24 July- Dow Jones Newswires- Gauging Econ Cost of Lebanon's Crisis
Gauging Econ Cost of Lebanon's Crisis
Monday, Jul 24, 2006
NEW YORK (Dow Jones)--
As Israel stepped up its bombing campaign in Lebanon last week, Lebanese Prime Minister Fuad Siniora offered a view from the ground:
The devastating Israeli attacks, he said, threatened to "turn Lebanon back 50 years."
Siniora wasn't simply alluding to the economic and human cost of the bombing, but also to the set-back to the 2005 "Cedar Revolution" that brought his government to power and ushered in a new, democratic political order in Lebanon.
While the damage to infrastructure and the Lebanese economy is going to be costly, the best case scenario would see Lebanon quickly recovering from this latest conflict in its long history of turmoil.
But worst case scenarios abound. Major concerns are the survival of the Cedar Revolution and the ability of the Lebanese government to broaden its authority and disarm Hezbollah without
provoking sectarian conflict. That remains an open question with a very open-ended economic impact.
Lebanon "felt it had pulled itself out of the brink, and has now been plunged back," says Nicholas Pelham, an Israel-based analyst with the International Crisis Group. "The damage to its image and self-confidence will be far greater than the material damage."
With the conflict showing no sign of stopping and Israel sending troops across the border over the weekend, the extent of the material damage, let alone the economic fallout, is hard to assess, but analysts agree it is very high.
The Israeli bombing campaign has hit a wide swath of infrastructure, including roads, bridges, telecommunication towers, and according to local press reports, hospitals and schools. Israeli officials say the bombardment is designed to degrade Hezbollah's military capability and to cut off crucial aid from Syria and Iran.
While there has been no damage assessment, Siniora and other Lebanese officials have put the cost of the destruction at $2 billion to $4 billion, an estimate that's bound to grow in the days ahead as the fighting continues. A top U.N. official over the weekend said the cost could run into the billions.
"The damage up to now is already very severe but if Israel sends its ground forces into Lebanon, it could get a lot worse," says Nader Habibi, a Middle East analyst at Global Insight in Philadelphia. The economic impact of repairing the damage is going to be heavy.
"Along with a downturn in tourist, trade, and other business activity, Lebanon will be burdened with the cost of repairing damaged infrastructure," Habibi wrote in a recent research note.
Deep In The Red Lebanon, already burdened with more than $24 billion in sovereign debt, almost double its gross domestic product, will sink even deeper into the red as it is forced to borrow to finance costly reconstruction, Habibi predicts.
The conflict comes at the height of the tourism season, which was expected to see a strong year. According to Global Insight, the number of tourists visiting Lebanon was up more than 50% during the first five months of the year, and according to another estimate, Lebanon was expected to receive more than 1.5 million visitors from the Persian Gulf and Europe this year. Tourism is a major source of hard currency for Lebanon.
All of which bodes ill for economic growth. The Bank of Lebanon reported gross domestic product growth of more than 6% during the first two months of the year and some analysts were looking for GDP growth of 4% to 6% for all of 2006. All those forecasts have been revised, with some analysts now seeing the prospect of an economic recession this year.
Amid the gloomy outlook and increased political risk, credit ratings agencies have cut their outlook on Lebanon, with Standard & Poor's putting Lebanese long term sovereign debt on CreditWatch, with negative implications. "Expectations for further improvements have now fallen by the wayside," Habibi says.
To be sure, Lebanon has a proven history of bouncing back from deep turmoil.
In the 1990s, the government of the late Prime Minister Rafik Hariri, borrowing heavily from foreign creditors, spent more than $5 billion on reconstruction, repairing damage from 15 years of civil war and modernizing the country's infrastructure, including the Beirut Airport repeatedly bombed in recent days.
Then last year, Hariri's assassination plunged the country into turmoil before a quick recovery followed elections and the withdrawal of Syrian troops.
Economic growth, which plunged to 1% from 4%, rebounded by the second half of the year, with forecasts for solid growth this year. Fears of a lasting damage to the tourism industry proved unfounded, as Persian Gulf visitors began pouring back within months of the assassination.
Big Blow To Credibility
This time, the Lebanese economy could see a repeat performance. What worries experts more is the damage the conflict has done to the credibility of the Lebanese government as it has embarked on economic reform and sought to consolidate its authority.
"It is a setback, no question," said Richard Murphy, a former Assistant Secretary of State who served as a diplomat in Lebanon and Syria. "The Cedar Revolution was supposed to bring back normalcy. Economic planning is going to be thrown off. The government can't deliver and protect its own people."
More ominously for Lebanese political stability, the economic fallout will undermine the government's ability to confront Hezbollah and deploy troops to southern Lebanon, which Israel has demanded as a condition of ceasing its military campaign.
Regardless of when and how the conflict stops, the future place of Hezbollah in Lebanese society will be key to stability in Lebanon and the broader region.
The big question is whether Hezbollah is going to fully integrate into mainstream politics or remain militarized.
By all accounts, the Israeli bombing campaign has increased Lebanese sympathy for the militia group. Much will depend on whether, once the dust settles, there is a popular backlash against
Hezbollah for provoking the costly war.
No one knows the answer, says Murphy. As for long term stability, Habibi of Global Insighsays, "the Lebanese political system is very fragile and there is a high risk of instability as a result of what has happened."
