The long road to economic recovery might have been boosted, if anything, by the high-level political tension that erupted last month, according to a senior World Bank official.
This is the view of Joseph Saba, the director of the bank’s Middle East and North Africa department.
Saba wrapped up a week-long visit to Lebanon that was intended to follow-up progress on the bank’s portfolio of approximately $700 million in loan commitments, and a small amount of technical assistance grants.
The bank could have maintained its distance from a problematic domestic scene that saw worries about the national currency and political struggles that were resolved, in the view of some, by merely a temporary truce.
But during the visit, Saba inked the bank’s latest loan to Lebanon, namely $20 million for community projects and socio-economic improvement.
“The economy has shown more resilience than we expected,” Saba told The Daily Star in an interview at the bank’s offices at UN House.
“Government officials showed that they don’t want to go backward,” he said when asked about last month’s tension, which resulted from two main issues: the Cabinet’s being out of the loop on a wave of security-related arrests, and Parliament’s sudden about-face on legislation related to judicial reform.
“On Aug. 12, or whatever date you want to choose,” Saba said, “Lebanon did not go off the cliff … we did see things improving; government officials looked at the precipice and stood back.”
Saba might be expected to be upbeat when speaking for the record as a senior World Bank official. When it comes to Lebanon, his evaluation is based on two themes: the recognition of the country’s sometimes puzzling ability to defy expectations, and the sober conclusion that even 11 years after the war’s end, things are still in a transitional stage.
“It’s very clear that there is economic activity and a flow of money into the country,” he said, illustrating his conclusions with anecdotal evidence from his own connection to the country.
Saba is the grandson of Lebanese emigrants to the United States who left their home village of Hardin, in Batroun. From his own experience in visiting Lebanon before the war, Saba is aware that capital can enter the country through various informal networks.
“A large amount of resources come from expatriates and private donors; they come in privately and are rarely touched by the central authorities.”
He cited the example of an expatriate who invested in building a hotel and other projects in his village in the North after the war.
“While the person was interested in making profit, he was aware that the investment might not pay off immediately. But we was willing to commit his money.”
Saba’s visit here was his third since taking up his post in April, after serving as the director of the bank’s activities in the West Bank and Gaza.
The interrelated themes of investor confidence, a system of economic legality, and building institutions feature prominently in his discussion of the situation.
He gave the example of fighting a fire to illustrate Lebanon’s long road to postwar recovery.
“When the house has burned down,” he said, “the neighbors gather around and help out anyway they can. Then, there comes a point where the owner of the home says, ‘I don’t need any more help, you can go back to your specialty’,” meaning a more institutional approach to daily life.
“We are in a transition from the first to the second phase. Countries must move from a post-conflict situation to one of sustainable development … this means having institutions that are strong, predictable and dependable.
Confidence in the economy, he continued, involves investors and others being able to predict how the system functions with certainty over time. Coupled with this is the notion of economic legality.
“Economic legality means a set of rules that are enforced regularly over a period of time. They might not be the best rules, meaning that they can be improved. But some set of rules must be in place” for the economy to attract a sustainable level of investment, whether locally or from abroad.
“There is now a struggle going on when it comes to the confidence issue,” he noted.
But the bank, he stressed, did not have a checklist of standards that must be met to generate this improvement and move to economic legality.
“We shouldn’t just use our textbooks and apply them to every country,” he said, acknowledging that Lebanon posed the particular problem of lacking dependable statistics.
While some might see the World Bank as one of the main players in overseeing a huge economic recovery package for Lebanon, Saba cautioned that the IMF, and not the bank, was the place to look.
“When Japan experienced an economic crisis, the IMF’s involvement was the center of front-page newspaper headlines. You wouldn’t see that kind of headline about the World Bank.”
Tax collection rates and the impact of the value-added tax are primarily the IMF’s concern.
If the bank provides assistance to Lebanon to control its budget deficit, it will come after the IMF’s endorsement, Saba noted.
As for the bank’s portfolio of loans and assistance to Lebanon, Saba said his latest mission here showed him that “there was a fair amount of progress in implementation we were satisfied.”
The portfolio consists of some 13 projects in the form of loans, for projects in the domains of infrastructure, social services, and administrative capacity-building.
“I’m excited about the community development project,” he said, discussing the newest addition, a $30 million project to improve “living conditions and the economic status of disadvantaged communities.”
As part of the project, the bank is lending $20 million on soft terms, with the remainder coming from the government or other sources. The money will go to local non-governmental organizations, which will supervise the implementation of the projects.
The project aims to improve access to basic education, health and social services by rehabilitating social and cultural facilities in poor areas; boosting rural infrastructure like potable water and irrigation; and enhancing environmental protection through reforestation and preserving natural resources.
The project will also support small-scale entrepreneurial activities and improve access to credit for women, youth and the disabled, so that they can boost their own income.
“The central government has realized that it can’t mobilize and allocate all resources to society. This is a risk for the government, and many countries would be uncomfortable with the idea of letting local governments gain control of resources.
“It’s a huge test of confidence in civil society’s ability to allocate resources.”
Saba said the bank was preparing several other new projects, particularly in the water sector.
He also cited another positive sign in a technical assistance project for the cadaster, or land registration department.
“In short, the project involves automating items like land registration, purchases of property, mortgages and running a check on property.”
While there are bright spots, some of the more high-profile areas of the bank’s activities need to be sped up.
“We are disappointed that the power sector is going too slowly,” Saba said.
The bank is advising the Ministry of Energy and Water Resources on a draft law to regulate the electricity sector. The draft was on the Cabinet’s agenda last week, but endorsement was postponed. Government officials have vowed that parliamentary approval for the law will come by the end of the year, meaning a partial privatization of the electricity sector, a long-standing money loser.
“Why should you throw hundreds of millions of dollars per year down the drain over electricity?” Saba asked.
Saba cautioned that privatization would not be a panacea for a huge budget deficit and growing public debt.
He also said that the government could improve EDL while waiting for the endorsement of the legislation and dismissed the idea that there was a single item holding up privatization.
“I can’t fault Lebanese officials for a lack of commitment and effort; the prime minister himself has attended the various meetings on the subject. But you build predictability over time, not just in a few months.
“There has been progress, but you have to remember that the Lebanese people’s expectations are high.”
Lebanon, he said, enjoys an advantage in its human resources and its ability to attract capital, even in difficult circumstances, is very high.
“But institutions haven’t made it to being dependable and reliable.”
And all of the talk of improving institutions, he cautioned, will not be enough if ordinary citizens do not feel the change.
“For these changes and improvements to take root, they must be seen and felt by the public.’’