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French Version

Economist warns of meltdown if no political solution is found

'Let them stop talking about 3 to 4 percent growth'

Lebanon will slide into a deep recession this year if there is no breakthrough in the political stalemate, economists warned on Monday. "The GDP growth in eight days contracted by 1.5 percent at least and if this trend continues then we will end up in a recession," economist Marwan Iskandar told The Daily Star.

The bleak view of Lebanon's economic outlook was triggered by the armed clashes between opposition and government supporters in Beirut and other areas as well as the stonewalled talks in Doha.

The total cost of the week-long hostilities has been estimated at $350 million.

Economists and observers warned that the rival political groups - intentionally or unintentionally - are taking Lebanon into an uncertain future, if not civil war.

Finance Minister Jihad Azour recently said that Lebanon could achieve 4 percent growth in GDP if there was a minimum of security and political stability.

"The situation is getting out of control now and the first casualty in these cases would be the economy," economist Elie Yashoui said.

He added that the monetary situation is the only stable aspect of the economy while other aspects continue to suffer.

"The Central Bank brags about the $14 billion foreign currency reserves but people should know that most of these reserves are coming from commercial banks and depositors," Yashoui said.

He added that he knows at least 50 companies in Lebanon that have either relocated to other countries or have downsized their business over the past few months.

"Let them stop talking about 3 to 4 percent growth. We are in a recession and not a slowdown," Yahsoui said.

He added the global slowdown and inflation have exacerbated Lebanon's financial and economic standing.

"We won't have any foreign direct investment [FDI] his year for sure. If I had $1 million, I would prefer to invest it in a more stable environment," Yashoui said.

The head of the Investment Development Authority for Lebanon (IDAL), Nabil Itani, recently told The Daily Star FDI fell considerably since the beginning of 2008 due to the political and security instability.

Since the assassination of former Prime Minister Rafik Hariri in February 2005, Arab investors have been less keen to make new commitments in Lebanon, although IDAL assures that almost none of the investors have pulled out from previous projects, especially in the Beirut Central District.

Iskandar said many small and medium enterprises will be on the verge of bankruptcy if the situation remains the same.

He added that Syria's economy seems to benefit from the current political situation.

"Many Lebanese factories have moved to Syria because the cost of labor, energy and land is cheaper than there, and most of all, there is stability," Iskandar said.

He added Damascus is offering any company a 10-year tax exemption if it moves to Syria.

Economist Kamal Hamdan was not far from these views.

"I am quite pessimistic. I am afraid that the Lebanese politicians have no intention to settle their differences anytime soon," Hamdan said.

He added that amid the political deadlock, Lebanon will not be able to achieve even 2 percent GDP growth.

"If a miracle happens then the summer will be very rewarding and many Lebanese and Gulf nationals will spend their vacation here and this means more liquidity in the market," Hamdan said.

He added that Lebanon was caught amid global recession and inflation which only compounds the situation.

"If the oil-rich Gulf states decide to inject cash into Lebanon to keep the situation stable, then we will be very lucky. But nothing is certain."

Beirut 20-05-2008
The Daily Star

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