It’s been party time in Lebanon. At the Baalbek music festival, Vanessa Mae, the violinist renowned at least as much for her sexy image as for her playing, wowed 4,000 at the Temple of Jupiter. At the Beiteddine palace, Tito Puente and Celia Cruz brought salsa and mambo to the Chouf. And in Tyre, Iraqi-born Kazem al-Saher drew the biggest crowd of all, packing 5,000 people into the Hippodrome on a sultry Friday evening.
Sadly, the Monday morning after this weekend of international glitterdom would have brought many partygoers back down to earth with a bump. Fifteen years of civil war have left much of Beirut still bullet-scarred and potholed despite the recent reconstruction efforts. The shoreline and promenade, which in any other city would be the centre of a lucrative tourist trade, still front a landscape of empty plots littered with rubble. Recent Israeli bombing raids on non-military targets – in particular power stations – have left most streets unlit and every business and household at the mercy of frequent power cuts. Fortunately most – including the Blue Note jazz café on Rue Mahoul – have kept the generators that powered the city during the war and so carry on regardless. The jets fly low once or twice a day, their sonic booms a not-so-subtle reminder that down south a war is still being fought, a war Israel would like Beirutis to remember.
It’s not just its generator that makes the Blue Note a good indicator of the country’s deeper malaise. Despite serving some of the world’s strongest vodka tonics, it is empty. So too was the Hard Rock café in Hamra. Its barmen are so bored they’ll feed the pool table, rack up the balls, chalk your cue and then stay to watch the game. Even local – and therefore cheap – dive Chez André, recommended by the Hard Rock’s bartender, had more staff than customers. The few beautiful people left sun themselves by the pool at the Riviera Hotel – a spot known as silicone beach – or dance to ’70s hit Greased Lightning at the other Hard Rock on the seafront.
The seeds of the present situation were sown by the previous regime, led by president Rafik Hariri. Although Lebanon suffered high indebtedness and large budget deficits even before the war, Hariri’s drive for reconstruction sharply increased public investment. This led to higher domestic and foreign borrowing and heavy reliance on treasury bills as a relatively non-inflationary method of financing the budget deficit. In 1998 the budget deficit was 59% of expenditure and the government had to resort to the Eurobond market to cover the shortfall. After the introduction of a long-term economic reform package, the deficit fell to 43.3%, still way above the previous year’s target. Around 40% of the deficit is made up of interest payments, another 40% represents costs associated with the bloated public sector. Hariri bet on an early peace settlement and he bet wrong. Without a peace dividend the situation looks grim particularly since the finance minister and minster for economy are said to be barely on speaking terms and the advisers to these two are at each other’s throats, as well as fighting the economic advisers to the president.
After significant growth in the years following 1992, the economy has slowed dramatically and now faces recession. Strangely, the government’s response has been to choose now as the time to tackle the tax-collection problem. With tax collection running at around 14% of GDP against a regional average of 25%, Lebanon clearly has a problem. However, fiscal tightening in the face of recession is unwise, particularly given the high real interest rates the government needs to attract investors into the T-bill market and to keep the currency stable.
The increases in real-estate tax will hit the country’s flagship company, Solidere, hard. The company, which is in charge of the biggest redevelopment and infrastructure projects, is a bellwether for Lebanon’s fortunes. Suffering from its perceived association with Hariri and his Saudi backers, facing lawsuits from pre-war landowners and unable to fill its new buildings, the company is looking to cut budgets by 35%. Tax increases don’t help.
Elsewhere, companies threatened by tax increases respond with suggestions that they’ll relocate to Cyprus to avoid the new regime.
Another sign of economic hardship – and also of cultural difficulties in adapting to the new world order – is the fate of recent graduates from the Lebanese American University. Seven hundred have just been given a lesson in the harsh realities of the job market by Issam Naaman, the minister for post and telecommunications. “Sectarian%
