Country Analysis: The Ghosts of Lebanon's Past

A soldier takes aim in downtown Beirut. Langevin Jacques/Getty Images

To understand Lebanon's contemporary economic challenges, one requires an understanding of its past and the legacy of its Civil War.

With Lebanon currently facing a currency crisis and outbreaks of public protests most recently seen this Tuesday, we need to look back at how we got to where we are. It all starts with the post-war settlement following the Lebanese Civil War, known as the Taif Agreement. It is a point in Lebanon's history where its people hoped for a better future and much needed economic reconstruction.

Signed and ratified in 1989, the Taif Agreement produced the conditions necessary to end the civil war and a "return to political normalcy" for the country (Hassan, 1997, p. 427; Etheredge, 2011, p. 151). While enabling such a return, it also led to efforts for Lebanon's post-war economy's reconstruction. I argue that while these efforts ultimately produced the economic and political bases for Lebanon's economic crises since the turn of the millennium. This is due to the controversial role of Solidere, the private company tasked with reconstructing Lebanon's economy, and the complex decisions in monetary and fiscal policy the post-war government implemented. I first detail and then evaluate each respective component of this essay to reiterate how beneficial economically for the war-torn state, the broader view and role of the Taif Agreement on Lebanon's post-war reconstruction was ultimately enablers both economic and political conflict. Firstly, however, the Taif Agreement is presented for contextual purposes.

It is no question that the consequences of the Lebanese Civil War for Lebanon were severe. Beyond it merely considered one of the "major wars" that occurred following the end of the Second World War, its implications on the Lebanese economy were no less pronounced. This is especially considering its near two-decade length between 1975-1990 (Baumann, 2016). The country's economic output had substantially diminished by 1986 at approximately US$24 billion. Its GDP per capita one year following the ratification of the Taif agreement was "less than one-third of the GDP per capita in 1974" (Saidi, 1999; Dibeh, 2005, p. 1).

Image courtesy of AFP

The devastation on the economy was enduring for Lebanese assets between US$20-25 billion, but also on its human resources with emigration totalling half a million (Gressani & Page, 1999; Dibeh, 2005; Yassin, 2010). Dibeh also highlights the damaging and "weakening of state institutions … [such as] … military, … especially revenue-generating capabilities and resource mobilization" (Dibeh, 2005, p. 1; Verdeil, 2001). The eventual ratification, and signing, of the Taif Agreement in late 1989 began the new Second Republic of Lebanon, understandably eliciting relief to both the war-torn nation and the wider region (Baumann, 2016). From this agreement, post-war reconstruction would eventually occur both in the socio-political sphere and the economic sphere.

The agreement firstly induced the necessary political reconstruction within the first three years of its ratification. For the Taif agreement to be convincing and successful, it would need to reflect and "respond to" Lebanese "consensus" and "requirements". Otherwise, it would be solely "guns enforc[ing] it remains in current alignment" (McLaurin, 1989, p. 27). In a broader view, the agreement could re-establish the "administrative capabilities" of Lebanon's political and military institutions between 1990-1992 (Dibeh, 2005, p. 2).

More importantly, however, it redistributed the executive supremacy of the President – a critical factor in exacerbating pre-Civil War tensions – to the cabinet of Lebanon's parliament. Additionally, it reformed the proportion of parliamentary seats allocated for Muslims, which had been at a 6:5 ration disadvantage to Christians(Sharp, 2008). Therefore, Lebanon's political apparatus's reformation was highly beneficial for the newly elected Hariri Government in 1992 – in the country's first democratically held elections in two decades (Dibeh, 2005; Baumann, 2016). Now empowered by the transfer and distribution of executive authority, Hariri could embark on his country's necessary reconstruction (Baumann, 2016). Such reconstruction could effectively occur given that pre-existing administrative and physical constraints were removed courtesy of the Taif Agreement.

Nevertheless, while the agreement itself on the surface seemed to provide the necessary relief for the Lebanese state following a protracted and devastating conflict, some flaws are more than apparent in hindsight. Sharp provides perhaps the most concise critical evaluation of the agreement being a "Saudi-Syrian agreement, overseen by the United States". While it would end the "fifteen years of war" for Lebanon, it would also prolong the Syrian occupation military. The latter, Sharp argues, was supported by the United States and Saudi Arabia(Sharp, 2008, p. 45; R., 1998).

