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French Version

Lebanon faces economic battle

New Cabinet has the experience needed to prevail but do they they have the will?

Analysis

Prime Minister designate Fouad Siniora has finally appointed the right people in the right places in the new 24-member Cabinet to carry out the long-awaited economic reforms he has been striving to achieve.

After three weeks of hectic negotiations with President Emile Lahoud, Siniora snatched the finance, economy and telecommunication ministries and left the energy and agriculture ministries to his allies.

These ministries hold the key to any effective economic plan because it will allow Siniora to privatize the telecom and electricity sectors and securite the projected revenues of other state-owned firms such as Casino du Liban, and the Regie tobacco company.

The formation of the Cabinet comes amid alarming reports on the Lebanese economy.

London-based Economist Intelligence Unit ( EIU) projected 2 percent GDP growth in 2005 as a result of the poor economic indicators in the first few months and to uncertain political future of the country.

"All available indicators suggest that the economy slowed sharply as consumers and investors responded negatively to the deepening political crisis. The tourism sector was particularly badly affected, and has been slow to recover," EIU said.

It added that Lebanon's overall external account moved into deficit during the first four months of the year, as the trade deficit increased and the country's usually-reliable capital and nonmerchandise inflows slumped in the aftermath of the assassination of former Prime Minister Rafik Hariri. "The downturn appears to have reversed over subsequent weeks, however, boosted by the sale of a new government Eurobond."

Siniora, who was finance minister in all of Hariri's Cabinets, realizes that the rules of the game have changed in his favor for the first time.

To begin with, Siniora enjoys the support of most of the Cabinet members, in addition to the backing from Hariri's strong bloc in Parliament.

This means some 70 percent of the Cabinet will likely vote in favor of economic plans presented by Siniora and his ministers.

Hariri failed to implement any of the reforms promised at Paris II conference due to sharp disputes with Lahoud and his supporters.

Privatization of the telecom, electricity and water services never materialized, prompting the United States and France to send a clear warning to Lebanon that the country will not get any aid if reforms were not carried out.

With a public debt of more than $36 billion and sluggish economic performance, the Cabinet will definitely push for radical reforms in the next few months to reduce the budget deficit and breathe life into the economy.

Finance Minister Jihad Azour, who served as adviser to Siniora when he was a finance minister, will have his mettle tested in the next couple of months as he comes under increasing pressure to change the negative picture which shrouded the country after the assassination of Hariri.

Apart from reducing the debt and stimulating the economy, Azour will have to review the tax system in order to generate more revenues but without imposing additional taxes on the Lebanese.

It is estimated that nearly 50 percent of the Lebanese do not actually pay their taxes and 55 percent don't even pay their electricity bills, according to economists.

Former Energy and Water Minister Bassam Yameen fiercely defended the privatization camp in Lebanon, stressing that the state should not spend any more money in rehabilitating the power plants.

He added that privatizing the entire electricity sector, including distribution and production plants, will save the government a lot of money.

Former Energy Minister Ayoub Humayed said earlier that the government spends more than $450 million a year to cover for the losses of Electricite du Liban.

Most of the allocations cover the cost of fuel oil that runs all of Lebanon's power plants.

Azour, who was very instrumental in introducing reforms, will probably look into ways to reduce the size of the overblown public minister will not proceed with this step without the full backing of the entire Cabinet.

Siniora called for the elimination of the Ministry of the Displaced, and other bodies such as the Council of the South.

He also favored reducing the number of military personnel that cost the country $1.2 billion a year.

But this plan was met with skepticism by his opponents in the new Cabinet.

Siniora also surely encourage the new Telecommunication Minister Marwan Hamade to find strategic partners for Lebanon's two mobile networks that are currently managed by Kuwait's Mobile Telecom Company and Germany's Detecon.

Despite the four-year contract, the government is authorized to terminate the contracts with the two firms after giving them six months notice.

The government currently generates more than $900 million a year from the fixed and mobile networks.

But can the government proceed with its ambitious plan to bail the country out of its economic limbo amid internal and external pressures?

Beirut,07 25 2005
Osama Habib
The Daily Star
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