LEBANON

COUNTRY OVERVIEW

LOCATION AND SIZE.

Situated in the Middle East, Lebanon is a small country on the eastern shore of the Mediterranean Sea. Lebanon has a narrow coastal plain along the Mediterranean Sea, which is 225 kilometers (139.8 miles) long and is bordered by Syria on the north and east and by Israel on the south. A small country, Lebanon's total area is only 10,400 square kilometers (4,014 square miles), roughly two-thirds the size of the state of Connecticut in the United States. Beirut, the capital, is located in the center and overlooks the Mediterranean Sea. Other major cities include Tripoli in the north and Sidon in the south.

POPULATION.

The population of Lebanon is estimated at 3,578,037, according to July 2000 estimates, an increase of 578,037 from 1980. In 2000, Lebanon's birth rate stood at 20.26 per 1,000, while the death rate was reported at 6.42 per 1,000. With a projected growth rate of 1.2 percent between 2000 and 2015, the population is expected to reach 6 million by the year 2029.

Lebanon's population is highly divided along both religious and confessional lines (the presence of groups of different faiths within the same religion). Muslims in 2001 were believed to have accounted for 60 percent of the population. Christians form the second largest group in the country. Lebanon is also home to some 200,000 Palestinian refugees, mostly Sunni Muslims, many of whom have lived in refugee camps since arriving in the country in 1948. For political reasons, no official census has been conducted since 1932. Muslim and Christian factions in Lebanon were engaged in a devastating civil war that began in 1975 and ended in 1990, when stability was restored to the country.

As in many developing countries, a majority of Lebanese (around 90 percent) live in urban areas. The population is unevenly distributed, with the vast majority of the population concentrated in the coastal cities of Beirut, Sidon, and Tyre, while other parts of the country, namely the Bekáa Valley, remain sparsely populated. The uneven population distribution has given rise to regional disparities. The coastal cities continue to receive much government attention, while the rest of the country has remained largely neglected. The population of urban areas has grown significantly since the 1960s, mostly because the cities have received more government funding and attention. In 2000, the capital Beirut and its suburbs was home to 1.3 million people. The northern city of Tripoli is the second largest in the country, with an estimated population of 450,000.

Lebanon's population is generally young, with 50.7 percent below the age 24, and is one of the most highly educated in the region. The adult literacy rate in Lebanon is estimated at 90 percent. Primary education in Lebanon is mandatory, and private education is prevalent. Lebanon's university system is also highly developed. The health-care system is one of the most developed in the region. As a result, Lebanon also has one of the highest average life expectancies in the region, at 68.5 years. Infant mortality in Lebanon is also low by regional standards.

OVERVIEW OF ECONOMY

Lebanon's relatively small economy is based mainly on services, which have traditionally accounted for approximately 68 percent of the GDP. The sector is mainly comprised of a thriving regional banking market, tourism, and trade. Most economic activity is concentrated in the coastal cities. Other economic activity includes quarrying for the cement industry and small-scale farming, largely concentrated in the coastal plain and the Bekáa Valley in the south. Agriculture has traditionally accounted for only 13 percent of the GDP, which explains why the country is heavily dependent on the import of foodstuffs. The industrial sector is also relatively small, mostly because of the small domestic market. Jewelry, cement, processed food, and beverages are among the country's chief exports.

Lebanon entered the 20th century as a French protectorate heavily dependent on trade, especially along the coastal cities of Tyre, Sidon, Beirut, and Tripoli. Most of Lebanon's present-day problems can be traced to 1920, when the French incorporated Beirut and other coastal towns, the Bekáa Valley, and certain other districts in Mount Lebanon to form Greater Lebanon. The establishment of Greater Lebanon meant that the Maronites, concentrated largely in the Mount Lebanon area, were no longer the majority, and the population became equally divided between Muslims and Christians. In 1926, the French drew up a constitution that provided a formula for power-sharing among the various religious groups, making it mandatory for the president of the republic to be a Maronite, the prime minister a Sunni Muslim, and the speaker of the chamber a Shi'ite Muslim. This formula ensured that the pro-France Maronites exercised more control than any other religious group, allowing France to continue to control Lebanon through its close relations with the Maronites long after its full withdrawal from Lebanon in 1946.

