Talking To: Economist Sami Nader

The outcome of the upcoming parliamentary elections will define Lebanon’s political identity as well as its standing within the region and the world. But equally important is the election’s impact on the Lebanese economy. Despite the relative stability of Lebanon’s financial sphere during the global economic crisis, experts warn that the economy’s performance might vary according to who will govern the country over the next four years.
According to Sami Nader, economist and professor at the Université St. Joseph, a Hezbollah-led government would have a detrimental effect on the Lebanese economy and would divert international aid and investment away from the country.

This may sound strange coming from a man ...who played a major role in drafting the Free Patriotic Movement’s economic strategy in 2005, but the changes in the party’s politics since then, Nader says, including the FPM’s controversial 2006 Memorandum of Understanding with Hezbollah, made him reconsider his allegiance.
NOW Lebanon sits down with Nader to discuss how the elections and a possible change in the balance of power in the country might affect the economy and Lebanon’s status in the eyes of the international community.

What do you think will happen to the economy after the elections?

Nader: We have to stress the fact that in the eyes of the international community, the question is very simple: It’s whether Hezbollah will win the elections; the opposition-aligned FPM and [Nabih Berri’s] Amal Movement are insignificant when it comes to the international community and institutions...

This is why the international community, namely the International Monetary Fund (IMF), is very concerned. The IMF initiated a series of sessions with Hezbollah to assess their economic program in case they won.

This concern emanates from the fact that Hezbollah is still blacklisted by major international countries in the West, such as the United States. There were even talks within the European Union to include Hezbollah on the terrorists list. This will damage confidence in this country, it will block any possibility of recovery, and it will put to question the possibility of the continuation of the donors’ commitment to Lebanon.

What is the future of aid promised during the Paris III international donor conference?

Nader: Paris III was convened on the basis of an economic recovery plan that Hezbollah has questioned. Unlike Paris II, aid given to Lebanon through Paris III was conditional on a plan that was put in place by [Prime Minister Fouad] Siniora’s government. Hezbollah stated that it does not endorse this plan. No one has a clear answer on what will happen to Paris III. And this grey area is very damaging for the economy. Our economy was still in good shape since 2006 because of the climate of confidence that Siniora and the Central Bank were reinforcing. It was capable of absorbing political instability and the economic consequences of the July War. All of that is now put into question because of uncertainty.

How do you assess the current economy of Lebanon?

Nader: Lebanon today can withstand the economic upheavals. This is because it relies on a solid monetary policy, the Central Bank’s role and a government with an economic plan and that is backed directly by the West, the United States, the European Union and Arab countries, as was the case in the Paris III conference. Those are the main donors and the political back-up of the Lebanese economy. They saw in this government one they can trust.
What would be the alternative if Hezbollah and its allies were to govern?

Nader: … It would lead to the isolation of Lebanon politically and subsequently economically…
This is an area of concern because Hezbollah doesn’t have an economic plan. The party has a military plan; they call it “the Islamic Resistance”. Resisting Israel, however, should be part of a comprehensive Arab plan. Lebanon cannot bear alone the burden of fighting Israel and reclaiming Arab rights. I believe that it is in the best interest of Lebanon and the Arabs to stick to the peace initiative as proposed by [Saudi] King Abdullah’s peace plan in 2002.

What is the Free Patriotic Movement’s role in this? Would they be able to present a comprehensive economic plan that’s lacking in Hezbollah’s platform?

Nader: It’s irrelevant because their economic plan doesn’t rely on any political principles. All the political items that were present in [FPM leader Michel Aoun’s] plan in 2005 were totally retrieved from the platform they had proposed. This means that what they proposed today in terms of social and economic reform is insignificant given the lack of a comprehensive political vision. No economic plan is possible without a strategic political vision. Today their political program is that of Hezbollah. And it is rejected by the international community…

What FPM proposed in the Third Republic is a series of small reforms that focus on procedures and the enforcement of new procedural laws. It lacks a vision and a strategy necessary for economic recovery. In addition, for the rest of the world it’s whether Hezbollah will make it. Other allies don’t matter. They are right because it’s Hezbollah who commands 40,000 soldiers, a force bigger than the Lebanese army. Hezbollah has its own development fund, educational institutions, a separate budget and infrastructure which make it a state within a state.

What’s in an FPM-Hezbollah alliance for Michel Aoun?

