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WEEKLY NEWSLETTER
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Lebanon
Index
Lebanon traditionally has had a dynamic economy. In the years
leading up to the Civil War, the country enjoyed high growth rates,
an influx of foreign capital, and steadily rising per capita
income. Although imports were often five or six times greater than
exports, earnings from tourism, transit trade, services, and
remittances from abroad counterbalanced the trade deficit.
In 1973 (the last prewar year for which detailed figures were
available in late 1987), GDP at current prices totaled US$2.7
billion, compared with just US$1.24 billion in 1966. In 1974 GDP
rose to around US$3.5 billion because of an increase in the value
of the Lebanese pound. Per capita GDP rose from around US$560 in
1966 to US$1,023 in 1973 because productivity increased faster than
population growth and because the Lebanese pound gained ground
against the dollar.
The Lebanese economy was healthy in the years leading up to the
Civil War. The service sector grew fastest during this period.
Commerce grew at almost the same rate and by 1973 accounted for
almost one-third of GDP. The growth of commerce had important
implications because customs duties were a major part of government
revenues, sometimes amounting to nearly half of the government's
total income. The Lebanese pound was strong, credit was easy, and
there was a balance of skilled and unskilled labor. Internal
markets were protected, and Lebanese industry was finding
increasingly useful outlets abroad, notably in the Persian Gulf
countries.
The petrodollar boom that followed oil price increases by the
Organization of Petroleum Exporting Countries after the ArabIsraeli October 1973 War led to a period of expansion for Lebanon.
Lebanese banks became major channels for soaring Arab oil revenues.
In addition, Arab, West European, and American bankers bought
shares in Lebanese financial institutions to secure a share of the
profits.
Economic development, however, was uneven. The government was
so wedded to free enterprise that it essentially failed to reduce
economic and social inequities in various communities. President
Fuad Shihab (also cited as Chehab) made some effort to remedy these
inequities by pursuing development projects in the traditionally
neglected south and north
(see The Rise of Shihabism, 1958-64
, ch.
1). But the center of the country--Beirut and the central Biqa
Valley--was riding a seemingly never-ending economic boom.
The impetus for socially oriented economic development declined
under Shihab's successor, Charles Hilu (also cited as Helou), and
disappeared entirely under President Sulayman Franjiyah (also cited
as Franjieh)
(see The Hilu Era, 1964-70
;
The Franjiyah Era, 1970- 76
, ch.1).
The consequences of economic neglect were felt in the
late 1970s and the 1980s, as
Shias (see Glossary),
who had migrated
from the south and the outlying reaches of the Biqa Valley, made
their increasingly militant presence felt in Beirut, transforming
the southern half of the city into a new, Shia canton, to rank
alongside overwhelmingly Christian East Beirut and predominantly
Muslim (i.e.,
Sunni and
Druze--see Glossary) West Beirut
(see Sectarianism
, ch. 2).
The first nineteen months of the Lebanese Civil War (April
1975-November 1976) witnessed widespread destruction of
infrastructure and services, mostly in Beirut. Industry sustained
direct damage valued at between L£5 and L£7 billion. Indirect
damage was valued at between L£972 million and L£2.23 billion. Some
250 industries, capitalized at L£1 billion, were destroyed, and as
much as one-fifth of industry's fixed capital was lost. After the
first nineteen months of fighting, losses amounted to L£7.5 billion
(L£6.2 billion sustained by the private sector and L£1.3 billion by
the public sector), according to the Beirut Chamber of Commerce and
Industry.
Post-1976 recovery was limited, with industrial production
approaching only two-thirds of prewar levels. Further clashes in
l978 again hampered production. Although in 1980 industrial output
in current financial terms appeared to exceed prewar levels,
inflation had rendered such comparisons almost meaningless. In 1979
the newly established Council for Development and Reconstruction
(CDR) unveiled a L£22 billion reconstruction program to span five
years, backed by Arab aid
(see Aid and Reconstruction
, this ch.).