The 1926 constitution, coupled with an unwritten power-sharing agreement known as the National Pact drawn up between Christians and Muslims in 1943, allowed Lebanon to maintain parliamentary democracy until the mid-1970s. However, rising tensions between Christians and Muslims, who by the mid-1970s became a majority and began demanding more political power, led to the outbreak of the civil war in 1975. In the immediate years before the outbreak of the war, Maronite Christians, feeling threatened by Muslim demands, resorted to violence to crush Lebanese Muslim opposition. They also wanted to oust the Palestinian Liberation Organization (PLO), which had a strong presence in Lebanon in the 1970s and was seen as an ally of the Muslims. The civil war intensified and broadened during the 1980s, with Palestinian refugees and their allies launching attacks into Israel from Lebanon, and the taking of Western hostages in Beirut by various Arab guerilla groups (guerilla groups practice non-conventional warfare in an effort to wear down the resistance of their adversaries). Syria was also involved, stepping in to fill the vacuum left by the weak Lebanese government and army. In an effort to stop the attacks and destroy the PLO, Israel invaded southern Lebanon in 1982, and it required major efforts by the United States and other powers to stop the fighting—at least temporarily—and escort the PLO out of the country. But Lebanon's war dragged on and did not end until 1990, with the adoption of the U.S./Arab-brokered Ta'if accords, which essentially recognized Syria's continued involvement in Lebanon's affairs and slightly adjusted the power-sharing formula among the various religious groups designed by the French in 1926.

Until 1975, Lebanon's economy was characterized by minimal state intervention in private enterprise. In those years, the country managed to transform itself into a major banking center by avoiding restrictions on foreign exchange or capital movement and enforcing strict bank secrecy regulations. Lebanon's economic infrastructure, however, was severely damaged by the 1975-90 civil war. International organizations estimated the cost of physical destruction to be between US$25 billion and US$30 billion. Since the end of the civil war, the country has been engaged in an economic reconstruction process and has made significant progress toward the restoration of democracy. As a result, inflation fell from more than 100 percent to 5 percent between 1992 and 1998, and foreign exchange reserves jumped to more than US$6 billion from US__BODY__.4 billion in the same period. The Lebanese pound has been relatively stable. Much of the physical and financial infrastructure damaged during the war has been rebuilt.

Lebanon's economic policy after the war has been largely shaped by Rafik al-Hariri, who served as prime minister between 1991 and 1998 and returned to power in August 2000. Hariri's economic policies have focused on reconstructing the country's war-damaged economy through the infusion of huge capital into the construction sector. Much of this capital has come from Lebanese expatriates and Arab investors from the Persian Gulf region. As a result, the period between 1991 and mid-1996 witnessed high levels of growth. This growth, however, slowed in 1996, mainly as investor confidence began to weaken in the wake of Israel's 2-week bombardment of the country in April 1996. The resulting economic slowdown has affected the country since, and attempts by the government to curb inflation by raising interest rates has caused the economy to slow even further. The Lebanese economy has been in recession since 1999, and the country's real GDP has experienced a decline of 0.5 percent, mainly the result of the drop in private demand, consumption, and investment. The government's huge spending bill has fueled a large budget deficit, which was equivalent to 53.5 percent of expenditure in the first 7 months of the year 2000.

Lebanon in 2001 continues to be primarily a free-market economy and is by far the most liberal among Arab economies. Since the end of the civil war in 1991, the country has had a fairly stable multiparty system and is strongly supported by the United States and the European Union. The main challenge facing the economy is the large budget deficit, which is fueled by a substantial government debt, mostly spent on reconstruction and a large government bureaucracy. A hike in public spending has thus far failed to stimulate economic growth. Further, the government's privatization program, launched in the first half of 2000, has thus far not been successful; in May 2000, the Lebanese parliament adopted a new law that sets the general framework for privatization. However, privatizing state-owned companies is going very slowly and hinders true economic reform.

