Lebanon in denial, Part I.
February 3, 2009 12:36 by Zeinab Charafeddine
In south Lebanon, the builder Ibrahim Mortada is not convinced by claims from Lebanon’s politicians that the country is immune from the world financial crisis. “Demand has gone down sharply from the beginning of November, since a crazy summer when the price of land doubled,” he says.
For the Lebanese, crises are nothing new. Since the murder of former prime minister Rafik Hariri in 2005, the country has lived through Syrian military withdrawal, an Israeli attack in July 2006, a stand-off between the ruling and opposition parties (that left it without a president), and factional clashes last May.
Yet, throughout such difficult years, the currency remained stable and private-sector deposits in the country’s banking sector rose from $54.5 billion at the end of 2004 to $75 billion in August 2008 – around three times the national GDP. Analysts say tight policies by central bank governor Riad Salameh meant Lebanon was in position to enjoy economic growth this year of around 6 percent, after rival factions reached a political agreement in May.
In what now looks like remarkable foresight, Salameh restricted the banks’ involvement in complex financial instruments and even capped at 60 percent the amount they could lend for real estate projects. So there was no “domino effect,” or sense of panic during the banking crisis in October. There may even have been an influx of capital into the country.
Likewise, Salameh maintained the stability of the Lebanese pound as an article of faith, staying consistent against the dollar across repeated crises. The Lebanese pound remained steady as funds flooded into the Gulf earlier this year, with investors expecting a de-pegging and revaluation of Gulf Co-operation Council (GCC) currencies. It was equally steady when these investors began pulling out in the summer, sparking the Gulf stock market decline.
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