Lebanon and the Arab Revolts: A New Social Contract?

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There are several major challenges facing the Lebanese economy during and after the Arab Spring. (Marwan Tahtah)

By: Hassan Chakrani

Published Thursday, August 25, 2011

In the wake of the Arab revolts and their fallout in the region, a big opportunity lies ahead for Lebanon’s Najib Mikati government to produce a new socioeconomic contract; if the opportunity is not seized, as is usually the case in Lebanon, the country will experience a shock of its own, according to a round-table discussion organized by the Lebanese Center for Policy Studies.

A recent round table discussion was held to explore the effect on the Lebanese economy of the transformations sweeping through the Arab world. The round table was organized at the end of June by the Lebanese Center for Policy Studies. Participants included former Lebanese Finance Minister Jihad Azour, International Labor Organization (ILO) consultant Zaphiris Tzanatus, director of the Beirut-based Consultancy and Research Institute (CRI) Kamal Hamdan, and IMF official Eric Mottu.

The report states that the country faces more of “an increase in [economic] fragility” than a recession, adding that the direct implications are noticeable on the level of internal growth mechanisms — mainly tourism and real estate, in addition to capital inflows — which may present momentary challenges. But more importantly, these developments have implications for the structure of the economy. The government's mission is not easy. It entails producing a new socioeconomic contract that deals with people’s social needs, creates jobs, and draws a raw strategy to promote productivity and dynamism in both the private and public sectors.

The report emphasizes the importance of public/private partnerships during the next phase “after the lack of investments tarnished the country resulting in unsustainable growth rates.” There is a strategic need “to recreate the financial sector's role (the banks), whose assets constitute approximately four times the size of the economy. This task should be a priority.” The report adds that, in this context “the banks' role [is] to finance the government's financial needs and create jobs; but the sector won’t be able to create enough jobs nor turn the country into a financial center if business as usual continues.”

The country is witnessing a phase of increased fragility rather than a recession. (Bilal Jawish)

The situation in Syria may also pose difficulties for the Lebanese economy. The round table’s assessment of Lebanon’s woes during the Arab Spring focuses on its relationship with its neighbor: “The effects of the winds blowing from Syria seem to be the biggest concerning the historical connection between the two countries.”

The report suggests that “a Syria under sanction would have a negative impact” in Lebanon. Meanwhile, “American policies are not clear now and no one can guess what the next phase might bring…the fact that banking systems are exposed, and especially Lebanese banks, should not be overlooked.”

In short, the report argues that there are several major challenges facing the Lebanese economy during and after the Arab Spring.

1 – The Arab revolts triggered a period of capital migration but Lebanon wasn’t one of its destinations.

2 – The country is witnessing a phase of increased fragility rather than a recession, which makes the short term projections worrying. Public finances and, particularly, monetary policy will be largely affect. According to the expert panel, “one of the main concerns now stems from the issue of how to maintain the stability of interest rates and trust.”

3 – There is an increased possibility of a shock sweeping the economy through its banking sector, especially in a difficult political environment where Arab Gulf countries are not providing financial aid to Lebanon as they have done in the past. Still, the report adds that there is still positive “in this sea of uncertainty, because remittances, constituting a fifth of the GDP, will probably stay firm during a period of ongoing economic recovery in America and the GCC countries.”

4 – If tensions in Syria continue and the international community applies greater pressure on the regime, then Lebanon may play a role in minimizing the effect of international sanctions on its neighbor.

5 – Lebanon enjoys a big opportunity to produce a new social contract. There's a new homogeneous government that should make political reform a priority in order to conduct economic reform. In tandem with this change, there needs to be a realignment of thought about “the future role of the resident economy in the context of Lebanon’s changing role in the Arab world.” The economy can be divided into the local and diasporic. The latter is very important right now. In the coming years, “Lebanon might not continue to be the unique economy in the region. Even traditional banking secrecy is no longer needed.” Economic shock may shake the ‘spoiled baby’ image that has long held to the country .

This article is an edited translation from the Arabic Edition.

Comments

Politicians in Lebanon did not make up their mind yet on whether to invest on infrastructure or human national potential. For the last two decades, they have relied mostly on foreign capitals to build their empires. Now that the Arab Spring is still ballooning in the region, this foreign investment on the national soil has become more of a 'threat than a promise' of any economic expansion, at least on the short run. It is a 'Race against the Dead' especially when the Lebanese Diaspora, the main source of financial support, is under pressure by the new coming reforms over the immigration law around the world, more specifically in the US, Canada and France, the major hosting states. As a result, the political issue (Ethic struggle) has shifted to an economic issue (Financial struggle) as bankruptcies will hit all parties be it muslims or christians. At least, one could expect a 'positive outcome' such as seeing a New Social Contract emerging or a New Deal of the 21st century to mitigate the risks of a 'Total National Meltdown' or a 'Ground Zero Scenario'! Are you optimistic? That is the question!

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