Corruption is widespread in Lebanon. Officially, several anti-corruption regulations are in place, but they are rarely enforced. According to the U.S. State Department, corruption is more pervasive in the public sector than in private businesses, and is especially evident in procurement and public works contracts. A 1998 study by the World Bank estimated that at least US$45 million is spent annually in bribes to brokers and government officials. Between 1998 and mid-2000, the cabinet of Prime Minister Salim al-Hoss made it a priority to fight corruption, which it mostly blamed on Prime Minister Rafiq al-Hariri's economic reconstruction drive while he was in office. The government's initial efforts to enforce anti-corruption measures led to the dismissal of hundreds of public servants, but the general verdict has been that corruption continues to be pervasive in the country.

POLITICS, GOVERNMENT, AND TAXATION

The country's political system in 2001 is derived from the 1989 Ta'if Accords, which put an end to the 16-year civil war. Lebanon is now a parliamentary republic with a president and a unicameral (single chamber) National Assembly. The president of the republic is elected by the parliament for a 6-year term. The speaker of parliament is elected by parliament every 4 years, which is also the length of time between parliamentary elections. The president appoints the prime minister, who forms the Cabinet of Ministers. Under the new constitution drafted after the conclusion of the Ta'if Accords, Muslims now have an overall numerical advantage in the National Assembly, since representation is based along sectarian lines. Further, the power of the president has been somewhat diminished, although by custom, the president of the republic must still be Maronite Christian, while the prime minister must be a Sunni Muslim and the speaker of the parliament a Shi'ite Muslim.

The major political parties are arranged, although not explicitly, along religious lines. The Hizballah and Nabih Berri's Amal movement represents the Shi'ite Muslim community, while the Sunni Muslims are divided between pro-government parties and marginal leftist parties. The Druze, a community concentrated around Mount Lebanon, are represented by Walid Jumblatt's Progressive Socialist Party. The Christian-Maronite community controlled the country before the war. The Ta'if Accords attempted to correct this bias but left the Christian community feeling relatively powerless. This impression was especially intensified when the accords resulted in the expulsion of a generation of Maronite leaders, including former president Amin Gemayyel and former Christian warlords Michel Aoun and Samir Jaja.

Parliamentary elections were held in August 1992 for the first time in 20 years. Prime Minister Rafiq al-Hariri's coalition won the majority of seats in those elections and in subsequent parliamentary elections in 1996 and 1998. Turnout by Christians was very low, and there were charges of irregularities. Municipal elections were held for the first time in 35 years in May and June 1998.

As of 2001, at least 35,000 Syrian troops still remain in northern, central, and eastern Lebanon, where they have been stationed since October 1990. Syria's deployment into Lebanon was legitimized by the Arab League a few years after the civil war started and then reaffirmed in the Ta'if Accords. Only with Syrian military power could Maronite-Christian leader Gen. Michel Aoun, who rejected the Ta'if Accords and maintained that he was the legitimate head of the government, be expelled from the country in 1991 and Lebanon reunited under one government. While Syria remains the dominant player in Lebanon, it began to withdraw its troops from central Beirut in 2000 and abandoned many checkpoints. It is gradually ceding more control to Lebanese security forces, which now control most strategic points in Beirut as well as the main highway to the airport, but Syria still exercises de facto control over Lebanese politics. Syria continues to cast a shadow on Lebanese politics because of the Syrian-Israeli conflict in the area, which makes Lebanon strategically important to Syria.

Since the end of the civil war, Lebanon has been engaged in a massive reconstruction process to repair the damage inflicted during the war. In 1993, Hariri launched "Horizon 2000," an US$18 billion program to rebuild Lebanon and transform the country into a regional center of finance and services. Under this national reconstruction plan, a huge investment has been made in various sectors focused on rebuilding the country. Large infrastructure projects, including a coastal highway, a new airport, and a highway to the Syrian border are being built as part of "Horizon 2000." The program also seeks to rehabilitate Beirut's city center and the telecommunications network. The financing for the project has come from a growing budget deficit and foreign investors, particularly Saudi Arabia and Kuwait. The expansion was coupled with a fiscal policy that aimed to raise interest rates in order to curb inflation. Hariri's reconstruction program was hampered by increased government spending in the 1990s, mainly as a result of the government's hiring policies, which sought to expand the civil service by hiring employees of various religious backgrounds as a means to ease friction between the various religious groups. As a result, the Lebanese govern-ment's debt, considered one of the highest in the region, soared to 140 percent of the GDP by the end of 2000.

