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WEEKLY NEWSLETTER
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Lebanon
Index
An olive press, symbolizing the agricultural
productivity of Lebanon
AS THE LEBANESE state fragmented, so too did the national economy.
Many observers have argued that because of this fragmentation,
there was not one economy in the late 1980s, but several. Areas
held by some militia groups, most notably the
Maronite (see Glossary)
Christian heartland controlled by the Lebanese Forces,
appeared well on their way to becoming de facto ministates. These
militias were successfully usurping basic functions of government
such as taxation and defense.
Despite the fragmentation, there were still some shreds of the
official economy. In late 1987 the main port of Beirut and Beirut
International Airport were subject to intermittent government
regulation. The Central Bank (also cited as Bank of Lebanon or
Banque du Liban) maintained sizable financial reserves, although
these declined sharply in the mid-1980s. There were spiraling
budget deficits as the government attempted to reestablish the
credibility of its security forces and maintain at least some
social services.
Measuring the government's impact, however, was another matter.
Although the government's financial role in the economy was
growing, its role in the daily economic affairs of the Lebanese
people was declining. The importance of the official economy in the
late 1980s depended on where one lived and how one felt
politically. But the economic collapse could not be separated from
the human tragedy. For example, two of the most salient facts of
life in Beirut in February 1987 were the collapse of the Lebanese
pound to less than one-hundredth of a United States dollar and the
request by Palestinian religious authorities for a ruling on
whether or not it would be permissible for the besieged refugees in
the camps at Burj al Barajinah and Shatila to eat their dead. In a
country where violence had become endemic, where some 130,000
people had been killed and a further 1 million--a third of the
population--had been injured, calculating the impact of the central
government on the economy would be impossible.
In the years that followed the outbreak of the 1975 Civil War,
political developments dominated economic affairs. Improved
security conditions--such as from late 1976 to early 1978, or from
September 1982 to January 1984--yielded considerable economic
benefits, as relative peace enabled the recovery of commerce.
Peacekeeping forces--Syrian, Israeli, United Nations, United
States, and West European--brought with them favorable economic
conditions in the communities where they were stationed. But the
positive effects were frequently shortlived. For example, when
Syrian troops entered Beirut in February 1987 (the first time a
recognized power had attempted to enforce its authority in the
capital since the February 1984 collapse of the Lebanese Army),
there was a brief flurry of guarded economic optimism. The upswing
of the Lebanese pound lasted only three weeks. But overall
instability was the norm from 1975 to mid-1987, and it became clear
that nothing short of a total change in the country's political and
security structure--in effect, the end of sectarian partitions and
militia rule--would lead to any sustained revival of what had once
been one of the world's most vibrant economies.
By 1987 Lebanon had entered an era where reliable statistics on
the state of the economy were usually absent. Lebanese economists
were sometimes able to compile a few indicators, but the numbers
were often based on incomplete data. But even without complete
statistics, the downward trend of the national economy was obvious.
Bearing testimony to this trend, the Lebanese National Social
Security Fund reported in May 1986 that 40 percent of the 500,000-
strong private sector work force was unemployed. Industry was
running at barely 40 percent of capacity, and per capita income was
down to around US$250 a year in 1986, five times lower than eleven
years earlier.
In 1985 estimates of the gross domestic product
(GDP--see Glossary)
varied from L£30 billion to as high as L£48.3 billion
(for value of the
Lebanese pound--see Glossary).
In either case, GDP was no more than half of what it was in real terms in 1974.
Although the collapse of GDP began with the start of the Civil
War, the fall of the Lebanese currency began much later. On the eve
of the war, it required only L£2.3 to buy a United States dollar.
Currency values declined over the next several years, but it was
not enough to destroy the basic Lebanese confidence in the pound,
which was backed by substantial holdings of gold and foreign
exchange. Whereas in 1981 the exchange rate had averaged L£4.31 to
the dollar, by the end of 1982, with the new government of
President Amin Jumayyil (also spelled Gemayal) in office, the
exchange rate was back to L£3.81 to the dollar.
The pound, however, began depreciating rapidly in the aftermath
of further Beirut clashes in early 1984 and the withdrawal of the
Multinational Force (MNF) of peacekeeping troops from the capital.
Although there was widespread currency speculation, the Central
Bank could do little to investigate this problem became of
Lebanon's tough banking secrecy laws.
Between January and December 1984, the pound lost just under
half its value against the dollar, while in 1985 the trend gained
speed, resulting in a further 60-percent erosion in value. The
Central Bank was widely criticized, especially by the commercial
banks, for failing to act decisively to halt the pound's slide. But
even greater criticism was directed against commercial bankers and
leading politicians, who were constantly accused of speculating
against the national currency.
By 1986 the country was on the verge of hyperinflation as the
pound lost almost 85 percent of its already shrunken value during
the course of the year. On February 11, 1987, the currency crashed
through the psychologically important barrier of L£100 to the
dollar and continued its fall. By August the pound was trading at
more than L£250 to the dollar. Compounding the problem was that
these events occurred after a year in which the dollar had fallen
sharply against most major international currencies.
The fundamental principle of the Lebanese banking system had
been a freely convertible pound. Citizens were free to hold foreign
currency accounts in their banks, and remittances received from
friends and family living abroad could be processed with relative
ease through banking channels. As the pound began its decline, the
importance of foreign currencies (particularly the United States
dollar) grew, and a "twin currency" economy emerged. Complex
systems were soon set up to circumvent the banking system, not for
fear of governmental interference but to prevent the loss of
deposits or of letters of credit through bank robberies. In the
twin currency economy, foreign cash and drafts on bank accounts
held outside the country became increasingly common. It became
impossible, however, to calculate how much foreign cash was
entering the country once transfers began to bypass the banking
system. But it was clear that most people were not receiving enough
to retain their pre-1975 living standards.
By 1987 ordinary Lebanese were living in a very strange
economy. Public services functioned according to the ability of the
government to pay staff, the ability of different groups to tap
into utilities (with or without official permission) and the
ability of local groups (with or without official help) to keep
services operational. The costs of basics, such as gasoline, home
fuel oil, and cooking gas were all subject to government price
restraints, yet prices could double or triple in times of
shortages, as roads between refineries, gasoline pumps, and fuel
depots were cut. People found the government price controls
ineffective, and the struggle to secure vital goods and commodities
reflected not so much a free market as a free-for-all. By 1987 a
dozen years of conflict had shown them that economic control, as
well as political power, came from the barrel of a gun.
By the late 1980s, years of conflict had distorted the economy.
Total GDP was down, but the proportion of GDP contributed by the
government was up. The national currency collapsed, and the country
began sustaining balance of payments deficits. One commentator
noted that 1986 marked the first time since the Civil War started
in 1975 that Lebanon had suffered economic hardship to such an
extent that it had affected the middle classes as well as the
traditional urban poor. Another observer argued that Lebanon, once
the model of modernity in the Middle East, was being threatened
with "de-development."
Data as of December 1987
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