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French Version

Lebanon's economy shows signs of recovery

Investors profess faith in Siniora's reform-minded government.

Six months after a massive bomb killed Prime Minister Rafik Hariri and devastated Lebanon's economy, signs of recovery are in the air. Spring parliamentary elections without Syrian interference led to the formation of a Cabinet that has quickly won the trust of the business community in Lebanon and looks poised to regain the confidence of international

The Lebanese Central Bank successfully defended the pound against a post-assassination rush. Solidere stocks, by far the most heavily traded on the Beirut bourse, closed Tuesday at $12.54 after falling below $5 when Hariri, the company's founder, was murdered in February.

The assassination shock didn't derail what has been a two-year climb in banking assets, which increased to $66.3 billion in June, a 1.58 percent rise from May.

While overall bank profits dropped by $22 million in the first half of 2005, Lebanon's major banks, which control most of the market, did well, with BLOM Bank, Lebanon's largest, posting a $60 million profit - a 32 percent increase from the same period in 2004. In another sign of health, the Bank of Beirut closed a $70 million share offering this spring heavily oversubscribed.

Perhaps most importantly, however, is that experienced financial hands are in control of the government and are seen to be moving against corruption and pushing long-delayed privatization projects.

Prime Minister Fouad Siniora, Hariri's trusted former aid, has appointed IMF veteran Sami Haddad to head the Economy and Trade Ministry at a time when the government will be looking to the international community for new loans to help with reform.

"Having served as finance minister himself under Hariri, Fouad Siniora knows exactly what needs to be done and he has what it takes to undertake a major restructuring of the economy," Assem Safieddine, a finance professor at AUB, told The Daily Star. "He has brought and incredible team with a high level of expertise."

For the first time in years, the pace of reform will be dictated by Beirut without Syrian influence.

"I think that in the post-Syria era, there will be a speeding up of reforms especially that Syria's presence in Lebanon played a key role in holding back the reforms process," Samir J. Tawile, head of international banking at the Intercontinental Bank of Lebanon, said. "Hopefully the new government will take the right steps internally along with external support such as 'Paris 3' that will enable it to resolve [the debt problem] gradually."

For many, the promise of upcoming reforms offsets the damages reflected in poor economic indicators in the beginning of the year.

Marwan Barakat, an analyst at Audi Bank, said: "Despite negative indicators in the first half of 2005 compared to those of the proceeding year, the Lebanese economy has emerged with relatively limited damage in light of the tragedy."

The largest problem facing the Lebanese economy after Hariri's assassination was a massive sell-off of the pound. Head of Lebanon's Central Bank Riad Salameh said the equivalent of $6 billion was converted from Lebanese pounds to foreign currencies after February.

But the Central Bank's successful issuing of Eurobonds brought $3 billion worth of foreign currencies back into Lebanese pounds, maintaining its stability.

Lebanon's debt, however, has risen to $36 billion from $34.5 billion at the end of 2004, and remains the economy's foremost obstacle to growth.

Lebanon's political class, said economist Roger Melki, needs to reform "in order to avoid the worst."

He said: "Fresh international aid will only come if Lebanon is internally unified around a plan to modernize the state."

Beirut 17-08-2005
Will Rasmussen
The Daily Star

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