The budget deficit has also proven difficult to tackle for the administration of Salim al-Hoss, which came to power following Hariri's resignation in 1998. The Hoss government focused on restructuring the public-sector debt and other fiscal reforms. For instance, the government improved tax collection methods, increased income and corporate taxes, and increased customs duties. Customs duties and property transaction fees are the two most important sources of revenue for the government. Custom duties account for 40 percent of the government's revenue, mostly from Beirut port. The government's efforts were seen as half-hearted and ineffective, primarily due to its weakness in the face of opposition from the legislature and its inability to institute a value-added tax (VAT). Perceptions that the Hoss government had not followed through in its efforts to reform the economy led to the resignation of the prime minister in August 2000.

With the return of Prime Minister Hariri to office in August 2000, the government once more focused on resuming reconstruction efforts by securing foreign aid, mainly from European and Arab countries. In October 2000, the Kuwaiti government agreed to deposit US$100 million at the Lebanese Central Bank to help stabilize the Lebanese pound. Hariri is also expected to proceed with economic reforms, especially the privatization of state-owned enterprises. In mid-January 2001, the government announced plans to introduce a sales tax on consumer products rather than the VAT, previously planned by the government of Prime Minister Salim al-Hoss. The government, however, has no plans to slash the budget deficit and has argued that it can be maintained for years without affecting economic growth.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Lebanon enjoys an extensive, though aging, infrastructure that was severely damaged during the civil war. The country is served by a network of over 7,000 kilometers (4,350 miles) of primary and secondary roads, 6,200 kilometers (3,853 miles) of which are paved. Since 1991, the government has given much attention to rebuilding the infrastructure. The road system, however, especially within Beirut and in remote areas, remains in poor condition. With growing numbers of licensed automobiles in the 1990s, the road system, especially in Beirut, has become congested. The country's railway system is mostly unusable, due largely to damage sustained during the civil war.

Lebanon has 9 airports, 2 of which have unpaved runways. Beirut International Airport, the country's major

airport, handles 2 million passengers a year. In fact, 35 airlines service Beirut and bring in most of the country's tourists. Lebanon has 12 ports, the most notable of which are Beirut, Tyre, Sidon, and Tripoli. The ports of Beirut and Tripoli are currently being rehabilitated and modernized.

Electrical power is supplied to Lebanon by the state-owned Electricite du Liban (EDL), which has the capacity to produce 1,500 megawatts (mw) of power. Plans are underway to expand power production to 2,700 mw by 2006. Total annual electricity production came to 9.7 billion kilowatt hours (kWh) in 1998, with the majority produced from fossil fuels. Power production falls short of actual demand, however, and the 220-volt power system is subject to repeated shortages and blackouts. Furthermore, several Israeli raids on Lebanon's power stations since 1996 have led to severe power cuts.

Telecommunications services, damaged during the civil war, have been largely restored. The government has been expanding the public telephone network to reach some 698,000 customers. Cellular telephone service is widely available with some 750,000 subscribers. In 1999, the country had 19 Internet service providers.

ECONOMIC SECTORS

Lebanon's economic sectors reflect the small size of the economy, which places limits on the availability of natural resources, population, and domestic markets. Before the civil war, the services sector was by far the largest contributor to the economy and employed the largest proportion of the labor force. The industrial sector was the second largest contributor to the economy, while agriculture accounted for a smaller proportion of national income.

As of 2001, Lebanon's economy continues to rely heavily on the services sector. Services—mainly banking, tourism and trade—account for 68 percent of the GDP. Lebanon's agricultural and manufacturing base continue to be small and has yet to regain its pre-war competitiveness. Economic slowdowns in Lebanon began in 1996, with a drop in construction activity, and the economy was in recession during the 2000-01 period. The greatest obstacles to growth in all of Lebanon's economic sectors are their vulnerability to regional instability and international trade opportunity.

