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French Version

Lebanon may benefit from short war... but Leading banker stresses price to be paid if hostilities drag on

The Daily Star

Banque Audi adviser says short- and medium- term effects of
contained conflict could result in Gulf investors looking for
safe haven here.

A leading banker said Wednesday Lebanon may benefit in the short and medium term if the expected US-led war against Iraq finished quickly and the front in the South remained quiet.

Freddie Baz, adviser to the chairman of Banque Audi, told a group of businessmen and journalists at the Press Club that Saudi and Gulf investors are looking to Lebanon as a safe haven for their capital and investments in case of a conflict in the region. "In my last visit to Saudi Arabia I noticed considerable interest in Lebanon by various businessmen and companies in the kingdom," Baz said.

But the banker stressed that local bankers are not in favor of war against Iraq. He said that if the war dragged on for a long time, Lebanon would feel an economic pinch. "If the war dragged on for a long time, the price of oil may rise and investors will be discouraged to make any investments in Lebanon." He reminded the audience that Lebanon was able to attract significant investments and funds following the Sept. 11 attacks on the United States.

According to bankers, Lebanon received more than $800 million in deposits last year from Arab investors. Baz said Lebanon will be relatively immune from the fallout of war in Iraq, thanks to economic measures the government adopted last year. He added that the disputes between the country's politicians have minimal or no effect on the future of the economy."I think the Lebanese are more concerned about what is going to happen in Iraq rather than the daily political bickering," Baz said.

Baz was confident interest rates on commercial loans will eventually drop after the Central Bank cut rates on Treasury bills two months ago. He added that interest rates on T-bills fell by more than 6 percent."The market reacted positively after the government won pledges of $4.4 billion in soft loans from the donor states that met in Paris," he said.

He added that a 5 percent tax on interest on deposits will have no effect on the banking system."These taxes are reasonable," Baz said, adding that commercial banks have also agreed to buy $4 billion of T-bills with zero percent interest to help the government reduce debt servicing by $400 million annually. The government is projecting a budget deficit of 25 percent this year. It hopes to achieve this goal through the money it will receive from donor states.

In addition, the government hopes to generate about $5 billion from privatization in 2003.Baz expressed confidence in the country's future, saying the last six months of 2002 saw economic indicators improve. The banker said that trust is the key to success: "If we do not have trust in the country, all our work to salvage the country will go on vain," he said.

He added that trust should be accompanied by administrative, financial and political reforms to stimulate the economy. "We also need decisive political decisions from the executive authorities to settle some of the immediate problems. This should not be difficult after the success of the "Paris II" donor conference," he said.

Beirut 13-02-2003
Osama Habib
The Daily Star

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