War's Havoc on Lebanon's Economy

Lebanon has been plagued by war throughout the last 3 decades. It now suffers from extreme poverty. Some 28 percent of people live below the poverty line in Lebanon. Also eight percent of the population lives in extreme poverty (Visit Source here). People suffering the most from an ailing economy in Lebanon are Shiites, living in Southern Lebanon (Visit Source here). Because Shiites are suffering so drastically Hezbollah has a drastically larger population to influence. While Hezbollah does help the Shiite cause in some ways it only manipulates this population to further its political and military causes.

Today in the Daily Star Carla René Saadé reported:

The failure to adapt economic policy to the radical change in surrounding conditions has undermined the private economy’s competitiveness and potential for growth.

On no less than five major counts, the out-of-synch economic policy held back the economy and worsened both fiscal and social conditions.

For one, the uncontrolled growth of the public debt has done away with the option of using the instruments of fiscal policy to influence the pace of economic activity. This disadvantage is at present laid bare by the government’s inability to use fiscal policy to help the economy to ride out the secondary effects of the unfolding global economic crisis on investment and growth.

Second, by relegating monetary policy instruments to the task of achieving fiscal objectives, the current economic policy relied on maintaining inordinately high rates of interest, therefore directly restraining private investment spending.

Third, excessive public borrowing further restricted access to loanable funds to finance private investments, thus retarding growth and undermining competitiveness.

Fourth, over the past decade, fiscal stress has undermined the government’s ability to attain a level of social spending that would meet its obligations and the aspirations of the citizenry. This aspect of the failure in governance is the root cause of the financial shortfall at the National Social Security Fund and, more seriously, growing poverty.

Finally, the crushing weight of the public debt is dragging down country rating and by association the credit rating of otherwise solid business ventures.

While Saadé makes several great points in her article, she does not attribute another important factor into the lack of investment in Lebanon, stability. In order for the Lebanese economy to flourish, the government and military must provide some counterweight to Hezbollah’s dominance. This will provide some stability, not only to the Lebanese people, but to the Levant as a whole.

Three weeks ago Haaretz reported an explosion of a Hezbollah Kyatusha warehouse. The explosion provides another piece of data in the long list of evidence that Hezbollah is preparing for war. While this may simply be a deterrent factor, Hezbollah knows their activities within Lebanon and outside of Lebanon could spark Israeli retaliation at any point in time. Tensions have only grown between the two enemies with Israel's poor execution of the war in 2006 and the assassination of Imad Mughniyah. In order for Lebanon’s economy to garner foreign investment and prosper, it needs a long break from war.