It is perhaps his more 'damning' conclusion on the post-war settlement not being a "definitive resolution to the civil war" and instead of a more precarious "halt [to] direct conflict that one ought to consider for this study additionally since any Lebanese pact must be relevant for the needs of the Lebanese citizenry and involve them directly. Salibi reinforces the significant turning point the Taif Agreement could have. Nevertheless, it also notes how long-term peace for Lebanon "depend[s] on whether [it] can break with its history to become ... a commonwealth involving citizens rather than community rights" (Salibi, 1988, p. 12).

In contemporary Lebanon, I refer to the conflict as either a crisis in economic terms or a political paradigm for specificity purposes. Although it is agreeable to refer to the conflict in simple military terms, I omit this essay's conceptualization solely on the economy. I justify my decision to consider the political implications of the Taif Agreement's economic consequences due to the close interconnectivity between Lebanon's political and economic spheres. From this, the following analysis can reflect the long-term implications of the post-war settlement in sustaining long-term political tension and recurring economic crises for Lebanon, despite short-term economic effects growth early on. I begin first with a discussion on Hariri's Solidere project.

(L-R) PM Hariri with current son and PM Saad Hariri

Solidere was considered Prime Minister Hariri's flagship embodiment of the post-war reconstruction of Lebanon. The reconstruction plan followed two principles. The first was to "unify a fragmented society", and the Hariri Government believed reconstructing Beirut's Central District (BCD) would achieve this. The second was to develop the "necessary infrastructure such as … a mass transit system" (Baumann, 2016, p. 67).

However, the "real-estate" company, Solidere, had total control of the "reconstruction project" and approached it through profit-maximizing strategies. This approach would fail to unify the urban areas it worked on, enabling the formation of "a segregated space" (Baumann, 2016, p. 67; Sharp, 2008). Sharpe notes how Hariri's Solidere project "was remarkable" in a polarised Lebanon. However, I would also add 'controversial' to this description (Sharp, 2008, p. 48).

While indeed remarkable that Hariri embarked on an ambitious and radically neoliberal reconstruction program in less than ten years, this approach significantly removed the Lebanese state from the country's reconstruction (Baumann, 2016). Baumann argues that Solidere received assurances from Hariri that no interference from "authorities" would occur, severely limiting the role of the state in Lebanon's post-war reconstruction. Solidere's role in the reconstruction project, however, "produced a new economic order focused on luxury real estate". This would only see the transfer of

"resources and social power into the hands of factions connected to Hariri" (Baumann, 2016, p. 66; Sharp, 2008, p. 48).

The concentration of wealth and power Hariri amassed was unprecedented. Salem reinforces this point: "...Never has one individual wielded such … public and private power in modern Lebanon as … Rafiq Hariri" (Salem, 1999, p. 21). Solidere's controversial nature in economic and political terms have proved damaging to Lebanon in the long run.

Downtown Beirut Courtesy of Kaveh Kazemi/Getty

Scholars have described Solidere as the embodiment of "illiberal and anti-cosmopolitan forces … [for] their nation-fragmenting power" and that it became "an inspiration for [the future] gentrification" and marginalization of the state (Hourani, 2011, p. 159; Sharp, 2008, pp. 47-48). Thus, rather than being a "flagship" for unification on reconstruction for all dimensions of Lebanese society, Solidere was merely a continuation of "socio-political and economic conflict" within a country that had only just recently emerged from a devastating civil conflict (Sharp, 2008, p. 46).

Courtesy of Joseph Eid/AFP

While the Beirut Central District's reconstruction led to higher inflows of foreign investments and the rise of the services industry, the stark divide in wealth and power exacerbated existing Lebanese social and sectarian cleavages. This highlights the controversial role Solidere - a company borne out of the Taif Agreement - has had on Lebanon since the end of the civil war in 1990. Further demonstrating the Taif Agreement's long-term consequences on the post-war reconstruction of the Lebanese economy is the complex combination of the country's subsequent fiscal and monetary policies.

In 1995, the Hariri Government would see the emergence of "The Horizon 2000" plan as a macroeconomic investment project that would lead to long-term economic growth for the war-torn country. It proposed a fiscal policy that would invest "US$18 billion on public and social infrastructure over 13 years from 1995 to 2007". It anticipated "GDP growth over the period would average 8 per cent" at an annual rate, thereby doubling GDP per capita "by the end of 2007" (Dibeh, 2005, p. 4; Alfazlaka, 1995).