Recognizing these obstacles, Lebanon has moved to form a series of trade alliances, including a customs union concluded with Syria in 2000, an Arab free trade agreement, and a Euro-Mediterranean Association Agreement with the European Union. Lebanon is also planning to join the World Trade Organization. Lebanon's domestic political environment has improved since the Israeli withdrawal from south Lebanon in May 2000. Although some elements of instability still remain (mainly the occasional exchanges of gunfire between guerrillas belonging to the Shi'ite Hizballah group and Israeli soldiers), the Israeli withdrawal is expected to enhance international confidence in Lebanon's investment potential. The tourism sector stands to benefit most. Since 1997, the government has attempted to tackle seriously the budget deficit, raising custom duties by 2 percent in 1998 and introducing an entertainment tax on restaurant, bar, and hotel bills. However, spending continues to be high, and the budget deficit in 2000 was equivalent to 53.5 percent of expenditures.

AGRICULTURE

Lebanon's agricultural sector is underdeveloped and has yet to realize its potential. The sector's development is hindered by the large number of small un-irrigated land holdings and the lack of modern equipment and efficient production techniques. The sector also suffers from a lack of funding and inaccessibility to loans. In 1999, the government allocated only US$11 million, or 0.4 percent of the state budget, to agriculture.

There are 207,060 hectares of arable land in Lebanon, 60,047 hectares of which are irrigated. Most agricultural activity is concentrated in the High Bekáa Valley and the coastal plains, which combined account for more than two-thirds of the cultivated land. Bekáa Valley crops mostly consist of vegetables and some cereals. Fruits, such as bananas, melons, and apples, are cultivated in the coastal plains. The production of certain crops, such as tobacco, is subsidized by the government. During the civil war, Lebanon was a major producer and exporter of heroin and hashish. In 1992—pressured by the United States, Interpol, and the United Nations—the Lebanese government officially banned poppy and cannabis cultivation, a ban effectively enforced by the Syrian and Lebanese armies.

Agricultural production is a moderate contributor to Lebanon's economy, traditionally accounting for 13 percent of the GDP and employing approximately 13 percent of the labor force. Most of Lebanon's agricultural products are consumed locally and a small percentage is exported to the Gulf region, primarily to Saudi Arabia and the United Arab Emirates.

INDUSTRY

MANUFACTURING.

The manufacturing sector is an important contributor to the economy, accounting for 17 percent of the GDP in 1998 and employing 15 percent of the labor force. In 1999, the sector accounted for 40 percent of exports. Total employment in the manufacturing sector in 1998 stood at 180,000 people.

Historically, and unlike neighboring Arab countries, Lebanon has never gone through a state-led industrial growth phase, and the governments have generally adopted an open policy that has encouraged free competition in the sector without government interference. Lebanon's industrial base is by all means modest, mostly comprised of family-based small firms. Most finished and semi-finished goods are imported. Much of Lebanon's local manufacturing consists of producing goods for local consumption—mainly food, furniture, and clothing manufacturing. The most important industrial activity is focused on food, beverages, and chemical products, which receive the highest level of investment. Manufacturing activity is concentrated in the population centers of Beirut and Mount Lebanon, where an estimated 60 percent of the firms are located. Some 19 percent of manufacturing firms are located in the north.

Since the end of the civil war in 1991, the manufacturing sector has had to struggle to regain its pre-war competitiveness and invest heavily in new equipment. During the war, several factories were forced to close as a result of the armed hostilities, declining consumer spending, and lack of funding. Major barriers facing the sector in 2001 are rising customs duties and political instability, 2 difficulties which have prevented many multinational companies from establishing subsidiaries in Lebanon. The U.S. State Department stated that "the sector's outlook remains bleak, as high operating costs, low productivity, obsolete equipment and limited access to medium and long term credit impede the performance of the sector."

MINING.

With no commercially exploitable mineral deposits, Lebanon has no significant mining base. Quarrying for marble, sand, and limestone for cement production, however, has accelerated in recent years. The output is mostly consumed locally for construction, and only a tiny fraction is now being exported.

SERVICES

TOURISM.

Tourism was once a very important contributor to Lebanon's economy, accounting for almost 20 percent of the GDP in the 2 decades before the start of the civil war. Since the end of the war, the sector has managed to revive somewhat, but tourism has yet to return to its pre-war levels. Tourism in 1999 accounted for 9 percent of the GDP. In 2001, the tourism sector was one of the fastest growing sectors of the economy, with the number of tourists visiting Lebanon between 1996 and 2000 growing at the rate of 14 percent annually. Lebanon's rich archeological and cultural heritage, coupled with a mild climate and diverse terrain, has been a major attraction to tourists.