-By Masood Farivar, Dow Jones Newswires
Monday, Jul 24, 2006
NEW YORK (Dow Jones)--
As Israel stepped up its bombing campaign in Lebanon last week, Lebanese Prime Minister Fuad Siniora offered a view from the ground:
The devastating Israeli attacks, he said, threatened to "turn Lebanon back 50 years."
Siniora wasn't simply alluding to the economic and human cost of the bombing, but also to the set-back to the 2005 "Cedar Revolution" that brought his government to power and ushered in a new, democratic political order in Lebanon.
While the damage to infrastructure and the Lebanese economy is going to be costly, the best case scenario would see Lebanon quickly recovering from this latest conflict in its long history of turmoil.
But worst case scenarios abound. Major concerns are the survival of the Cedar Revolution and the ability of the Lebanese government to broaden its authority and disarm Hezbollah without
provoking sectarian conflict. That remains an open question with a very open-ended economic impact.
Lebanon "felt it had pulled itself out of the brink, and has now been plunged back," says Nicholas Pelham, an Israel-based analyst with the International Crisis Group. "The damage to its image and self-confidence will be far greater than the material damage."
With the conflict showing no sign of stopping and Israel sending troops across the border over the weekend, the extent of the material damage, let alone the economic fallout, is hard to assess, but analysts agree it is very high.
The Israeli bombing campaign has hit a wide swath of infrastructure, including roads, bridges, telecommunication towers, and according to local press reports, hospitals and schools. Israeli officials say the bombardment is designed to degrade Hezbollah's military capability and to cut off crucial aid from Syria and Iran.
While there has been no damage assessment, Siniora and other Lebanese officials have put the cost of the destruction at $2 billion to $4 billion, an estimate that's bound to grow in the days ahead as the fighting continues. A top U.N. official over the weekend said the cost could run into the billions.
"The damage up to now is already very severe but if Israel sends its ground forces into Lebanon, it could get a lot worse," says Nader Habibi, a Middle East analyst at Global Insight in Philadelphia. The economic impact of repairing the damage is going to be heavy.
"Along with a downturn in tourist, trade, and other business activity, Lebanon will be burdened with the cost of repairing damaged infrastructure," Habibi wrote in a recent research note.
Deep In The Red Lebanon, already burdened with more than $24 billion in sovereign debt, almost double its gross domestic product, will sink even deeper into the red as it is forced to borrow to finance costly reconstruction, Habibi predicts.
The conflict comes at the height of the tourism season, which was expected to see a strong year. According to Global Insight, the number of tourists visiting Lebanon was up more than 50% during the first five months of the year, and according to another estimate, Lebanon was expected to receive more than 1.5 million visitors from the Persian Gulf and Europe this year. Tourism is a major source of hard currency for Lebanon.
All of which bodes ill for economic growth. The Bank of Lebanon reported gross domestic product growth of more than 6% during the first two months of the year and some analysts were looking for GDP growth of 4% to 6% for all of 2006. All those forecasts have been revised, with some analysts now seeing the prospect of an economic recession this year.
Amid the gloomy outlook and increased political risk, credit ratings agencies have cut their outlook on Lebanon, with Standard & Poor's putting Lebanese long term sovereign debt on CreditWatch, with negative implications. "Expectations for further improvements have now fallen by the wayside," Habibi says.
To be sure, Lebanon has a proven history of bouncing back from deep turmoil.
In the 1990s, the government of the late Prime Minister Rafik Hariri, borrowing heavily from foreign creditors, spent more than $5 billion on reconstruction, repairing damage from 15 years of civil war and modernizing the country's infrastructure, including the Beirut Airport repeatedly bombed in recent days.
Then last year, Hariri's assassination plunged the country into turmoil before a quick recovery followed elections and the withdrawal of Syrian troops.
Economic growth, which plunged to 1% from 4%, rebounded by the second half of the year, with forecasts for solid growth this year. Fears of a lasting damage to the tourism industry proved unfounded, as Persian Gulf visitors began pouring back within months of the assassination.
Big Blow To Credibility
This time, the Lebanese economy could see a repeat performance. What worries experts more is the damage the conflict has done to the credibility of the Lebanese government as it has embarked on economic reform and sought to consolidate its authority.
"It is a setback, no question," said Richard Murphy, a former Assistant Secretary of State who served as a diplomat in Lebanon and Syria. "The Cedar Revolution was supposed to bring back normalcy. Economic planning is going to be thrown off. The government can't deliver and protect its own people."
More ominously for Lebanese political stability, the economic fallout will undermine the government's ability to confront Hezbollah and deploy troops to southern Lebanon, which Israel has demanded as a condition of ceasing its military campaign.
Regardless of when and how the conflict stops, the future place of Hezbollah in Lebanese society will be key to stability in Lebanon and the broader region.
The big question is whether Hezbollah is going to fully integrate into mainstream politics or remain militarized.
By all accounts, the Israeli bombing campaign has increased Lebanese sympathy for the militia group. Much will depend on whether, once the dust settles, there is a popular backlash against
Hezbollah for provoking the costly war.
No one knows the answer, says Murphy. As for long term stability, Habibi of Global Insighsays, "the Lebanese political system is very fragile and there is a high risk of instability as a result of what has happened."
-By Masood Farivar, Dow Jones Newswires
posted by Reem at 11:44 PM
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