Monday, February 21, 2011

http://www.dailystar.com.lb/article.asp?edition_id=1&categ_id=3&article_id=125098#axzz1EYJZnbEA

BEIRUT: The U.S. Treasury decision to blacklist a leading Lebanese bank for alleged money laundering and links to Hezbollah has apparently sent a loud message to Prime Minister-designate Najib Mikati that Washington will take tough economic measures against Lebanon if the new government should opt to end all cooperation with the tribunal investigating the assassination of former Prime Minister Rafik Hariri.

Mikati, seen as a moderate political figure with good ties with Western nations, Saudi Arabia and Syria, realizes that any step the new government takes will have some impact on Lebanon. For this reason, many analysts say the new prime minister will seek compromise over controversial issues.

Last week, the U.S. Treasury accused the Lebanese Canadian Bank of money laundering and links to Hezbollah, an organization labeled by Washington as a terrorist group.

But the move from the U.S. Treasury prompted Central Bank governor Riad Salameh and the Association of Banks in Lebanon to rally behind the Lebanese Canadian Bank.

Salameh and the association of banks denied that the Lebanese Canadian Bank was involved in any illegal activity or had links with terrorist groups.

Salameh confirmed that the Lebanese Canadian Bank was fully complying with all banking regulations and has met most of the conditions and standards set by Basel III for international settlements.

Bankers and economists agree that the United States and European nations could cause harm to the Lebanese economy and its banking system if full sanctions were applied against the country.

But many do not see any reason for the U.S. and its allies to approve stringent sanctions against Lebanon because Mikati was nominated in accordance with constitutional procedures.

Some even argued that the new government would be able to operate without soft loans from Paris III donor states, should these countries decide to halt the remaining payments.

“Even if the donor states declined to pay the rest of the soft loans, estimated at $1.5 billion, Lebanon has the means to secure other funds from the local banks which are flush with money. These donors’ loans have interest rates on them and [are] not donations as some may assume,” economist Ghazi Wazneh told The Daily Star.

Wazneh added that Lebanon at this stage does not need more loans from the market.

“We may be affected if the U.S. decided to harass Lebanese banks. But even this scenario is not likely,” Wazneh said.

He stressed that Lebanese banks can easily provide loans to the government, noting that loans to the private sector in 2009 rose by 23 percent.

Wazneh argued that the new Cabinet will, in its ministerial statement, reiterate its total respect for all U.N. Security Council resolutions pertaining to Lebanon.

Analysts admit that not all Lebanese support the Special Tribunal for Lebanon and say Mikati will therefore try to find a formula which will appease both its opponents and its supporters, despite the difficulty, and potential impossibility, of this task.

Aside from the possible consequences of any decision to scrap cooperation with the tribunal, the public are also wondering how Mikati and the future economic minister will resolve the pressing economic and social issues facing the country.

Some have even been wondering if March 8 forces, who are expected to control most of the Cabinet, will call for alternative solutions to pending matters such as the public debt, high living costs, electricity shortages, deteriorating medical and social services as well as the rising cost of fuel oil.

Wazneh pointed out that the government can take some quick measures in order to alleviate the suffering of many people.

“The first thing the Cabinet should do is to renew the term of Salameh before July 1 of this year. This will relieve the financial markets and send a positive message,” he said.

Wazneh believes that it is also imperative to endorse the 2010 draft budget in Parliament and hammer out the 2011 budget.

“I don’t think the 2010 budget will face opposition from March 14 deputies because this budget was drafted by outgoing finance minister Raya Haffar Hassan,” Wazenh said.

Ghassan Diebah, professor of economics and finance at the Lebanese American University in Byblos, said the new government should earmark money to build power plants.

“Why should we wait for privatization? The government can allocate at least $1 billion for the construction of power plants,” Diebah said.

Among the suggestions was the installation of small- and medium- size generators or hire ships with powerful engines to offset the shortage in electricity generation.

Some of the economists interviewed by The Daily Star supported the proposal of former energy and water minister, Alain Tabourian, to install reciprocal engines with 700 MW capacities.

They also favored the purchase of electricity from Turkey via Syria as a more feasible alternative to buying gas from Egypt and other countries.

Wazneh proposed putting a ceiling on gasoline prices rather than reducing tax on the commodity.

Economists also called for tougher monitoring of consumer prices.

Diebah, for his part, believes that Paris III has become history and advised the new government to find other reforms.

“Paris III is no longer relevant because they are linked to reforms. These reforms are outdated. We don’t want to remain hostages to Paris III or other international commitments.”

Diebah even proposed a revision of the country’s tax system and was not opposed to raising taxes on profits or sales. “I don’t think the Gulf nationals or investors will take their money to Europe if taxes are raised on profits or property sales. They know that taxes in Lebanon are still far lower than many countries in the world.”

Makram Sader, the secretary-general of the Association of Banks in Lebanon, said that banks are not concerned about who will run the government as long as the future Cabinet respects economic fundamentals.

“Banks will continue to deal with any government irrespective [of] who is the prime minister. Let’s remember that banks dealt with former Prime Minister Omar Karami in 2005,” Sader told The Daily Star.

“We don’t work in politics. We have financed the public debt under all governments. But all we ask is that the basic economic and financial principles are respected by all sides, such as the free transfer of cash.”