Successive governments have invested heavily in the sector, and there has been substantial investment in building luxury hotels and upscale restaurants, in response to the return of tourists (mainly Gulf Arabs) to Lebanon, especially in summer. It is estimated that there are 12,000 hotel beds, with 90 percent located in Beirut and Mount Lebanon. Some 860 additional hotel rooms will be built in 2001 and another 1,200 will be added in 2002. Despite continued political instability, growth in the tourism sector is expected to pick up in the coming years, especially after the Israeli withdrawal from south Lebanon in May 2000.

FINANCIAL SERVICES.

The most important sector of Lebanon's service industry is the financial services industry. The sector lost most of its importance during the civil war with the flight of the majority of foreign firms, but there has been a concerted effort to renew the sector since 1991. As a result, the sector grew rapidly in the 1990s, mostly the result of investment in government debt and reconstruction and reported double-digit growth throughout the 1990s.

Financial services continue to undergo expansion and consolidation, especially of small family-owned banks. Several international banks now have offices in Beirut. In an effort to present Lebanon as an international financial center, the government announced in 1995 a series of financial laws aimed at preventing money laundering. In particular, one of the passed laws gives international investigators access to the accounts of Lebanese banks.

Banking, by far the most profitable sector, employs some 15,000 people. Before the civil war, Lebanon was the banking center of the Middle East, owing to its liberal banking regime, one of the most liberal in the Arab world. Several Arab and foreign banks pulled out of Lebanon during the war, but by 2001 several of these banks had returned. However, most of them have only small branches in Beirut, and the pre-war interest in Lebanon's banking sector is yet to return.

There are some 67 active commercial banks in the country, in addition to small family-owned enterprises. Most of these banks are up to international standards, largely due to concerted government efforts to tighten regulations and increase capital adequacy requirements.

The Beirut Stock Exchange, closed in 1975 with the outbreak of the civil war, re-opened in 1995. Trading, which began in January 1996, has been thin, and the number of listed companies has been relatively small. There is a total of 12 listed companies, including 4 financial institutions, 1 car retailer, and a supermarket chain. Weekly trading in 2000 rarely exceeded US$2 million.

CONSTRUCTION.

The construction sector grew at a very fast pace between 1991 and 1996, contributing to an average of 6.5 percent growth in the GDP. The sector's growth was in response to the influx of huge sums of private investments, mostly from Lebanese expatriates and Gulf Arabs who were devoted to the reconstruction of residential and commercial buildings destroyed during the war. These investments were coupled with large-scale government projects to rebuild the country's infrastructure, including the US$400 million project to rebuild Beirut International Airport and the complete renovation of downtown Beirut by the quasi-government company, Solidere.

Since 1996, the sector's contribution to GDP has dropped, as private investments and government spending began to dwindle. The slowdown was partly brought about by the oversupply in some areas of the construction market, especially in housing. International and domestic confidence in Lebanon's stability also dropped significantly in the aftermath of Israel's military operations in Lebanon in the summer of 1996.

RETAIL.

Lacking many large commercial centers other than Beirut and its suburbs, Lebanon has a poorly-developed retail sector. While Beirut is home to a variety of retail stores, including fast food franchises such as McDonald's, Burger King, and Starbuck's, the majority of towns in the interior of the country have small family-owned shops, farmers' markets, and temporary roadside stands.

ADVERTISING.

Lebanon has a booming advertising industry that ranks second in the region in terms of size and profitability after Dubai. Some 150 national and international advertising agencies are based in Lebanon, employing some 8,000 people. In the absence of reliable statistics, the sector's revenue is believed to be in the range of US$150 million annually. The largely unregulated sector is dominated by the country's 4 television stations and the print media, which account for 55 percent and 34 percent of the sector's revenue, respectively.

