Lebanon's Economy

Aid and Reconstruction

| Reconstruction and Hope, 1976-82 |
| Arab Reconstruction Aid |
| Post-Israeli Invasion Reconstruction, 1982-84 |
| Reconstruction and Chaos, 1984-87 |

Reconstruction and Hope, 1976-82

After nineteen months of fighting in 1975 and 1976, reconstruction was necessary but the prospects for reconstruction were seemingly hopeless. The Council for Development and Reconstruction (CDR) was founded after the war and entrusted with preparing and implementing a comprehensive reconstruction plan. The government gave it authority to negotiate with foreign governments for economic assistance and to implement reconstruction projects or authorize other government agencies to do so. Its creation was a bold step, and the CDR worked hard to honor its mandate.

In December 1978, the CDR produced a US$7.4 billion reconstruction plan, designed to rebuild the country's shattered infrastructure over an 8-year period. The program was to be largely financed by external assistance, with the government providing only 10 to 25 percent of the total. But it was not until November 1979 that the Arab states, at a summit meeting in Tunis, agreed to furnish Lebanon with US$2 billion in aid over a 5-year period.

The CDR produced its first annual work plan, which spelled out the program's implementation schedule. Projected spending for the project in 1980 was just over US$296 million, well below what would be necessary if the entire plan were to be completed within its supposed eight-year time frame. In conformity with Arab donor state wishes, half was earmarked for the south, divided equally between infrastructure development (such as port, road, hospital, and housing repairs) and social projects.

Nevertheless, the CDR was at least able to make a brisk start on reconstruction. At the end of April 1981, it reported that about half of the US$741 million in available funding was being used, with 32.3 percent going for loans to the public sector, 29.1 percent designated as liquid resources for projects being implemented, and 17.3 percent for expenditures on projects under way.

Lebanon was receiving reconstruction aid fairly regularly in 1981, although some donors were behind in some of their disbursements. Other international sources also provided assistance. The United States Agency for International Development (AID) provided approximately US$5.7 million for a variety of projects that year, including technical assistance for the CDR, housing repair grants, housing authority loans, and various health projects. And as far back as October 1980, Lebanon had signed an agreement with the United Nation International Children's Emergency Fund (UNICEF) to carry out US$43.5 million of social projects in the south, using reconstruction funds channeled through the CDR. The United Nations Development Program (UNDP) also provided around US$4 million worth of reconstruction projects.

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Arab Reconstruction Aid

The Arab aid approved at the 1979 Tunis summit meeting was the key to Lebanon's reconstruction program. During the five-year period from 1980 through 1984, the seven Arab members of the Organization of Petroleun Exporting Countries were to provide specific sums annually. The program got under way late, so that in 1980 just US$168.2 million of an intended US$400 million was actually disbursed. The pace quickened in 1981, however, with the arrival of US$202.9 million. The cease-fire in southern Lebanon from July 1981 until the Israeli invasion the following June provided an opportunity to step up disbursements, but, in fact, they declined. During the first half of 1982, only the United Arab Emirates made any effort to meet its commitment, paying some US$13 million, presumably its regular first-quarter payment.

The Arab states reacted to the Israeli invasion by virtually discontinuing aid. By November 1982, almost three years into the program, the Ministry of Finance had reported receiving just US$384.2 million of an expected US$1.2 billion. Some aid did trickle in during late 1982 or in 1983, but the highest figure reported for total aid deliveries agreed to in Tunis in 1979 was around US$420 million.

By far the most reliable of the donors was the UAE. It had pledged US$45.7 million a year and met its 1980 and 1981 commitments in full, in addition to the US$13 million first-quarter contribution in 1982. At the opposite extreme was Libya, which had pledged US$62.84 million a year but had provided nothing by the end of 1982 (except covert arms deliveries to pro-Libyan militia groups). Algeria, which had pledged US$142.8 million a year, later declared that it could not comply because of financial difficulties. The remaining donors agreed to meet Algeria's commitments, but there is no evidence that they ever provided the funds.

Saudi Arabia, with the largest annual commitment--US$114.3 million-- began its disbursements late. In 1980 it provided onethird of the amount due and in 1981 two-thirds. The Saudis made no further payments before the 1982 invasion. Iraq met its 1980 annual commitment of US$59.4 million but made no further contributions because of its war with Iran. Kuwait furnished US$25 million in 1980 and then in 1981 provided US$67.8 million--US$5 million more than what was due. But it, too, failed to pay anything in the first half of 1982. Qatar provided no assistance in 1980 and in 1981 provided only half of its pledged US$26.8 million.

After the Israeli invasion, the Arab donors provided about US$40 million. They indicated that they would contribute more funds to the reconstruction effort as funds from the World Bank and the industrialized countries became available. In July 1983, a US$229 million aid package was put together by representatives of major donor countries and organizations. Attending the meeting in Paris were officials from Austria, Belgium, Canada, France, West Germany, Italy, the Netherlands, Japan, Britain, the United States, and Sweden. Participating donor agencies included the World Bank, the IMF, the Saudi Development Fund, the UNDP, and the EC and its principal financial arm, the European Investment Bank.

