Finance Minister Fouad Siniora is exuding confidence that his ambitious 2003 draft budget will be passed, since the country is approaching a moment of truth.
“I’m convinced of every single bit and piece of this budget,” Siniora told The Daily Star in an interview. Like his friend and ally Rafik Hariri, the minister repeated a simple challenge: Let anyone else with a better idea come forward.
Siniora has often been criticized for assigning the economic burden to lower income groups, and his draft budget reinforces that view, by increasing working hours for civil servants, increasing taxes and fees and cutting expenditures.
However, areas like health and education will be largely immune from the spending reductions in a draft that foresees a 24 percent deficit, down from last year’s projection of 41 percent.
Acknowledging that his treatment of the recession is harsh, the minister emphasized that the draft contains half-a-dozen “pillars” that cannot be eliminated. He held out his palm and stuck his fingers down, making the shape of a chair or stool.
The pillars are boosting revenues, reducing expenditures, increasing productivity, going ahead with privatization and securitization, integrating into the international economy and gaining foreign assistance, and building confidence in the economy, to bring down interest rates.
“Take away any one of these pillars,” Siniora explained, folding in one of his fingers, and the plan collapses.
Siniora said he did not think the business community was that angry with the budget. Asked about the private sector’s demand for administrative reform and cutting waste before going ahead, Siniora dismissed the argument as a case of “the chicken and the egg.”
Describing critics on the left, who see it as a harsh budget and those on the right who believe that it does not go far enough, Siniora used the word “compromise” to describe his baby.
“I think that what we are proposing is something achievable,” he said, citing favorable responses by a World Bank delegation that visited Lebanon a few weeks ago.
Siniora took the delegation to visit President Emile Lahoud and Prime Minister Rafik Hariri, to let them hear their reaction to the budget draft “you have a doable program.”
“We have an opportunity. There are changes that we stand to benefit from, but we’ve got to be ready,” the minister affirmed.
“If we put our economy on the right track, we can manage to reduce interest rates, we can increase productivity, reduce the deficit and create a primary surplus. If we don’t do that, it won’t work.”
Siniora said he was “frank” with Cabinet ministers about the six pillars and spoke matter-of-factly about his sessions with Lahoud and Speaker Nabih Berri.
The Cabinet is set to finish examining the draft on Tuesday, after a dozen ministers presented their views this week.
Asked repeatedly about whether he was confident the draft would be endorsed as presented, whether by the Cabinet or Parliament, Siniora insisted he was laying out the dire economic situation for the country as starkly as possible.
If anyone has a better proposal, he continued, he would like to see it.
Various parts of the draft are certain to spark opposition, especially the revenue-generating measures like a one-third jump in mecanique rates.
The minister dismissed the argument that it constituted a type of flat tax, which is criticized by the left because it targets lower-income groups as much as the rich. He justified the move on the basis that older-model cars involve much lower amounts than newer ones, differing from between LL100,000 and LL2.6 million.
A jump in fixed-line phone rates, Siniora continued, would work to “rationalize” phone use he predicted it would not discourage internet use or the internet sector in general by too great a degree.
Another controversial point is increasing public sector working hours, with no corresponding pay increase, already stirring up opposition among bureaucrats and public school teachers. Siniora rejected the criticism, relating the story of 1998, when parliamentary committees endorsed an increase in working hours for civil servants and a pay rise, only to see the House’s general assembly eliminate the former.
“This ended up costing us LL550 billion annually. We ended up being fair with the employees, but ultimately the Lebanese had to assume additional liabilities and loans. We weren’t fair to the people or to the economy we didn’t increase productivity,” he recalled.
The following year, public school teachers went on strike and successfully gained a
comparable pay increase to match that given to their public sector colleagues.
Yet another contentious point is a 5 percent tax on retirement pensions, but raising the issue prompts Siniora to exclaim that “we’re the only country that doesn’t impose taxes on pensions.”
Siniora said that spending on pensions stood at LL135 billion in 1992, compared to LL1,000 billion today, meaning something must be done.
The minister hinted that the entire pension system needed re-thinking, since employees get 85 percent of their final salary, compared to still-working individuals who get the entire salary but pay taxes on their income.
Also like Hariri, Siniora is adamant that securing a Paris II donors’ conference does not mean relying on foreign help, because it will only come after domestic reform is achieved.
“Paris II is important, but what is more important is that the solution to our problems is in Lebanon,” he maintained.
“Nobody will help us if we do not help ourselves” and if the country doesn’t get on the right track and build itself up, it might be the last chance.”
Altering a phrase a bit, Siniora said that failing to stick with the budget draft guidelines does not mean Lebanon will be leaping into the (economic) unknown: “We will be leaping into the known,” the minister said ominously.