INTERNATIONAL TRADE

With few natural resources, over the past several decades, Lebanon has relied heavily on imports. The value of imports in 1999 was US$5.7 billion, while exports totaled just US$866 million. Lebanon imports the majority of its goods from Europe—mostly Italy (12 percent), France (10 percent), and Germany (9 percent)—followed by the United States (9 percent). On the other hand, the majority of Lebanon's exports are sent to neighboring Arab Gulf countries, especially Saudi Arabia (12 percent) and the United Arab Emirates (10 percent), which are Lebanon's largest trade partners. Major exports are food, vegetables and fruits, followed by chemical products and jewelry.

Imports of foreign goods have usually amounted to 40-65 percent of the GDP. Lebanon's imports consist of fuel, electrical goods, and vehicles. Expenditures on imports rose dramatically in the post-civil war period, largely due to the need to import capital goods and high consumer spending on food, cars, and luxury items. The trend has reversed since 1999 due to the economic slowdown but is expected to rise again as the economy recovers.

Although the value of exports increased from US$544 million in 1994 to US$866 million in 1999, the substantial trade imbalance that Lebanon has endured over the years has meant that the country will continue to run a trade deficit which forces it to borrow heavily to pay for its consumption.

MONEY

The value of the Lebanese pound has slowly improved on the world market since 1992, thanks to a wise monitory policy that has sought to restore its value. As a result, the value of the pound to the dollar has improved from 1,800 Lebanese pounds for every U.S. dollar at the end of 1992 to 1,508 pounds to 1 U.S. dollar at the end of 1999, and has remained at roughly this value in the years since. The U.S. dollar was widely used throughout the civil war, and although its use has decreased since

1991, more than 60 percent of transactions in 2001 are still conducted using the U.S. dollar, which is available at many Lebanese banks. The nation's central bank, the Central Bank of Lebanon, is highly respected by the international banking community and has done a good job of maintaining the value of the currency and keeping low inflation.

POVERTY AND WEALTH

Wealth and income are unevenly distributed in Lebanon. Despite the absence of reliable statistics, income disparity in Lebanon is believed to have increased in the last 10 years since the end of the civil war. According to a recent study, the income of the upper and middle classes has risen since 1991, but most Lebanese have not seen a significant appreciation in their income. A minority of Lebanese have in fact seen their incomes drop below the poverty line. Farmers in the Bekáa Valley, for example, have been affected by the ban on the cultivation of hashish, which during the civil war constituted a major source of income for the region.

Income disparity also is manifested along regional lines. According to the UN Economic and Social Council for Western Asia (ESCWA), the average GDP per capita in 1999 reached US$5,148 (the CIA World Fact-book places the figure at US$4500). However, average GDP per capita in areas such as the Bekáa Valley is only US$620 per year. Almost one-third of the population live

below the poverty line, with one-quarter of families subsisting on less than US$620 per year. Unemployment in 1997 was estimated to have reached 18 percent.

As a result of declining economic conditions, public-sector strikes have become commonplace. To prevent mass protest against its economic and social policies and to preclude opposition forces from exploiting discontent, the government uses the army to guard public security. As a result, the army has been privileged and strengthened, becoming assertive in its demands for salaries and promotions.

The government has generally adopted a hands off policy toward social inequality and has not attempted to redress differences between the poor and the rich. Lebanon's dependence on imports, especially food and fuel, has made it increasingly more difficult for the poor to spend a high amount of their relatively small incomes on the necessities of life. As a result, many Lebanese have opted to seek job opportunities in neighboring Arab countries, especially in the Gulf region.

WORKING CONDITIONS

Reliable official data about Lebanon's labor force are unavailable, but it is estimated that the country's labor force in 1999 was 1.3 million. A 1996 Ministry of Social Affairs survey estimated that there were some 944,282 foreign workers in the country as well. Foreign workers are mostly unskilled laborers from Syria, Asia, India, and Africa, and they are employed mostly in construction, agriculture, industry, and households. Unemployment in the country is high, with official estimates in 1999 set at 10 percent and unofficial estimates reaching as high as 25 percent; the CIA World Factbook reported 1999 unemployment of 18 percent.

Trade unions are allowed in Lebanon and are supported by the government with membership restricted to Lebanese workers. Trade unions operate under the umbrella of the Federation of Labor Unions, which negotiates cost of living adjustments and other social benefits on behalf of the workers. The 48-hour work week is the standard.

