Lebanon – Who is failing the economy?

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The question of who is failing the economy has been forgotten in the midst of the bazaar of election laws.

This, in fact, is a tribute to the distractive capabilities of the ruling coalition that has shown impressive talents in setting and manipulating the policy agenda, but has also shown equally unimpressive skills in designing solutions or achieving any progress on the pressing issues that are essential to the Lebanese, their economic development and their well-being.

I don’t disguise the fact that I was not discontented to see the March 8 coalition forming a government in 2011, notwithstanding my strong disagreement with what this coalition stands for politically. The reason is simple: I never believed in “national unity” governments, especially in Lebanon.

National unity governments, which may be needed in the exceptional cases of war or a major threat to national security, are often a recipe of inaction in terms of policy – especially economic policy – for they eliminate the most essential checks and balances element of a democracy: accountability.

In principle, we have now had a team that has been accountable since 2011. A team that had for the previous two years (2009-10) embarked on a smearing socio-economic campaign covering various issues that ranged from fiscal policy (the legality of the spending during the 2007-09 period; the infamous $11 billion; the return to constitutional normalcy) to overall economic policy.

In fact, the leading March 8 economists and economic commentators have consistently said the Lebanese economic growth model is too focused on rent-seeking activities and little on equitable growth.

Let us start with the second issue because it is easier. The ruling coalition consistently argued that “Harirism,” as they like to call the pro-growth reconstruction and economic policies adopted since 1992, has been unfair because the returns were not fairly distributed. However, under their rules there is no value in distribution.

GDP growth fell from an average of 8.5 percent during the most recent “Harirism” period between 2007-2010 to less than 2 percent in 2011, 1.5 percent in 2012, and around 0.6 percent expected in 2013.

So after having complained about not enough jobs being generated at 8.5 percent real economic growth (which is a point worthy of discussion in itself as it has its roots in the nature of the services-oriented Lebanese economy), their response was simple: no growth.

Even worse, their policies (or lack of it) have not only shrunk the job creation process, but have also eroded the purchasing power of those who already have a job. Under their rule, inflation has picked up from an average of 3 percent during the 2007-10 period to over 6 percent in 2012 and indicators point to higher in 2013.

And this is not “imported inflation,” because the inflation rate in the United States and Europe, our major trading partners, have edged down due to the weak economic activity that has created spare capacity in their economies.

Inflation in Lebanon is due to several factors, but surely amongst them has been the failed management of expectations regarding adjustments to the costs of living and the salary scale.

Lower growth and higher inflation have not stopped the ruling coalition in pursuing an issue that is closest to their heart: redistribution. Except with no value added to redistribute, they still managed to redistribute public money among themselves through noncompetitive and nontransparent deals in the power, public works and telecoms sectors.

A recent noncompetitive bid deal with Huawei totaled $82 million without the approval of the Council of Ministers nor the review of the Court of Accounts. Like many expenditures in this sector, and particularly those related to Capex, they were conducted contrary to the normal legal procedures as clearly stated by the Public Accounting Law.

They even managed to redistribute private money out of the pockets of the hungry, the needy and the vulnerable through outdated foodstuff products, drug manufacturing (captagon) and fake medications – and without a single suspect being brought to justice.

One cannot but be impressed by Prime Minister Najib Mikati repeatedly blaming March 14 for the deterioration of economic activity in the country. This is the first time I ever hear the head of the executive branch blaming the opposition for the economic performance in the country (and I include the six years that I have spent as an economist at the IMF working on several countries around the globe).

But that is really what makes March 8 so talented: Having lost in two elections, they managed to completely compromise the work of the winning coalition (March 14) through two national unity governments imposed by force.

They also grabbed power by force, ruled alone (a privilege March 14 or even the late Prime Minister Rafik Hariri never had), divided the proceeds of legal but also mostly illegal activities, and yet continue to use a political and economic discourse that makes you think that they are in fact the opposition, by constantly blaming Harirism and March 14 for all the problems of the country.

If that is not talent, then what is?

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