Consequently, the public expenditure of GDP rose between 1993-1998 from 3.3% to 8.6%, double the rate of other developing countries who averaged only 3.7 per cent during the same time frame (Dibeh, 2005, pp. 4-5; Helbling, 1999). However, while an ambitious reconstruction policy, Dibeh notes, "Lebanon registered one of the highest deficit to GDP and debt to GDP ratios in the world". Data reflects this as the deficit increased between 1993-1998 from 9.01-14.1 and debt from 34.4-105.4 (Dibeh, 2005, p. 12). This reflected the inability of the Hariri government to employ a fiscal adjustment policy necessary for Lebanon to reconstruct its economy for the short-term and sustain itself for the new millennium (Ibid).

Moreover, the government's expenditure did not reflect income groups. Instead, it reflected sectarian lines, which Dibeh argues led to a regressive taxing system, a "major cause of hardship for most of the population" (Ibid p. 10). "Consumer welfare considerations" were also ignored, and the "social dimensions" of the fiscal policy eventually curtailed (Ibid). Therefore, it becomes increasingly clear how detrimental the fiscal policy dimension of the reconstruction efforts following the Taif Agreement was for Lebanon economically and politically, particularly in the long-term. On the other hand, the central bank's new monetary policy direction was less focused on reconstruction as it was on stabilizing the Lebanese currency. This policy commitment demonstrated that:

"the Central Bank should not become a reconstruction or development bank" (Ibid., p. 14).

The Central Bank's monetary policy aim was to stabilize the Lebanese pound. So it locked its currency with the U.S. dollar leading to long-term benefits such as less Central Bank intervention (Dibeh, 2005). This, followed by the confidence in Lebanon's financial market, would lead to increased capital flows, particularly those deriving from emigrant remittances. These processes "skewed the Lebanese post-war economy" to a financial services-based economy. This could be seen as a positive, however, as oversea investments had increased. However, for these investments to benefit the broader Lebanese economy, there needed to be a three to one ratio of private to public investments". This ratio was unsustainable as the Lebanese financial economy's development would continue to grow(Dibeh, 2005, pp. 14-16).

While seemingly less disruptive and damaging to the broader Lebanese social fabric and economy, some flaws would emerge from such a policy. Baumann most noticeably demonstrates how the decision to stabilize the currency with the U.S. Dollar produced "a rent-creation mechanism". The consequences of this would oversee the "transfer of wealth from the state—and thus ultimately the Lebanese taxpayer—to banks and depositors" (Baumann, 2016, p. 70). Moreover, Hariri and his "technocrats" heralded the policy "as the foundation of Lebanon's post-war 'success'". However, Baumann writes, the consequences of this decision would see "high-interest rates, [crowding] out private-sector investment, and skyrocketing government debt" (Ibid., p. 74). Hence, the fiscal policy dimension of Lebanese economic post-war reconstruction produced the numerous economic shocks the country has experienced since the turn of the century (Dibeh, 2005). This, as a result, reflects the multifaceted complexity of issues Lebanon had with its post-war reconstruction plans. Plans which could not have occurred without the ending of the Lebanese Civil War via the Taif Agreement.

While a devastating and complex conflict, the Lebanese Civil War appeared to carry through such themes into its post-war economic reconstruction following the much relieving Taif Agreement's ratification in late 1989. I have attempted to demonstrate how problematic and divisive, economically and politically briefly, these reconstruction efforts were for wider Lebanese society. The role of Solidere, let alone its controversial nature and formation, undoubtedly merits its label as the flagship of the Hariri reconstruction project. Though tasked with rebuilding the nation's capital, it would not only circumvent such civic responsibilities. However, it would be unaccountable to the state with the backing of Hariri.

Moreover, ambitious fiscal policy initiatives would dramatically increase public expenditure and its public deficit and debt in GDP debt. To further demonstrate the long-term impact of these policies on post-war Lebanon, its monetary policy disproportionally favoured a smaller group of elite networks. It is why the statement Sharpe makes on how the post-war reconstruction of the country only meant for the "accumulation of social power by one faction over others" is so striking (Sharp, 2008, p. 48). Hence, while the Taif Agreement ended the military dimension of Lebanese inter-state conflict, it did not alleviate or prevent future conflicts the country is currently experiencing in the post-war era.


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