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Politics offset benefits of ‘Paris II’ conference - Officials fail to deliver on promises (Daily Star)

The “Paris II” conference a year ago may be the most significant achievement for the government but the immediate positive effects were quickly eroded by the failure of officials to deliver on promises to the donor states that pledged $4.4 billion in soft loans.

Privatization, securitization, administrative reforms and deep spending cuts did not take place this year. What are the reasons?

The answer is simple: politicians. These politicians, in the opinion of many observers, have placed their personal interests above the welfare of the country.

After Prime Minister Rafik Hariri returned from Paris with pledges of financial support, the government met to discuss ways to implement some of the reforms. But the rift between Hariri and President Emile Lahoud surfaced when the issue of privatization came up. This heated debate caused further embarrassment to Lebanon, which was hoping to capitalize on the Paris II loans.

International rating agencies, such as Standard & Poor’s, maintained a negative outlook of Lebanon this year because of the government’s failure to follow through with any of the pledges made at the Paris II conference.

Deficit spending in the first 11 months of this year reached 37 percent and the public debt totaled more than $32 billion.

A senior International Monetary Fund official who visited Lebanon recently said that the country still has time to fulfill the pledges, but warned that further delays in privatizing some of the state owned assets may compound financial problems.

Lebanon must generate at least $5 billion from privatization or securitization next year by hook or by crook. This massive cash injection would reduce the public debt and, most importantly, lower the cost of debt servicing by at least five percentage points. This move would also achieve economic growth and boost confidence in the country.

But politicians must cast their differences aside to steer the ship to safer shores.

This year was marked by other important economic developments. Bank assets and deposits jumped by over 10 percent while foreign currency reserves reached $12.5 billion. The balance of payments recorded a surplus of more than $3.5 billion and capital inflows rose to more than 12 percent as more investors transferred billions of dollars into the country.

Tourism has increased and the number of tourists is expected to reach 1 million. Exports also increased after Lebanon signed the Euro-Med partnership agreement in June 2002.

The Daily Star will begin a series of articles on privatization, trade, energy, transport, banking, insurance, IT and aviation on Monday.

Beirut 06-01-2004
Osama Habib
The Daily Star

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