Only some of the proposed reconstruction work was initiated,
however.
Instability ruined the tourist industry. The Civil War included
the notorious battle of the hotels, in which the Phoenicia, St.
Georges, and Holiday Inn--all major luxury hotels--became fiercely
contested militia strongpoints
(see The Early Stages of Combat
, ch.
5). A score of smaller establishments suffered the same fate, as
fighting ripped through the heart of the capital. Because the
hotels were close to the
Green Line (see Glossary),
which divided
the warring factions, they were forced to remain closed for
business when the fighting stopped
(see
fig. 9).
After the war, there were indications that a less centralized
industrial economy might emerge. The cities of Zahlah, Sidon, and
Tripoli, for example, enjoyed a boom. But growth in these cities
reflected fragmentation of the country as much as economic revival.
Lebanon's ability to export industrial goods was damaged by
internal unrest and external pressures. The good reputation once
enjoyed by Lebanese clothing manufacturers was undermined by
imports of cheaper garments that were relabeled and reexported as
"Lebanese." By the end of 1981, Iraq had halted all imports of
Lebanese garments, and Egypt had frozen preferential terms for
Lebanese industrial exports because of false labeling. Although the
Egyptian and Iraqi measures were rescinded in 1982, they were
symptomatic of the pressures that Lebanon faced throughout the
1980s.
Events elsewhere in the region also had an impact on Lebanon.
A tripling of world fuel prices between 1973 and 1981 reduced the
country's competitive edge. When Syria imposed restrictions on
transit trade, freight forwarders found it increasingly uneconomic
to ship goods to Persian Gulf destinations via Beirut. The prices
of imported raw materials were higher than ever, while export
markets were increasingly restricted. Thus, even before the Israeli
invasion of 1982, the Lebanese economy was in bad shape.
Data as of December 1987
The economic prosperity of Beirut can be seen in
this photograph taken before the 1975 Civil War
CourtesyAramco World
Civil War and Partial Recovery, 1974-82
Lebanon traditionally has had a dynamic economy. In the years
leading up to the Civil War, the country enjoyed high growth rates,
an influx of foreign capital, and steadily rising per capita
income. Although imports were often five or six times greater than
exports, earnings from tourism, transit trade, services, and
remittances from abroad counterbalanced the trade deficit.
In 1973 (the last prewar year for which detailed figures were
available in late 1987), GDP at current prices totaled US$2.7
billion, compared with just US$1.24 billion in 1966. In 1974 GDP
rose to around US$3.5 billion because of an increase in the value
of the Lebanese pound. Per capita GDP rose from around US$560 in
1966 to US$1,023 in 1973 because productivity increased faster than
population growth and because the Lebanese pound gained ground
against the dollar.
The Lebanese economy was healthy in the years leading up to the
Civil War. The service sector grew fastest during this period.
Commerce grew at almost the same rate and by 1973 accounted for
almost one-third of GDP. The growth of commerce had important
implications because customs duties were a major part of government
revenues, sometimes amounting to nearly half of the government's
total income. The Lebanese pound was strong, credit was easy, and
there was a balance of skilled and unskilled labor. Internal
markets were protected, and Lebanese industry was finding
increasingly useful outlets abroad, notably in the Persian Gulf
countries.
The petrodollar boom that followed oil price increases by the
Organization of Petroleum Exporting Countries after the ArabIsraeli October 1973 War led to a period of expansion for Lebanon.
Lebanese banks became major channels for soaring Arab oil revenues.
In addition, Arab, West European, and American bankers bought
shares in Lebanese financial institutions to secure a share of the
profits.
Economic development, however, was uneven. The government was
so wedded to free enterprise that it essentially failed to reduce
economic and social inequities in various communities. President
Fuad Shihab (also cited as Chehab) made some effort to remedy these
inequities by pursuing development projects in the traditionally
neglected south and north
(see The Rise of Shihabism, 1958-64
, ch.
