IDC International Development Consultants, LLC
Overview of this Article
Lebanon has been actively engaged in a national recovery, reconstruction and development program since the end of its civil war in 1990. But with the recent hostilities involving Hammas, Israel and others in the second half of 2006, Lebanon is once again faced with initiating major reconstruction of infrastructure, housing and other critical social services, with estimates running from two to over six billion US dollars. And with the new erupting political unrest once again fragmenting the beginnings of social cohesion so central to reconstruction, Lebanon collective will is once again severely tested. At this time one can only hope that men and women of good will can find the wisdom and courage to forge a collective new beginning once again.
This article primarily focuses on the policy as well as technical factors involved in structuring and implementation the national recovery and reconstruction formulated beginning in 1992 and continuing until 2002.
Starting with a national reconstruction and recovery based on country-wide needs assessments, priority investment programming, public sector reform and various political necessities, the government in early 1992 focused its actions on gaining the internal and external financing required for recovery and revising or creating new mechanisms for revenue collection in efforts to control chronic budget deficits and increasing public indebtedness. The decade from 1992 to 2002, therefore, saw substantial progress in certain sectors of the national economy, such as construction, yet serious macro economic difficulties remain especially regarding the indebtedness of the country and certain institutional restructuring.
Hopefully this article can contribute to a review and partial assessment of Lebanon's reconstruction and recovery efforts during the past decade. The purpose is to assist in providing insights into the issues and difficulties facing other countries struggling to overcome the physical, institutional and personal destruction caused by civil war and regional conflicts.
This article contain four related sections:
Section One summarizes Lebanon's latest (Nov. 2002) national strategy for reducing its massive debt and spurring sustainable growth, and also includes the country's recent international funding commitments for helping achieve these new strategies.
Section Two summarizes recent (May 2002) information provided by Lebanon's Council for Development and Reconstruction (CDR) regarding its activities during 2001along with a brief summary of CDR achievements from 1992 to 2001.
Section Three summarizes the initial National Reconstruction and Development Plan formulated by the government's Council for Development and Reconstruction (CDR) in 1992-93. Based on national and local needs and damage assessments, national and sectoral planning, macroeconomic and financing strategies, management implementation and other factors, the plan identified a 10.6 billion (US 1992 Dollars) ten year sector based phased investments program for Lebanon's national recovery and reconstruction.
Although Lebanon's has made substantial reconstruction progress since 1993, and the country's investment goals and priorities have somewhat changed, many of the redevelopment needs presented in the 1992-93 investment program remain to be fulfilled.
Note. The information presented in Section Three is believed to remains informative and useful to the understanding and recent history on national reconstruction programs in that it outlines the structure of the overall domestic and international financing components of the national program as formulated in the 1992-93 period. Also, as a related element, the nation's funding structure formulated for the reconstruction of central Beirut is identified.
Section Four presents a brief review and assessment of Lebanon's past decade (1991 to 2001) relative to several of the key macro economic targets originally underpinning the reconstruction program adopted by Lebanese government in 1992. Implications for other national recovery programs are also briefly examined.
Working in the
Middle East directly with CDR (Lebanon's Council for Development &
Reconstruction), and in affiliation with the World Bank and other international agencies and groups from 1991
through 1993, the author of this article, Dr. J. Michael Cobb, served as Bechtel
International's Consulting Project Manager for Lebanon's National Recovery and
Reconstruction Planning Program.
Southern Beirut July 2006
November 2002- Paris II Donor's Conference
Lebanon was recently granted over US$4 billion in credits to help stabilize its debt-plagued economy at a key international donors conference recently held in Paris. The meeting, referred to as "Paris II" following a similar conference in 2001, included leaders from 17 countries and major international financial institutions from North America, Europe, southeast Asia and the Gulf states.
The new credits were based on the Lebanese government's new strategy entitled, “Beyond Reconstruction and Recovery, Towards Sustainable Growth”, which emphasize the government's policy proposals regarding renewed fiscal austerity, increased privatization of public entities, securitization and further deregulation of the economy.
According to the Paris II document, the government primarily sought the external support to help alleviate its massive debt by modifying its debt composition, reducing its cost and to extend debt maturity. According to government sources, Lebanon's public debt would be about 31 billion euros at the end of the year (2002) and servicing the debt was undermining efforts to curtail government spending.
Lebanon stressed that the country can manage in financial debt crisis if it can secure long-term loans of 10 to 15 years and lower the 12 per cent a year interest rate it is currently paying.
New financial support for Lebanon is to take the form of sovereign guarantees, investments by supporting national government and Central banks in Lebanese eurobonds, and other arrangements permitting Lebanon to borrow in supporting countries’ markets at lower spreads. Proceeds are to be used only to substitute this new external debt for the country's existing high interest short-term debt.
This debt substitution support should enable a significant reduction in the level of domestic interest rates which in turn should provide a resulting decreases in the overall fiscal deficit and in government financing needs. Such a program is intended to form the new basis for a more stable private sector-led recovery and lead to a more sustainable mid to longer term growth and development climate
Although there are numerous internal and external reasons for
the country's high debt accumulation, the Lebanese government
paper presented to the Paris II donor's conference highlighted
several points: the demands resulting from the 1992-2002 decade
of reconstruction and recovery in the aftermath of their civil
war; continued regional instability and attacks from abroad;
a lack of national consensus on how to handle the
accumulating debt problem; and lastly their own internal
delays in initiating effective domestic action.
