Hizbullah election defeat is boon for Lebanon economy

"There is demand in Lebanese markets today. The election's effect was positive, and people saw it as a good sign."

By
June 10, 2009 12:46
3 minute read.

 
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Lebanon's pro-West coalition's victory over Hizbullah in the weekend election showdown is expected to boost confidence in the country's economy, analysts said Tuesday, as the "Switzerland of the Middle East" struggles with economic reform efforts stalled by years of conflict. The parliamentary battle between the March 14 coalition - headed by Saad Hariri, son of slain billionaire and former pro-West premier Rafik Hariri - and the Syria- and Iran-backed Hizbullah was billed as a battle to determine whether this volatile Mediterranean nation would be able to move past the political deadlock and toward economic reform. An early sign of the election's impact appeared minutes after the Beirut Stock Exchange opened Tuesday, the first working day this week, with shares of Solidere, Lebanon's largest construction and development firm, rising 15 percent. "There is demand in Lebanese markets today. The [election's] effect was positive, and people saw it as a good sign," said Fadi Mubarak, head of treasury at Lebanon's Credit Bank. Final results from Sunday's race showed March 14 winning 68 seats to the Hizbullah-led alliance's 57, with three seats going to independents. The outcome served as a clear reflection of the fears voiced by many Lebanese that a Hizbullah win would alienate the country's main donors in the West and drive away Persian Gulf investors. "What is also helping is the political courting between Lebanese leaders," Mubarak said, referring to efforts by March 14 and Hizbullah officials to tone down their rhetoric after the vote. The fears appeared to have been well-founded. Amid the global economic crisis, Lebanon - a nation whose famed banking-secrecy laws as well as towering mountain backdrop had earned it a comparison to Switzerland - could ill afford to alienate anyone. Unlike many other Arab nations, it lacks oil wealth and has relied on its history of commerce and tourism to build its economy. During a visit to Beirut last month, Vice President Joe Biden warned that the United States would evaluate the shape of its assistance programs based on the composition of the new government and the policies it advocates. Washington has branded Hizbullah a terrorist group while the movement is widely viewed among many Arabs as a political player and one of the few groups with the ability to stand up to Israel militarily. The US has provided Lebanon with more than $1 billion in assistance since 2006, including $410 million to the military and the police. Similar fears were voiced in relation to the oil-rich Gulf Arab countries' willingness to continue funneling investments into a country run by a Shi'ite Muslim terrorist movement at odds with their Sunni governments. Paul Salem, the Beirut-based director of the Carnegie Middle East Center, said the outcome of the election "will be more confidence." "We're in the beginning of a summer season, and I think it reinforces the sense of Lebanese, as well as Gulf [investors]... that Lebanon is on a reasonably stable path and is a good place in which to invest," he said. That perception is particularly important in Lebanon, which has weathered decades of conflict, civil war, assassinations and sectarian strife while struggling to rebuild after each cycle of violence. Rafik Hariri, who was killed in a truck bombing in 2005, was credited for his role in rebuilding downtown Beirut, which was destroyed during the 1975-90 civil war. Hariri, a contractor, took the helm of a country aching for economic stability. His death cast a pall on those prospects, even as Lebanon's various factions struggled for control in a feud that pushed the nation to the brink of civil war in 2008. Hopes are now that the election of a pro-West government will allay outside concerns, particularly as the global recession has squeezed growth rates worldwide. Lebanon has so far managed to weather the financial meltdown, and Central Bank governor Riad Salameh said in March that economic growth this year is expected to come in around 4%. The rate was far below the roughly 7% growth rate Lebanon recorded in 2008, but appeared to exceed expectations. Still, one of the country's most pressing issues is reducing its national debt. "While the Lebanese economy has been resilient amid the political downturn, there are a number of issues that the government must address, including reforming the energy sector and reducing its public debt, which is the highest in the world at 162%" of gross domestic product, analysts at Standard Chartered Bank wrote in a Tuesday report. "Now that the power vacuum has been filled, the Lebanese government can focus on economic issues," the report said.

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