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French Version

Future looks grim if leaders can’t agree - Report: hariri has drive but can’t do it all on his own (Daily Star)

Prime Minister Rafik Hariri’s economic reform program will suffer a blow this year due to the ongoing political differences with President Emile Lahoud, a leading international research center has said. “Although the prime minister will remain committed to his economic reform agenda, it now appears unlikely that he will have the political strength to push through any privatization this year,” The Economist Intelligence Unit (EIU) said in its report on Lebanon this week.

The EIU also revised its forecast for the fiscal deficit, increasing it in the light of new data showing non-debt expenditures continuing to run far ahead of budget targets.

It also raised its export forecast earnings in accordance with the new trade data.

The EIU said that Hariri’s economic team will look to securitize the earnings of state-owned firms, although these plans could encounter political opposition.

Privatization of the telecommunications sector was supposed to take place this year, but the debate over how to proceed with the sale of this important sector raised questions about Hariri’s ability to pull any concessions from Lahoud.

Privatization is a key element in Hariri’s reform program that was submitted to donor states that met in Paris in November of last year.

Hariri is counting on the revenues from privatization to lower the $31 billion public debt.

The prime minister warned that the budget deficit may reach above the projected target of 25 percent of spending this year if privatization does not take place.

Experts claim that the government could raise up to $8 billion if it securitized the proceeds of the telecommunications sector for the next 20 years. But even securitization may not succeed if political leaders remain intransigent. “Tension within the ruling troika looks set to intensify over the forecast period, as Lahoud seeks to extend his term in office beyond its late-2004 end point,” EIU said.

It adds that this will bring differences between Lahoud and Hariri to the fore, undermining policy-making and bringing the prime minister’s hold on power into question.

The EIU warned that there will be serious economic repercussions if Hariri is forced to step down. “Such a development would be a serious blow to the country’s economic prospects, given that Hariri alone appears to have the drive and international connections to lead Lebanon away from the severe economic problems it continues to face.”

But the EIU expected the economic upturn to gain momentum during 2004, boosted by the pick up in government consumption and a stronger global environment, although higher import volumes will limit the overall pace of expansion.

It estimated that real GDP growth had reached 1.5 percent last year, compared to around 0.8 percent in 2001, and expected this to accelerate to 2.3 percent by the end of 2003.

The report also commented on the level of inflation, stressing that “after three years in which consumer prices fell or remained stagnant, inflation averaged around four percent in 2002.”

It added that the gain was largely a result of the introduction of VAT early in 2002, compounded by the higher price of imported goods following the weakening of the US dollar against the euro. “In 2003, imported inflationary pressures will remain pronounced, reinforced by the pick up in domestic demand, but as the one-off impact of VAT passes, we expect consumer price growth to ease to an average of under 2.5 percent in 2003-04,” the EIU said.

The unit also noticed some improvements in the economic climate after Hariri secured a $4.4 billion soft loan pledge last year. But it warned that “Paris II” is not enough if not matched with fiscal adjustments. “Failure to move forward with adjustment measures would not pose an immediate threat to stability, given the gains that resulted from Paris II. However, if the government proved unable to introduce structural adjustment measures at this stage, Lebanon will have little prospect for reducing the immense public debt stock, the servicing of which will continue to push the fiscal account into deficit.”

Beirut 28-07-2003
Osama Habib
The Daily Star

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