Those attending the donors conference, but not committing funds as of yet, include the United States, Spain and Germany. These countries are encouraging Lebanon to deepen its relations with the IMF as a basis for new financial commitments. One should note that the IMF and other financial institutions question Lebanon's ability to manage its deficit without devaluing the Lebanese pound or making drastic cuts in the budgets and high employment levels associated with its public institutions.
CDR 2002 Progress Report
In May 2002, The
Council for Development and Reconstruction (CDR) released its Progress
Report which included an overview of CDR’s activities during 2001.
Also, provided was a discussion of significant achievements by CDR
during the nine year period from 1992 to 2001.
The May 2002
report indicated that the value of contracts signed between 1992 and the
end of 2001 was approximately US$6.2 billion, of which about US$ 3.1
billion represents completed or executed projects, the remainder
representing work to be completed.
The sector distribution of the contracts indicated that the electricity sector had the largest at 22.3% of total contract values. This was followed by roads, highways and public transport with about 14%, post and telecommunications at about 13%, water and wastewater at 12%, airport and ports with 11% and solid waster at about 11%. Other funded sectors included education, sports and cultural facilities at 8%, public health at just over 3% and the remaining sectors at about 7%.
CDR also reported
that as of the end of 2001 foreign financing secured for the
reconstruction plan amounted to US$ 4.4 billion. The secured funding has
involved several forms, including grants (14%) soft loans (41%) and
other types of loan such as export credits, commercial and other loans
The prime sources
of foreign funding for the reconstruction plan came from the World Bank,
which has provided 15% of total financing, followed by 14 % from the
Arab Fund for Economic and Social Development and 10% of the total
coming from the Islamic Development Bank.
|CDR's National Spatial Plan (click here for larger view) ... CDR's National Land Use Plan (click here for larger view) ... Critical Projects Click here for larger view ... Priority Road Rehabilitation Project Click here for larger view|
CDR's 1992-93 National Reconstruction Investment Plan
According to 1996 reports by the CCIB Data Center in Lebanon, the recovery plan prepared by CDR identified the overall program costs at $12.9 billion for reconstruction projects for the ten year period from 1994 to 2004. As shown in the table below, the transport, power and education sectors together accounted for over half the reconstruction needs, with transport receiving the largest share at almost $3 billion.
The overall CDR ten year investment program was allocated therefore as follows:
Domestic financing for these projects is to be secured mainly through the issue of Treasury bills offered to non-resident Lebanese.
Following the completion and general acceptance of the recovery and reconstruction program, CDR signed over 600 contracts with local and international companies for the implementation of rebuilding and rehabilitation projects in all sectors. These contracts attracted foreign financing exceeding $2 billion.
To help finance the reconstruction, the Lebanese Treasury successfully floated two issues of dollar-denominated T-bills on the international debt market.
The first $150 million issue was substantially oversubscribed therefore the government decided to raise borrowing to $400 million. The second issue added $300 million to the dollar-denominated portion of the government's outstanding debt instruments.
As stressed by CCIB and others, International Treasury-bill issues are important because they supplement the government's various bilateral financing agreements which have so far not provided the amounts needed for the overall reconstruction program.
Assuming regional stability, adequate macroeconomic and fiscal policies, and provided effective transparent planning and management programs are maintained, the Treasury should have capability for further borrowing from international financial markets.
Reconstruction of Central Beirut
The successful flotation of $650 million in public shares by SOLIDERE, the real estate development company created by CDR for the task of rebuilding Beirut's central commercial district, demonstrated several important lessons for Lebanon.
As CCIB stresses, the company was able to exceed its capital-raising objective even prior to establishing tested issue channels and secondary trading institutions, which indicate public acceptance for holding financial assets other than the traditional highly-liquid bank deposits.
1996-2001's reconstruction within central Beirut has included roads and other infrastructure construction, shoreline protection, the restoration of existing structures in the central district and initiation of new construction for offices, governmental and residential buildings.
considered a successful program, SOLIDERE's concept and resulting urban
design and development plan for central Beirut has generated
considerable debate within as well as without Lebanon. Although beyond
the scope of this article, readers are directed to a very insightful
article entitled, DECONSTRUCTING
Saliba's discussions of the historical heritage of Beirut, various group's mental maps of former Beirut, and his review of SOLIDERE's resulting urban form offer important insights into issues designers and developers of future urban reconstruction project may wish to consider.
Beirut Critical Reconstruction Areas
(Not permitted to
be included in published plans
for larger view
for larger view
A Brief Assessment of Lebanon's Recovery Decade (1992-2002)
For example, the initial plan included a projected 9% economic growth rate, a transition from fiscal budget deficits to a surplus by the year 2000, and a substantial improvement improvement in living standards for the Lebanese people. However, the results have not met these targets.
