. Moreover, determined efforts to reform the civil service would render the public sector a strong supporter of private sector activity.

          There are broad opportunities for enhancing the growth of the productive sectors and the creation of new jobs capable of absorbing the talented youth of Lebanon. However, this hinges on the ability to respond to the regional economic changes that have occurred over the past two decades. 

This can best be achieved through the following measures:

          First: Building on previous achievements to encourage and develop the services sector with particular emphasis on Lebanon's geographic location and natural characteristics.

          Secondly: Increasing Lebanon's competitiveness in information technology, the fastest-growing sector internationally. This requires upgrading and expanding the communication and information technology infrastructure and reviewing the fees charged for its use. 

          Thirdly: Revitalize the productive sectors through the provision of low-cost financing mechanisms that would enhance their growth along the lines of the previous government's interest rate subsidy to promote
tourism, industry and agriculture, or through the expansion of credit facilities to these sectors. 

          Fourthly: Given that modern agriculture and industry are no longer dependent on mass production and are now heavily affected by quality considerations and the development of niche markets, both sectors could be reinforced and expanded through a restructuring of their enterprises and the adoption of modern technologies. Furthermore, these sectors can be supported by the services industries, including financial services, marketing, packaging and the introduction of brand identification, thereby creating new comparative advantages for Lebanese products. 

          Fifth: Thanks to the trade agreement with Syria, negotiated by the previous government, it is now both in the capability and interest of Lebanon to carefully study the potential for complimentary exchange between the agricultural and agro-industrial sectors of Lebanon and Syria.

          Sixth: Pursue the development of the already competitive financial sector and establish appropriate guidelines for a strong insurance sector. 

          Seven: Developing the human element: Lebanon will not be able to effectively interact in the new millennium without clear policies that regenerate Lebanese talent and develop it at all levels of employment and creativity, including politics, culture, economics and scientific pursuit. With this in mind, the modernization of the education sector, especially technical and vocational training, and the strengthening of its credibility and social dimensions should form a direct and specific national objective. This will enable Lebanon to bridge the development and time gaps resulting from the war years.

          Eight: Rendering social services more effective: It is time for us to refocus our attention on social issues with a view to improving our social programs rather than simply increasing public spending on social sectors. Consequently, major efforts need to be directed at modernizing and reforming social security programs. 

          Additionally, we need to introduce far greater consistency, efficiency, and modern business practises in the delivery of health and education services. In this regard, we believe that municipalities and society at large, which are far more capable of overseeing these activities at the local level, should have a far greater input in the management and direction of public school and hospitals. Naturally, the central government ministries should continue to ensure quality control and standards. In this context, the main burdens \preoccupying the Lebanese revolve around the need to ensure that their requirements for healthcare, education, housing, social services are met, and that they have the ability to pay their electricity, water and telephone bills. As mentioned before, enhancing the role of the private sector in the provision of electricity, water and telecommunications must be coupled with a reduction in the cost of these services, which should be passed on to the consumer.

          Raising the level of health, education and social services and expanding their scope requires greater co-operation between local and municipal authorities, civil society and central government. Nevertheless, central government must remain responsible for building public schools where needed, the development of educational programs, and for setting quality standards and overseeing their implementation. Efforts should also be directed toward widening the coverage of social security and health insurance through a reassessment of the operations of all public sector institutions related to this domain, and through greater co-operation with private insurance and pension funds. In order to improve the quality of these services and reduce their costs.