The political crisis in Lebanon is threatening to derail economic progress after a year that saw 7 percent economic growth, a record number of tourists and bank deposits among the highest in the Middle East.
Lebanon’s Western-backed government collapsed on Jan. 12 after Hezbollah and its allies resigned from the Cabinet in a dispute over a UN court investigating the 2005 assassination of former Lebanese prime minister Rafik Hariri.
The court, which is widely expected to accuse the Shiite militant group, filed a sealed draft indictment on Monday last week, touching off a process many fear could ignite new bloodshed almost six years after the massive truck bombing along Beirut’s waterfront that killed Hariri.
“This is a very deep and troubling crisis in Lebanon,” Lebanese economic analyst Kamel Wazni said. “The continuation of this crisis with the absence of any political resolution any time soon will have its implications in terms of growth and in terms of development.”
In the days after the government collapsed, many Lebanese carried on as normal, packing the city’s restaurants and nightclubs, but as the crisis drags on, the streets are growing quieter; in recent days streets normally clogged with traffic have been free of cars.
One of the negative signs came on Tuesday when Standard & Poor’s lowered Lebanon’s sovereign outlook to stable from positive over the country’s political uncertainty.
On Saturday, right-wing Christian leader Samir Geagea, a strong ally of Lebanese caretaker Prime Minister Saad Hariri, warned that a government formed by a pro--Hezbollah prime minister that doesn’t include Saad Hariri supporters would be catastrophic for Lebanon.
“Can anyone imagine what will happen to the Lebanese pound?” he asked.
Geagea said Lebanon, like the Gaza Strip after it was taken over by the militant Palestinian Hamas group in 2007, would be isolated and ostracized by the international community and Arab world, with the exception of Syria.
Saad Hariri has refused to give in to Hezbollah’s demands to break cooperation with the Netherlands-based tribunal investigating his father’s assassination. Efforts by outside regional powers to mediate a resolution and bring the sides back into a unity government have failed.
Despite the uncertainty on the political scene, Lebanon’s free market economy has always been a strong asset. Decades-old banking secrecy laws turned this tiny country into the region’s Switzerland, attracting clients from around the Arab world who prized the anonymity its banks afforded.
Central bank governor Riad Salameh said this month that bank deposits increased 10 percent last year to reach US$110 billion, or about three times the country’s GDP.
Salameh said last week during the monthly meeting of the Association of Banks in Lebanon that the central bank’s foreign currency reserve — about US$31 billion, or nearly 90 percent of Lebanon’s GDP, will help keep the Lebanese pound stable.
The bank has pumped hundreds of millions of dollars in the past weeks to protect the pound.
“The economic conditions will deteriorate if this period extends,” Lebanese Minister of Finance Raya al-Hassan said. “Our conditions are still good at this time because of the huge [foreign currency] reserves at the central bank.”
Two of the main sources of foreign currency are tourists and remittance from tens of thousands of Lebanese working abroad.
The World Bank estimated in November that for last year there would be about US$8.2 billion worth of remittances coming into Lebanon.
Tourism generates up to US$7 billion a year, according to the Lebanese Ministry of Tourism.
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