1). But the center of the country--Beirut and the central Biqa
Valley--was riding a seemingly never-ending economic boom.
The impetus for socially oriented economic development declined
under Shihab's successor, Charles Hilu (also cited as Helou), and
disappeared entirely under President Sulayman Franjiyah (also cited
as Franjieh)
(see The Hilu Era, 1964-70
;
The Franjiyah Era, 1970- 76
, ch.1).
The consequences of economic neglect were felt in the
late 1970s and the 1980s, as
Shias (see Glossary),
who had migrated
from the south and the outlying reaches of the Biqa Valley, made
their increasingly militant presence felt in Beirut, transforming
the southern half of the city into a new, Shia canton, to rank
alongside overwhelmingly Christian East Beirut and predominantly
Muslim (i.e.,
Sunni and
Druze--see Glossary) West Beirut
(see Sectarianism
, ch. 2).
The first nineteen months of the Lebanese Civil War (April
1975-November 1976) witnessed widespread destruction of
infrastructure and services, mostly in Beirut. Industry sustained
direct damage valued at between L£5 and L£7 billion. Indirect
damage was valued at between L£972 million and L£2.23 billion. Some
250 industries, capitalized at L£1 billion, were destroyed, and as
much as one-fifth of industry's fixed capital was lost. After the
first nineteen months of fighting, losses amounted to L£7.5 billion
(L£6.2 billion sustained by the private sector and L£1.3 billion by
the public sector), according to the Beirut Chamber of Commerce and
Industry.
Post-1976 recovery was limited, with industrial production
approaching only two-thirds of prewar levels. Further clashes in
l978 again hampered production. Although in 1980 industrial output
in current financial terms appeared to exceed prewar levels,
inflation had rendered such comparisons almost meaningless. In 1979
the newly established Council for Development and Reconstruction
(CDR) unveiled a L£22 billion reconstruction program to span five
years, backed by Arab aid
(see Aid and Reconstruction
, this ch.).
Only some of the proposed reconstruction work was initiated,
however.
Instability ruined the tourist industry. The Civil War included
the notorious battle of the hotels, in which the Phoenicia, St.
Georges, and Holiday Inn--all major luxury hotels--became fiercely
contested militia strongpoints
(see The Early Stages of Combat
, ch.
5). A score of smaller establishments suffered the same fate, as
fighting ripped through the heart of the capital. Because the
hotels were close to the
Green Line (see Glossary),
which divided
the warring factions, they were forced to remain closed for
business when the fighting stopped
(see
fig. 9).
After the war, there were indications that a less centralized
industrial economy might emerge. The cities of Zahlah, Sidon, and
Tripoli, for example, enjoyed a boom. But growth in these cities
reflected fragmentation of the country as much as economic revival.
Lebanon's ability to export industrial goods was damaged by
internal unrest and external pressures. The good reputation once
enjoyed by Lebanese clothing manufacturers was undermined by
imports of cheaper garments that were relabeled and reexported as
"Lebanese." By the end of 1981, Iraq had halted all imports of
Lebanese garments, and Egypt had frozen preferential terms for
Lebanese industrial exports because of false labeling. Although the
Egyptian and Iraqi measures were rescinded in 1982, they were
symptomatic of the pressures that Lebanon faced throughout the
1980s.
Events elsewhere in the region also had an impact on Lebanon.
A tripling of world fuel prices between 1973 and 1981 reduced the
country's competitive edge. When Syria imposed restrictions on
transit trade, freight forwarders found it increasingly uneconomic
to ship goods to Persian Gulf destinations via Beirut. The prices
of imported raw materials were higher than ever, while export
markets were increasingly restricted. Thus, even before the Israeli
invasion of 1982, the Lebanese economy was in bad shape.
Data as of December 1987
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