Nader: At first, he thought that through Hezbollah he can win the election. Doubts were raised on whether the election of President Michel Sleiman was constitutional. When Sleiman was elected, members of the opposition refuted the constitutionality of his election. This casts doubts on the real intention of the opposition. Furthermore, the May 7 events showed that they can resort to violence to attempt a coup and enforce a political setup that’s in their favor.

And what if the March 14 alliance reclaims a majority in the elections?

Nader: International aid would increase. There was a concern whether March 14 will remain in power and withstand Hezbollah’s military pressure, such as the May 7 events, and the political pressure, such as the obstructing third, the protests in the downtown area, the obstruction of parliament for two years, and impeding the election of the president. They froze all the political institutions and yet, despite all that, the March 14 forces withstood all the pressures.
If March 14 makes it this election, it means that it is legitimate, credible, backed by a majority of the Lebanese. It reinforces investors’ trust in Lebanon and the Lebanese banking system. This would benefit the Lebanese economy because investment and international support would continue. Furthermore, the Lebanese president was the recipient of a large welcome by the international community. This is unprecedented in Lebanese history. It has substantial economic value. We have to protect it and build on it.

Can the current minority, if it wins, attract donors outside the US and EU?

Nader: One has to take into consideration what [Israeli Defense Minister] Ehud Barak said on the Lebanese elections, namely that a Hezbollah victory will give Israel freedom of action. The prospects of war would increase. This will worsen political instability, which will in turn reflect on interest rates, monetary stability and on the confidence level that investors have in Lebanon. It will negatively affect the investments that poured into Lebanon despite the economic crisis. Iran could not finance all-out activities because even if it wants to, it does not have the means.

What will become of Arab investment in the country? Will they decrease?

Nader: Of course, what kinds of investment do you see today in Gaza? We would be heading to a model similar [to that of] Gaza because we would be governed by the same ideology and system. The Lebanese economy has been supported by the tourism sector for the past four years; what would happen to this sector? With a victory for Hezbollah and its allies, the resulting political instability and the prospect of a looming war, Arabs and other tourists would not head to Lebanon. In fact, this is what made them flee the country in 2006.

What would you say is the biggest enemy of the Lebanese economy?

Nader: Uncertainty. The prospect of war and political instability. It has monetary and financial – not only economic – consequences. There is no economic stability in times of war.

What do you make of the plans to fight corruption that were raised by the Free Patriotic Movement and its allies?

Nader: It’s more of a slogan than an actual strategy to fight corruption. Even the laconic plan proposed by the Lebanese Forces to address corruption is more efficient in terms of the mechanism to be implemented. The real challenge of the economy today is not corruption but rather fostering confidence in the Lebanese economy. This is not to say that corruption is not a problem; it is a major issue, but it tends to focus on the past. The FPM stress the importance of auditing accounts, which if carried out would backfire on their allies; but at any rate, this strategy is backward and not forward-looking. We need a vision for the future, a plan to increase the size of the economy. We need a Lebanese dream of peace and stability.

Would the opposition be able to manage the Lebanese economy?

Nader: I have not come across an economic plan by Hezbollah. Hezbollah’s plans are based on social aid, inspired by a leftist-leaning model demanding a bigger role for the government. But one wonders whether a bigger government is the solution as it is the second major reason for public debt. The size of the public administration in the country is huge and is a real burden for the Lebanese economy. In addition, the way that the social security apparatus is run does not give a good example of Hezbollah and Amal’s efficiency in public administration.
Another example of management is invoice collection at the Electricité du Liban (EDL). Mount Lebanon alone makes more than double in bill collection than what is made in the Bekaa and the southern suburb of Beirut… [Hezbollah and Amal] did not give an example of good citizenship and good public management there.

Might an opposition takeover push Lebanese people to travel abroad?

Nader: Yes, those who are desperate would travel. Those who think about their children; immigration will be fierce, serious and long-term. During the civil war, immigration was short-term, and people returned to Lebanon in the 1990s.
The majority of expats are very attached to Lebanese sovereignty. This is especially true of the Lebanese Christian community. A great number of the expat groups previously supporting Aoun have now shifted.

What do you expect of the elections this year?

Nader: I expect the same balance of power. Lebanon has been able to find a delicate equilibrium and has devised a way to survive through instability. We should find a solution for Hezbollah’s arms.