In the early years of the recovery program, however, economic growth was
encouraging, registering 7% and 8%
respectively in 1993 and 1994. This level of growth was expected when compared
with the evidence from other countries in early post-war reconstruction
programs. However, beginning in 1994, Lebanon's economic growth rate began
declining and reached 0% in 2000.
Regarding gross public debt, it was about USD 3 billion in 1992, which amounted to over 54% of GDP. In 2000, gross public debt was about USD 25 billion accounting for over 175% of GDP. Servicing this debt has proven a major challenge for the country, amounting to about USD 2.8 billion in 1990, which is over 92% of national public revenues.
Regarding macroeconomic performance the decade was disappointing. However, one should not simply conclude that the initial Reconstruction and Reconstruction plan was "wrong" or misguided. While it is beyond the scope of this review to provide analysis of details contained in the initial 1991-1992 plan, one should examine that plan in detail (contained in World Bank documentation) to determine the institutional change factors identified as critical and essential in achieving the desired rates of economic growth, deficit reduction and public debt management.
The "success determination" of any national reconstruction and development program is an exceedingly complex and dynamic question open to many interpretations from various groups of involved participants or even experienced analysts. Reviewing the initial recovery plan relative to a simple set of macroeconomic indicators, as above, may be useful as gross indicators of national performance. However, these indicators should not be used as a proxy for determining the "success" of Lebanon's efforts at national reconstruction and recovery. Such a simple macro evaluation is not only incomplete but may be seriously misleading.
Financing Lebanon's Reconstruction
Lebanon's reconstruction decade has been characterized as based primarily on policies emphasizing the securing on increased levels of public sector finance through various internal collection and external funding sources to help control chronic budget deficits and restrain spiraling public debt.
While external borrowing provided much of the funding needed for various recovery and reconstruction programs, the hoped-for level of foreign private sector investment in the country's reconstruction did not materialize. Nor was Lebanon able to increase levels of domestic production and growth in the manufacturing sector needed to secure higher levels of needed foreign reserves.
An important point to note is that during the past ten years of reconstruction Lebanon experienced persistent increasing trade deficits. Earlier in the mid 1970s, Lebanon's export to import ratio was around 30% but by the mid 1990s to 2000 it had dropped to slightly over 10%. And the 2000 trade deficit of USD 5.5 billion represented about 33% of GDP.
During the past decade, foreign direct investment (FDI) that did occur was mainly in the real estate, financial and banking sectors, not in manufacturing or other productive sectors. The government issued Treasury bills were especially attractive as safer higher yielding investments. While the government did promote various investment and tax incentives to attract FDI in the productive sectors, they were competing with similar programs perceived less risky elsewhere around the world and were therefore proved insufficient.
Most international economists and investment
professionals see FDI mainly as related to perceived relative risk, which is
related to political and economic stability, legal and regulatory transparency
and predictability, a "level playing field" and other forms of
national, local and regional stability. While various forms of medium or
longer term taxation or development incentives, or even locational advantages,
are important to attracting FDI, these most often cannot supplant the
overriding issues of political and economic stability.
Due to these regional factors plus related internal political arrangement, Lebanon sovereign risk ratings were increasing downgraded. To finance the country's recovery, therefore, the government had little choice to to use the mechanism available to it, mainly external borrowing and commercial bank lending at increasing higher interest rates.
Finally, in assessing Lebanon's record in financing its recovery, one should note that the stated goals and implementation initiatives formulated by the government for the initial recovery and reconstruction program in the early 1990s, and in later versions, sought to implement a multi-dimensional program of recovery finance. Due to many factors beyond Lebanon's control, the country was not able to effectively implement programs to attract the needed levels of FDI, thus forcing it to rely too heavily on external and internal borrowing.
New Direction for Lebanon's Continued Reconstruction, Growth and
Therefore, the prevailing global trends toward streamlining of government and increasing private sector involvement seem goals well within the country's reach. However, the demand for institutional transparency and political and economic stability are also necessary components of competitive globalism and the emerging information economy. Lebanon's ability in effectively addressing these issues will be critical to the success of its programs for national recovery, growth and longer term development.
Update mid 2008
Essentially, a ditto of the two paragraphs above... with the following observation.
The necessary ingredients for achieving economic progress in any country are complex and different. History shows us, however, that there are certain fundamental ingredients necessary for sustainable economic growth and nation-wide prosperity for most countries: these include political stability and orderly governmental protections for all groups, the operation of fairly elected transparent representative governments, and limited but effective regulatory control of private markets.
As long as there is strong regional interference in Lebanon's internal life and overall regional instability, however, Lebanon will likely continue to experience much difficulty in reaching its economic potential for all its citizens.
Please Note: Primary sources for the above
For information on on-going major investment projects and incentives in Lebanon see IDAL's (the Investment Development Authority of Lebanon) web page. The IDAL was established in 1994 to identify, promote and help implement large scale private investment in national reconstruction and development.
Lastly, please note that this site will be updated whenever possible. Any comments or suggestions are welcomed. Also, please note that the information and options expressed in this article are those of the author alone and should not be taken to represent the options of any other private company, public agency or international institution.
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