Beirut could be on the road to recovery. Streets have been repaired and are kept clean by teams of blue-suited municipal workers collecting refuse round the clock. Utilities have been restored in most neighbourhoods.
The commercial district has been cleared of the bulldozed rubble of buildings battered and blasted during the 15-year civil war. Churches, mosques, the Ottoman Serail and a few of the handsome French colonial buildings have been rebuilt. The refurbished statue of Lebanon's independence leader Riad al-Solh has been set back on its pedestal in an empty square. But Beirutis do not feel at home.
Gleaming mirrored high-rise blocks have transformed Beirut from a charming Levantine port into a city which could be anywhere in Europe. Broad roads connect the mainly Muslim western sector of the city to the mainly Christian eastern sector and link the centre with the grand airport. But few local businessmen can afford rents in the commercial district, so the divided city has not re-unified. And a seven-minute trip from the airport to home or office can stretch to an hour in traffic jams on neighbourhood roads.
The former government of the billionaire businessman, Mr Rafiq Hariri, focused on rebuilding the city centre and providing it with the latest commercial technologies in the expectation that Beirut would once again become the leading business and banking centre of the Arab world. "We built for the '90s and the coming century," an economic adviser to the Hariri administration told The Irish Times.
But the new Finance Minister, Mr George Corm, dismisses dreams of reviving past glories, saying that the circumstances which made Beirut the commercial hub of the region no longer exist. He believes that many of Lebanon's present economic problems "stem from the costly drive to regain that role".
A despairing shopkeeper summed up the situation. "The infrastructure is good but the economy is bad."
The social costs of protracted warfare followed by big spending on grandiose schemes are soaring. Dr Kamal Hamdan, a leading economic analyst, said that for most Lebanese the standard of living is falling while disparities between rich and poor widen. Some 60 per cent of the populace lives below the poverty level of $800-$850 (#856-#910) a month set by the World Bank. The urban poor continue to live in crowded un-reconstructed slums where the supply of water is erratic and the majority of homes are illegally connected to the electricity network. Many middle class families are forced to make ends meet by selling off pieces of land in their towns and villages, further concentrating wealth in the hands of the rich.
The cost to the economy of Mr Hariri's "grand vision" has been very high. Lebanon's external debt stands at $18 billion, making public debt 112 per cent of GDP, which is growing at the low rate of 2-3 per cent instead of the 8-9 per cent needed to overcome stagnation. During Mr Hariri's six years in office, $7 billion was paid in interest on the ever-expanding debt.
His policy of sustaining the Lebanese pound at 1,500 to the US dollar through massive intervention by the Central Bank cost the economy $4 billion. Dr Hamdan said that if the value of the pound had been allowed to fall gradually during 1995-97, the debt would have been $14 billion. Mr Hariri's administration also kept the Lebanese pound interest rate at a high 17 per cent, stifling investment.
Reducing spending and increasing revenues are essential if the deficit is to shrink. But cutting spending is almost impossible. This year's budgetary ceiling is expected to be $5.6 billion, but servicing the debt may cost as much as $2.6 billion during 1999, an increase of 21 per cent over 1998. The balance pays the salaries of 160,000 civil servants.
And increasing revenue is problematic. First, the new government must deal with the legacy of Mr Hariri's six years in power. After Mr Corm raised $2.13 billion by issuing treasury bills to cover interest payments, he discovered $1.2 billion in unpaid bills which the Hariri government had refused to meet.
Last week a judicial inquiry was ordered when it was revealed that $600 million from the reserves of independent municipalities had been illegally appropriated for development projects for which there was no proper tendering. Second, the government must confront what Dr Hamdan called "deeply entrenched interests" and "communal lords" who are imposing "serious political limitations on what the new government can do". The powerful Speaker of Parliament, Mr Nabih Berri, who represents the largest single community, the Shia Muslims, opposes reform while supporters of the previous premier are doing their best to undermine the new government and return Mr Hariri to power.
Third, Dr Hamdan said the government does not have "a large degree of freedom" for dealing with the "dramatic economic and social situation". It must find a way to raise revenue and rationalise expenditures in such a way as not to hurt the middle and popular classes. Revenue could be increased by collecting taxes on business profits and on land and introducing progressivity in income tax. But this is a near impossible task in a country where tax dodging is an art, banking secrecy is observed and 90 per cent of businesses are small, employing fewer than five persons.
Mr Corm has announced his intention of raising revenue by privatising nine or 10 major public enterprises such as Middle East Airlines, Electricite du Liban, Intra Bank and the tobacco monopoly. But Dr Hamdan believed this will not work because several of these concerns are deeply in debt.
A rise in the price of fuel is expected. Dr Hamdan said people will "accept this if they are convinced the government is serious about reform". Dr Hamdan said that the new President, General Emile Lahoud, who took over last October, has made "a change", giving Lebanon a "chance" to resolve its economic problems. Mr Lahoud had introduced "entirely new dimensions into the country's policies: political, administrative and social reforms, transparency, support of the middle and lower classes and combatting corruption" which most Lebanese see as their main domestic priority. As his prime minister, the general appointed a clean technocrat, Dr Selim al-Hoss, who brought in a 12-man cabinet mainly made up of technocrats, like Mr Corm. Commentators criticise this government for spending too much time blaming the Hariri administration for Lebanon's dire economic straits and for muckraking. The budget is long overdue and the government has been implementing reforms piecemeal. What is needed, stated Dr Hamdan, "is an integrated package for long-term development - reconstruction, reform and economic restructuring. The government has to take this package to the people to win their confidence."
But at the moment confusion reigns, sapping confidence in the new economic and political order.