Specific aid agreements were subsequently reached with most, if not all, of the participants at the Paris meeting, which marked the high point in Lebanon's search for orthodox sources of reconstruction finance. But Arab aid was given neither on the scale envisaged at the Tunis summit nor on the more limited scale supplied in 1980 and 1981. Falling oil prices in 1983 caused producers to cut back production to maintain prices. The cutbacks resulted in lost revenue, not only for themselves but indirectly for Lebanon. Some Saudi money did arrive in Lebanon, but only on an ad hoc basis. Some of it, reputedly from King Fahd, was given to charities and for education. Organized financial assistance, however, dried up by the mid-1980s. In early 1985, President Jumayyil appealed to the Saudis for US$500 million in economic aid, but the response did not match the request. The Arab nations, in essence, had lost interest in Lebanon.

Still, the Tunis aid pledge led Lebanon to believe that it could mobilize reconstruction funds if it could come up with practical projects. The CDR viewed the aid pledged as encouragement to intervene in the economy. The CDR's interventionist attitude ran counter to the Lebanese government's long-standing commitment to free-market principles. As a result, the CDR was criticized in government and financial circles for pursuing too interventionist a policy. Thus, in the months before the Israeli invasion, the old politics that had so bedeviled Lebanon were threatening to destroy the new economics on which those who opposed Lebanon's confessional structure were placing considerable hope.

After the 1982 Israeli invasion, however, the argument became academic. Damage to Beirut and the devastation of communities in the south ushered in a new acceptance of greater state involvement in the reconstruction of the country.

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Post-Israeli Invasion Reconstruction, 1982-84

When Amin Jumayyil took office in 1982, he assumed leadership of a country that, although stunned and paralyzed by the Israeli invasion, still had some positive economic forces at work. The Arab states were still providing financial assistance, although not as much as they had promised or as much as Lebanon needed. The four powers (Britain, France, Italy, and the United States) whose troops comprised the Multinational Force (MNF) in Beirut, created after the invasion, were all eager to see Lebanon regain its commercial prominence. International financial institutions, most notably the World Bank, believed that comprehensive reconstruction was possible. Even though the central government controlled only about a fifth of the national territory--Israel and Syria controlled the rest--there was an air of energy and determination in Beirut in the midst of apparently insuperable obstacles.

It was in this atmosphere that the CDR was to fashion its most ambitious reconstruction program. The program was projected in late 1982 to cost US$16.3 billion for the 9-year period 1982-91 (a revised 1983-92 version was estimated at US$17 billion in the spring of 1983). Once again, the plan proved overambitious. The CDR initially proposed that US$1.1 billion be spent in 1983, the first full year of reconstruction. In March 1983, however, the CDR proposed a much more modest start, entailing expenditure of just US$594 million during the year.

Housing was to get the largest share of reconstruction funds-- about 35 percent of all spending. The emphasis on Al Janub Province was to be maintained, although the previous "50 percent rule" no longer seemed to apply following the devastation of other parts of the country by the Israeli assault and continuing occupation. UNICEF was to administer US$15.8 million in project funds for rehabilitation of 200 schools.

In November 1982, a World Bank team visited Lebanon and presented a US$6.7 billion reconstruction program. But because of doubts about how much of the program could be implemented, in February 1983 the World Bank proposed a more limited reconstruction project designed to cover only the Greater Beirut area in which government or international forces were deployed.

The World Bank's program differed considerably from that of the CDR. The CDR emphasized that housing would account for 29.4 percent of all funding under the US$17 billion plan, whereas telecommunications would account for just 5.1 percent. Under the World Bank's US$6.4 billion program, housing was to get only 14.8 percent of all funds, while telecommunications would receive 16.3 percent. The World Bank's emphasis proved more relevant, and since 1982 there has been extensive repair, renovation, and replacement work on the country's shattered telecommunications systems.

There was a renewed emphasis on water management. Beirutis have long dug deep into the soil for fresh water. Digging accelerated during the bitter rounds of fighting in 1975-76 and in 1982. Sea water began seeping into the city's fresh water, and as Beirut's sanitary system disintegrated during the violence, unpurified water entered the drinking water system, resulting in considerable health hazards at times.

In 1982, before the Israeli invasion, the National Waste Management Plan was drawn up to provide the residents of 542 cities, towns, and villages--covering 83 percent of the population- -with solid and liquid waste treatment and disposal plants by the year 2000. This plan was incorporated into both reconstruction programs, with priority being given to the construction of main sewers in the principal cities. Foreign consultants were hired to get the program off the ground, but progress was much slower then expected because of fresh waves of conflict.

