The Syrian Economic Bonanza in Lebanon


Habib C. Malik (Courtesy of USCFL)


September 1997

While "security and stability" remains their main alibi for staying in Lebanon, the Syrians are having a field day in the country's economic mayhem. For the first time, the hard currency exiting Lebanon at the hands of Syrian workers and other Syrians exceeds the amount being remitted back to Lebanon by Lebanese working abroad. The one million or so Syrian workers throughout Lebanon earned around $15 million a day, of which barely $3 million is being spent in the country. The bulk of the remainder is being transferred out of Lebanon at the rate of $300 million every month or $3.6 billion annually. In effect, Lebanon—which at one time thrived on the remittances of citizens living and working overseas (Shi'a in Africa, Sunnis in the Gulf, and Christians everywhere)— has now become the source of a growing remittance economy for Syria. The damage this hard currency drain is having on the battered Lebanese economy is not difficult to imagine. As dollars become more scarce, demand for them rises, which in turn subjects the Lebanese lira to downward devaluationary pressure. In the face of this adverse development, the government's strategy has been for the Central Bank to intervene artificially and "rescue" the lira temporarily by using dollars and purchasing lira. This futile measure quickly becomes a spiraling vicious circle that squeezes the rest of the economy and the population for more dollars, and the problem is ultimately compounded.

Lebanon's economy represents much more for the Syrians than a source of hard currency. Virtually every project in Lebanon involves a hidden Syrian partner, usually a member of the ruling elite or the intelligence and security apparatus. As a result, the cost of getting anything done in Lebanon has gone up. Moreover, the sheer weight of Syria's influence in the country compels Solidere and others to give preference to Syrian contractors, maintenance crews, suppliers of raw materials, and freight truckers over local or foreign competitors. The Syrians are entangled in rackets of every variety: vegetables, cigarettes, automobiles, cement, clothes, gasoline, fertilizers, and more. Their agents regularly canvass the streets of Beirut knocking on the doors of large companies and private businesses in order to solicit subscriptions to the official Syrian newspapers and organs of the regime. Fearing the consequences if they do not comply with this form of extortion, many of the targeted companies and businesses give in. Drug trafficking and counterfeiting are two other revenue-generating activities that the Syrians supervise in Lebanon. The notorious counterfeit hundred dollar bill referred to as the "Supernote," a major headache for the U.S. Treasury Department and Secret Service, originates somewhere in Lebanon or Syria, and is manufactured with the full knowledge and acquiescence of Syrian authorities.

Having become increasingly tied to the Lebanese economy—and the ill-gotten benefits therefrom—while remaining oblivious to the negative repercussions of their actions, the Syrians have no intention of quitting Lebanon anytime soon. There have even been intriguing suggestions that Lebanon could eventually serve more or less the same role for Syria as Hong Kong does for China.' The trend in the world economy toward free trade, open markets, increased privatization, and global integration is undoubtedly having a growing impact on the Middle East. Centralized, Soviet-style command economies such as Syria's are obsolete and will have to undergo radical transformation in the near future to remain viable.

The Lebanese mercantile spirit has already begun to contaminate influential individuals in the Syrian ruling hierarchy and the military. There are modest signs of liberalization in the Syrian economy and, as the region moves inexorably toward peace, many of these changes could become permanent. Allowed to flourish unhampered, Lebanon's strong tradition of free market economics can play a crucial role in this regard. Yet paradoxically, the longer the Syrians remain in Lebanon, the less either economy will open up. On the contrary, the combination of continued Syrian heavy-handedness and the closed coterie of beneficiaries among the ruling class in Damascus will ensure economic stagnation for both Lebanon and Syria.