Although labor laws protecting the right of workers have been in place since 1964, regulations are rarely enforced, and working conditions in Lebanon are far from ideal. Labor actions, strikes, slow downs, and protests frequently disturb work life, and wages remain relatively low. The largest proportion of the labor force, some 15,000 people, is employed by the financial sector, working in banks and other financial institutions, followed by the manufacturing industry, which employs 15 percent of the labor force.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1516. Lebanon becomes part of the Ottoman Empire.

1920. French General Gouraud establishes Greater Lebanon with its present boundaries and with Beirut as its capital.

1926. First Lebanese constitution is promulgated.

1932. The first and only complete census is taken in Lebanon. Charles Dabbas, a Greek Orthodox, is elected the first president of Lebanon.

1936. Emile Iddi elected president.

1941. Lebanon gains independence from the French.

1943. General elections take place; Bishara al Khuri is elected president.

1945. Lebanon becomes a member of the Arab League and the United Nations (UN). French troops completely withdraw from the country, with the signing of the Franco-Lebanese Treaty.

1975. Civil war breaks out.

1978. The Riyadh Conference formally ends the Lebanese Civil War; Syria intervenes militarily in Lebanon.

1981. Fighting resumes.

1982. Israel invades Lebanon.

1989. Ta'if Accords officially ends civil war and sets power-sharing formula between Lebanon's religious groups.

1992. Prime Minister Hariri launches "Horizon 2000" reconstruction program.

1997. Entertainment tax is introduced. Custom duties are raised.

1998. Prime Minister Hariri resigns. Salim al-Hoss takes office.

2000. Israel withdraws its troops from South Lebanon. Prime Minister Hariri returns to office.

FUTURE TRENDS

After nearly 2 decades of civil conflict, Lebanon entered the 21tst century on a positive note. Most of the country's infrastructure has been restored, and despite occasional violence, Lebanon's political system has been fairly stable. The 1989 Ta'if Accords, which brought an end to the civil war and set the terms for power-sharing among the various religious groups, has thus far been successful in creating a functional government in Beirut that is increasingly spreading its control over the rest of the country. Parliamentary elections have been held periodically since 1992. After almost 2 decades of occupation, Israel withdrew its military forces from southern Lebanon in May 2000.

Despite these positive developments, the government is faced with serious challenges, mainly lowering the budget deficit by focusing on tax reform and modernization, expenditure rationalizing, and reducing of the burden of servicing its debt. The government is also under pressure from the IMF to proceed with plans to adopt a privatization program of state-owned enterprises. Having lost its status as a regional banking and trade center and lacking a solid agricultural and industrial base, Lebanon must develop alternative plans to define its new role in the Middle East region. So far, beyond rhetorical official statements, no steps have been taken in that direction.

DEPENDENCIES

Lebanon has no territories or colonies.

BIBLIOGRAPHY

Banque du Liban: Central Bank of Lebanon. <http://www.bdl .gov.lb>. Accessed July 2001.

Economist Intelligence Unit. Country Profile: Lebanon. London: Economist Intelligence Unit, 2000.

Khalaf, Samir. Lebanon's Predicament. New York: Columbia University Press, 1987.

"Lebanon: Economy" and "Lebanon: History." CNN Countrywatch. <http://cnn.countrywatch.com>. Accessed June 2001.

Republic of Lebanon, Ministry of Economy and Trade. <http://www.economy.gov.lb>. Accessed July 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Lebanon. <http://www.usembassy.com.lb/wwwhcom.htm>. Accessed February 2001.

—Reem Nuseibeh

CAPITAL:

Beirut.

MONETARY UNIT:

Lebanese pound. One Lebanese pound (known locally as the lira) equals 100 piasters. There are notes of 50, 100, 250, 500, 1,000, 10,000 and 50,000 liras. There are no coins.

CHIEF EXPORTS:

Foodstuffs, tobacco, textiles, chemicals, metal and metal products, electrical equipment and products, jewelry, paper and paper products.

CHIEF IMPORTS:

Machinery and transport equipment, foodstuffs, chemicals, consumer goods, textiles, metals, fuels, agricultural products.

GROSS DOMESTIC PRODUCT:

US$16.2 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US$866 million (f.o.b., 1999 est.). Imports: US$5.7 billion (f.o.b., 1999 est.).