Considerable efforts to reopen Beirut's port were supported by a World Bank loan of US$50 million and funds from Arab nations and the United States. Transit sheds and warehouses were erected and old and damaged ones repaired. In 1983 work started on a new container terminal and on the expansion of the eastern end of the port. In the city center, the Oger Liban Company boosted morale in the autumn of 1982 as its trucks carted away months of refuse. The company also performed restoration work in 1983 and early 1984 on the old suqs (markets) in the commercial district. But the heavy fighting that accompanied the renewed partition of Beirut in February 1984 destroyed much of this work.

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Reconstruction and Chaos, 1984-87

Western indulgence with Lebanon ended in February 1984. The bombing of the United States Marines barracks in Beirut on October 23, 1983, with the loss of 241 American lives, and the death of some 59 French peacekeeping troops in a similar blast that day, proved how unstable the reconstruction environment was. Fighting in the Shuf Mountains during the autumn of 1983 illustrated the difficulty of asserting government control even when occupying forces pulled back. Most of the MNF troops pulled out with the partition of Beirut and the renewed fragmentation of the Lebanese Army, although the French and Italians delayed their departure for humanitarian reasons.

The MNF withdrawal was accompanied by the effective termination of United States economic and military assistance programs. The AID program was frozen, and US$130 million in aid was suspended. One effect of the aid suspension was a halt in work on an AID-financed telecommunications rehabilitation project in Beirut. Officials from the United States embassy said, however, that the United States would honor its US$18 million development aid commitment.

Despite persistent instability, the CDR pressed ahead over the next three years with efforts to secure external financing for the country's reconstruction. Some L4.3 billion was spent between 1982 and early 1986 on reconstruction (equivalent to between US$500 million and US$700 million).

In 1985 the CDR's new chief, Malak Salam, confirmed that Italy would make US$130 million available for reconstruction assistance, of which US$30 million would be on concessionary terms. The EC was to consider about US$15 million in funding and France around US$54 million. Some US$5 million was pledged by Belgium. Whereas United States and Arab aid rose and fell according to political circumstances and the vagaries of the international oil market, West European aid, usually given on a more modest basis, was fairly steady.

Between 1978 and 1985, Lebanon secured about US$76 million in grants and interest-free or low-rate loans from the EC's European Investment Bank and some US$85.5 million in special reconstruction aid. In March 1986 it secured a further US$15.4 million to upgrade schools. In April 1987, the EC agreed to provide Lebanon with US$84 million under a five-year protocol to run from 1987 to 1991, of which US$23 million would be grants and the balance concessionary loans.

President Jumayyil periodically urged the industrialized nations to draw up a "Marshall Plan" for Lebanon's reconstruction. He traveled extensively to Western capitals to secure assistance but generally received negative responses. EC officials noted in 1987 that their attempts to disburse existing aid funds had sometimes proved unsuccessful.

The CDR did not confine its efforts to the developed world's principal financial institutions. In 1982 the CDR held talks on reconstruction assistance with Hungary and in 1986 with Beijing's China Harbors Engineering Company on a possible US$500 million protocol for construction work. In 1985 Czechoslovakia promised US$50 million, mainly in tied aid, and Romania said it was willing to lend US$100 million in trade credits.

Aid also trickled in from other sources. Iran social relief funds were disbursed to largely Shia areas. The Pasdaran in Baalbek, their Martyr Foundation, and affiliated groups furnished health and social services.

The EC provided emergency food aid and funds for school repairs. The Netherlands pledged aid for a factory to make artificial limbs. Canada lent money for water projects in Beirut and Tripoli. Britain gave the Red Cross money for humanitarian assistance. In the southern border strip, Israeli forces provided some humanitarian assistance. The FAO provided emergency food aid. The UNIFIL provided extensive medical, social, and, in some cases, even infrastructure services during the years following the 1982 invasion. Overall, the relief effort was just as much a patchwork as Lebanon itself.

By late-1987, there were few signs of centralized reconstruction efforts. The assassination of Prime Minister Rashid Karami on June 1, 1987, led to the reappointment as prime minister of Salim al Huss (also spelled Hoss), a Lebanese politician with a reputation for personal and public integrity. Al Huss, an economist, moved immediately to develop a radical financial reform package, including the abolition of fuel subsidies and the pledging of 20 percent of the country's gold reserves as security for an international loan. His efforts were largely undermined by Minister of Finance Camille Shamun, who demanded that reductions in government spending include a reduction of the bread subsidy. Huss renewed his reform efforts after Shamun's death in August, but he and Naim were unsuccessful at getting banks to increase deposits with the Central Bank.

The reform spirit was clearly alive, but the government was unable to negotiate agreements with key sectors of Lebanese political and economic life or impose its will on any part of the country. As Jumayyil's unhappy period of office drew closer to its September 1988 termination date, there were still a few who hoped that a new president might be able to forge ahead with reconstruction effort. But in late 1987, reconstruction seemed unlikely.

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Source: Federal Research Division - Library of Congress (Edited by Thomas Collelo, December 1987)

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1997-2001 by Ayman Ghazi
Last changes: September 30, 1997