Unlike Hong Kong, Lebanon is emerging from a long period of war and devastation. Before helping other countries or serving as an economic role model, Lebanon urgently needs to put its own economic house in order. If counterproductive economic policies of the Hariri government persist, little can be expected of Lebanon's capacity as a laissez faire catalyst. There still exists in Lebanon, mainly among the less educated Muslim masses, an ingrained tendency to expect large-scale assistance from the government and shun private initiatives for self-help. The socio-economic messages and appeals in the weekly Friday prayer sermons broadcast from the mosques in Beirut have clear undertones of this socialist streak of a centralizing mentality mingled with dependency on government handouts, both of which breed lethargy and encourage inflated expectations in their audience. To increase the economic dynamism of the Muslim community as a whole to the level of the Christians, Lebanon requires a prolonged recuperative period during which the monopolistic and otherwise detrimental practices of Hariri and his cohorts give way to greater decentralization and privatization, and the deadweight of Syrian occupation gradually recedes. As this seems too much to expect anytime soon, the Hong Kong analogy clearly does not apply in the case of Lebanon and Syria.

Many observers predict excellent long-range economic prospects for Lebanon in the wake of a comprehensive Middle East peace. In a New Year's Day interview in 1996, Hariri confidently declared that Lebanon after peace "will be a financial, commercial, cultural, and tourism center in the region." Yet Hariri's "rhetorical" economic predictions hardly harmonize with the realities of his "one-man show" approach. Prior to Israel's Operation Grapes of Wrath in April 1996, he relied on the narcotic effect that the mere anticipation of economic prosperity, buttressed by erratic spurts of spot improvements, had on the public. This kind of economic "smoke and mirrors" no longer applies. Hariri and those around him need to realize that much of the economic thinking in Lebanon is retrograde and outdated. Insularity, excessive secrecy, monopolistic cliquishness, resistance to change, obsession with short-term profits, and devotion to the myth of the indispensable middleman are sure recipes for stagnation. Until these policies are identified as a major part of the problem, all talk of impending prosperity will remain hollow.

More concretely, serious foreign investors need a state-of-the-art telecommunications infrastructure and less overall opacity in the system. Lebanon's telecommunications remains in deplorable condition more than four years after Hariri took office. Much of the computer technology in Lebanon resides in the entertainment, rather than economic, sector. As a result, the country is information-poor and the gap with the developed world is widening. Over time, the Lebanese are realizing that they cannot compete or attract investment if the current trend continues. Of course, from the Syrian perspective, there is little reason to allow an occupied country to be too easily linked to the outside world.

Expectations of economic improvements were also greatly dampened following the May 1996 change of government in Israel and the overall deceleration of the peace process. Any future acceleration would bring Shimon Peres' optimistic vision of a "new Middle East" much closer to realization. Yet Syrian-occupied and Hariri-ravaged Lebanon will be left behind when the inevitable 'dump start" to the peace process kicks in. Once the region leaps ahead in an era of peace, Lebanon will have an enormous amount of catching up to do. There is the real danger that it may be losing much of its qualitative edge on the human level, and will eventually sink into a regional backwater. Beirut's refusal to participate in the series of Middle East/North Africa economic summits (in Casablanca in 1994, Amman in 1995, and Cairo in 1996) was a bad omen for the future. Political considerations were obviously the deciding factor, as they have been with Lebanon's official absence from the multilateral peace talks, but no attempt was made even to have a "back channel" presence or at least be cognizant of looming economic prospects and opportunities at the economic conference.

A proper reconstruction strategy requires being poised to take advantage of the newly emerging opportunities whenever and wherever they arise. It also means a genuine effort to broaden the spectrum of citizen participation in the reconstruction process on every level, rather than concentrating it in the hands of a few at the top. Just as party officials emerged to form the new capitalist elite after the collapse of communism in the states of Eastern Europe, the warlords and militia chiefs in Lebanon became government ministers and, with Hariri, appear to be dividing the spoils among them. If the 1996 parliamentary elections revealed a trend in the flawed world of Lebanese politics, it was the emergence of a plutocratic class of "the people's representatives." This situation is creating islands of the "super rich" among vast expanses of the poor, who feel excluded and voiceless in the rebuilding of their own capital and country.