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Lebanon - Analysts say arrest of security chiefs will have minimal impact on Lebanese market

The arrest of former Lebanese security officials suspected in their involvement in the assassination of former Prime Minister Rafik Hariri will have a limited impact on the economy in the short term, economists and bankers said. "There may be some implications in the shorter term on the economy as investors wait until the situation settles in. However, the government is quite capable of weathering any pressure on the pound," said Assem Safieddine, head of the Financial Department at the American University of Beirut.

He added that Prime Minister Fouad Siniora and Finance Minister Jihad Azour are capable persons and can guarantee that the monetary system will not be affected.

Azour had said earlier that the government has beefed up the foreign currency reserves in anticipation of any outcome from the UN teams report on the assassination.

At present, the Central Bank has more than $11.5 billion in gross foreign currency reserves which should last Lebanon five months at least in case of worst case scenario.

A UN team investigating the assassination of Hariri asked the Lebanese authorities to detain five top officials for further investigation.

The Lebanese have been awaiting the outcome of the UN probe because it would mean the spate of assassinations and bombs would come to an end.

The spate of violence and the sharp political discord have caused damages to the Lebanese economy in the first six months as capital inflows and investments recorded a drop.

"The impact on the financial market in the short is everybody's guess. But in the longer term Lebanon has much to gain," Safieddine told The Daily Star.

Observers wondered if the UN team may even reach higher ranking people such as President Emile Lahoud and what kind of reaction the market will have.

"If the authorities question or even arrest people who at point were considered untouchables may relax the public," one banker said.

He added that the Lebanese want the truth at any cost.

"As long as these investigations do not trigger some kind of confessional war like the Sunnis and the Shiites then the country can cope with any political development," the banker said.

Economist Marwan Iskander hailed the arrest of the former security officers, calling it the beginning of the end of the Syrian hegemony in Lebanon.

"Investments will start pouring in on Lebanon next year at the most," Iskander said, adding that there is no reason for any panic in the market.

But despite the assurances by some economists that Lebanon will survive the fallouts of the investigation, others said that the GDP forecast at the end of the year will be negative one to five percent.

"The economy is shrinking and the money is leaving the country. How can we talk about optimism if the economic indicators are all down?" economist Elie Yashoui asked.

He added that the public debt will surely go beyond the $36 billion ceiling at the end of 2005.

However, Yashoui said that the Lebanese can live with a public debt as long as the government takes immediate action to reform the economy.

"Gulf companies will always be interested in maintaining their investments in the real estate sector in Lebanon especially with the amazing rise in the prices of oil."

Yashoui added that the government should replace the Central Bank governor Riad Salameh because his monetary policies have damaged the Lebanese economy.

"Salameh had spent $4 billion this year just to protect the Lebanese pound. This is a wrong and costly policy."

Beirut,09 05 2005
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The Daily Star
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