Statement by H.E. Fuad Siniora Minister of State for Financial Affairs to the Arab Bankers Association of North America - ABANA
Ladies and Gentlemen,
It is a great pleasure to address such an esteemed group pf professionals that have gathered here today, in the financial capital of the world, under the auspices of the Arab Bankers Association, to discuss the role of financial institutions in the reconstruction of Lebanon. Indeed, to my mind, the forum, the place and the topic of this conference are a reflection of the strong and widespread interest in Lebanon’s recovery as well as in the great investment and business opportunities which the ongoing reconstruction effort can provide. I, therefore, consider this conference as yet another source of optimism about Lebanon’s future, an optimism that I certainly also felt in my discussions with a large number of representatives of friendly countries and international institutions in Washington a few days ago.
Clearly, however, this optimism is not so much a measure of what is yet to be done, for that is certainly enormous. It is more a reflection of the great strides that have already been made over a relatively short period of time and under difficult circumstances. You are of course all well aware of the condition the country was in after a decade and a half of instability and violent conflict which brought about several waves of destruction, tremendous loss of human resources, reduction of productive capacity, deterioration of capital stock, and fragmentation and weakening of the central authority. War damage to the infrastructure and physical assets has been estimated at USD 25 billion with none of the principal sectors emerging from war unscathed. The absence of Government authority and the loss of fiscal control, particularly from the mid-1980s onwards, led to a rapid inflation-depreciation spiral and to a sharp increase in domestic public debt. The hardships created by these developments compounded the already difficult economic and social conditions for a large segment of the population.
When the present Government took office less than a year ago, it had to meet the challenge of reconstruction and to plan for the future, while coping at the same time with the unfortunate legacy of the past.
The Government’s approach to economic recovery and reconstruction has been guided from the outset by a number of basic principles:
First, that there will be no wavering from our open and liberal economic system. This system has served the country well in the past, sustained it during the years of conflict, and will be instrumental in rebuilding its future.
Second, that the public sector will inevitably have to play an important role in the process of reconstruction, particularly in those sectors where the role of the private sector in the rehabilitation and expansion of infrastructure can only be a limited one.
Third, that it is the responsibility of the Government to insure an environment that would maximize private investment in reconstruction and in the productive sectors more generally.
Macroeconomic stability is clearly an important element of such an environment. With this in mind, the present Government has strived to, and, succeeded in restoring a sence of confidence in the economic management of the country and in the national currency, as the cycles of exchange rate depreciation and inflation was broken.
Furthermore, the Government is fully cognizant of the need to consolidate these gains through determined additional action on the fiscal front. To date, the results of our efforts have been encouraging as revenues during the first seven months of 1993 increased by more than 75% compared to revenues during the corresponding period of 1992. As a result, revenues in 1993 cover about 85% of non-interested budgeted expenditures compared to only 57% during the corresponding period in 1992.
In addition, to restoring financial stability, the Government has prepared a reconstruction and public investment program amounting to USD 10 billion over a ten period including the following sectors: electricity, waste water, solid waste, telecommunications, transportation, water supply, irrigation, industry, and oil and gas. In addition, the plan includes the enhancement of the public sector’s managerial and implementation capacities and the extension of credit to the private sector. This program is to be financed through domestic resources, foreign grants, concessional loans, and commercial credits.
Let me mention here that the project of the reconstruction of downtown Beirut, which is a distinct example of the developmental role that the private sector can play, is taking off. As many of you already know, this project represents the largest construction project in the Middle East in the foreseeable future and will transform the 135 hectares of desolate ruins into a modern financial and commercial center.
It is unquestionable that the rebuilding of infrastructure places a burden on the public sector that requires concessional flows from Arab and friendly countries as well as from international organizations and financial institutions. It is equally clear, however, that Lebanon’s economic future and its ability to attain its full potential will depend on legislative amendments and the availability of instruments and mechanisms which mobilize financial resources and direct them to their most productive use. Indeed, in our discussions with the international financial community we are often reminded of the fact that the magnitude of the financial resources of the Lebanese, domestically and abroad, not to mention the regional resources which could potentially be invested in Lebanon, are such that they dwarf the resources that may be obtained from official as well as foreign commercial sources. The question obviously is how to create the conditions and the channels through which these resourced will voluntarily participate in reconstruction and productive investment. This, of course, is the main subject of this conference, and we hope that the collective wisdom of the distinguished participants will help us in our efforts to enhance financial intermediation and enable financial institutions to play their role more effectively. However. Let me offer you a few general thoughts on what I believe should be the broad elements of a more effective role for the financial sector in Lebanon.
First, access of investors in the productive sectors to medium and long term bank credit should improve. While the focus of banking activity so far on commercial transactions is understandable, there is a clear need to create the kind of medium and longer term savings instruments that would enable banks to engage in the type of investment financing that the economy needs. In my view, there are substantial opportunities to be tapped in this area.
Second, the development of an efficient capital market will be instrumental in mobilizing the needed financing, both for the public and private sectors. In fact, and subject to appropriate and close monitoring by the government, there is no reason why the financing of the rehabilitation of public entities which can be self sustaining should necessarily be undertaken by the government, particularly if the market exists for the issuance of debt instruments on the part of such entities. Similarly, with a smooth functioning capital market, the mobilization for funding for private sector investment would be substantially enhanced.
Third, an efficient stock market will also be crucial in the period ahead. Direct participation of the private sector, domestic, expatriate, Arab, and foreign, would be greatly facilitated with the establishment of a well functioning equity market. Let me say in this regard that the Government is working with a number of international institution, both official and private, in order to put the legal, institutional and technical requirements in place for such markets to develop as soon as possible, while ensuring that the necessary safeguards are also in place.
Fourth, even with the establishment of efficient financial markets and with increased diversification of commercial bank activities, I believe that there will be a role for specialized credit institutions in Lebanon, for example in the areas of housing, industry, tourism, and agriculture. What is crucial here is to have the safeguards and standards that ensure that such institutions are run on the same basis as other commercial institutions and do not constitute a drain on public resources.
I have offered these general thoughts only to point to some areas where further progress is clearly needed for more efficient financial intermediation and more effective resource mobilization. Let me add however that the financial sector in Lebanon is not only important as an instrument for reconstruction and investment, but also in its own right as an important part of the service sector on which Lebanon’s comparative advantage will continue to hinge.
Ladies and Gentlemen,
Let me assure you that the Lebanese people and the Lebanese Government are family committed to a comprehensive, just, and lasting peace in the Middle East. However, irrespective of when this peace is achieved we are even more committed to the rehabilitation, reconstruction and development of the Lebanese economy. In our view, Lebanon has a crucial and unique role to play within the Arab World and has the fundamental requirements to ensure that it will play that role. Today, I can confidently state that Lebanon has embarked on an irreversible path that can only lead to regaining and building upon our previous role in the region. We are confident that our efforts within the Arab world will bear fruit. Consequently, I invite you as migrant Lebanese and as fellow Arabs to join us in our efforts to unshackle Lebanon from the effects of the past years of conflict so that it can once again contribute positively and constructively to the development of the Arab World and to the World at large.
Let me conclude by thanking you, ladies and Gentlemen, as Lebanese, as fellow Arabs, and as friends of Lebanon for being here. We bankers are not know for our excessive sentimentality. However, to be in Lebanon these days, or even to watch from the ashes of chaos and destruction, is bound to lift one’s spirit and strengthen our faith in our future as a society, as a country and as a nation.
Thank you and may God be with you.
USA- October 1, 1993