Economic History - Invasion and Trauma, 1982-87

Economic History - Invasion and Trauma, 1982-87

Lebanon, torn by its sectarian and political disputes, was further cursed by invasion and a seemingly endless intermingling of internally and externally inspired conflict from 1982 onward. Beirut suffered grievously between June 6, 1982, when Israeli troops first crossed the Lebanese border, and September 16, when they completed their seizure of West Beirut. Normal economic activity was brought to a standstill. Factories that had sprung up in the southern suburbs were damaged or destroyed, highways were torn up, and houses were ruined or pitted by artillery fire and rockets. Close to 40,000 homes--about one-fourth of all Beirut's dwellings--were destroyed. Eighty-five percent of all schools south of the city were damaged or destroyed. The protracted closure of Beirut's port and airport drastically affected commerce and industry. By 1984 the World Bank and the CDR agreed that Beirut would require some US$12 billion to replace or renovate damaged facilities and to restore services that had not been properly maintained since 1975.

In a December 31, 1982, national broadcast, President Amin Jumayyil called for the world to launch a new "Marshall Plan" to help reconstruct Lebanon. A series of conferences were held with major potential aid donors. A number of reconstruction projects were launched with support from the World Bank, the United States, and France. Roads began to be repaired, ports were cleared of debris, and schools and hospitals were built or rebuilt. But nothing was done on the grandiose scale Jumayyil had originally envisaged.

It became clear that Saudi Arabia and the Persian Gulf countries were not prepared to provide Lebanon with major reconstruction funds until the World Bank and other Western financial institutions had taken the lead in the reconstruction effort. And repeated breakdowns of fragile truces meant that from 1984 to 1987 there were no real opportunities for large-scale reconstruction efforts.

Still, financial and business circles were optimistic between September 1982 and January 1984 because Western-backed reconstruction plans seemed attainable under the presidency of Amin Jumayyil. But the mood did not last. Economic progress was insufficient to override the recurrence of sectarian strife, and the government seemed ineffective in reconstruction and reconciliation. When Beirut was again divided in February 1984, and the troops of the ill-fated MNF evacuated, a turning point was reached. From that point on, it became impossible to ignore the downward spiral of the Lebanese economy.

Foreign banks began selling and moving out. The decline of the Lebanese pound intensified, and hyperinflation set in. Public debt soared, and only drastic cutbacks in government purchases, which were virtually restricted to oil, ensured an overall balance of payments surplus in 1985. By 1986 the inflation rate was well over 100 percent. Government revenues from taxation and customs duties continued to erode. And one account declared that at the end of 1986 "currency speculation and black marketeering have become the principal areas of business activity." Economic control was falling into the hands of those who possessed hard currency. The militias' tight grip on customs revenues gave them increasing control over what was left of the national economy; and their strength increased as the central government's control over national finances weakened. Although the Central Bank was still the guardian of one of the highest volumes of per capita foreign assets in any developing country, the government's ability to use these assets to reconstruct the country's shattered financial system or national economy was doubtful.

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