Emad Mekay

WASHINGTON, Aug 31 2006 (IPS) — Lebanon is firmly en route to becoming the third nation in the Middle East after Iraq and the Palestinian territories to experience a devastating Washington-backed war and a massive influx of new illegitimate debt to cover reconstruction expenses, anti-debt activists say.

A conference held Thursday in Stockholm for donors raised more than 940 million dollars in pledges of new money to reconstruct Lebanon after 33 days of Israeli bombing of the country’s infrastructure, bridges, roads and factories.

More than 1,100 Lebanese people were killed in the conflict between Israel and Hezbollah, a third of them children under 12. More than one million were forced to leave their homes.

Initial official figures estimate the first phase of reconstruction at 2.5 billion dollars. Damages include some 150 bridges and an oil spill that dumped 15,000 tonnes of oil into the sea and polluted 140 kilometres of coastline.

According to the U.N. High Commissioner for Refugees, 60,000 housing units in Lebanon were damaged or destroyed in the war, of which at least 15,000 were completely destroyed while another 15,000 sustained major damage.

Since the Aug. 14 ceasefire, the United Nations says the return of hundreds of thousands of people to their homes has been hampered by enormous quantities of unexploded ordnance (UXO), especially the bomblets scattered by cluster bombs, which will place a long-term drain on the government.

Prior to the conference, the Lebanese government said at least 540 million dollars were immediately needed to help the country with short-term recovery.

On Thursday, the International Monetary Fund (IMF) said the damages could reach at least 3.5 billion dollars for infrastructure alone.

“We have heard of preliminary estimates of 3.5 billion dollars in infrastructure damage, to which one needs to add the impact of the massive displacement of the population, the exodus of many professionals, and possible private sector bankruptcies,” the IMF’s representative at the Stockholm meetings said in a statement.

At this rate, Beirut will most certainly continue to turn to international lenders and donors for help with reconstruction for a long time. And this, debt watchers say, will in turn plunge the country into greater debt.

World Bank figures show that Lebanon was already up to its neck in debt – some 22.2 billion dollars – even before the war. For a country of only 3.5 million people, the smallest Arab nation, it is a colossal burden.

“What was already a difficult budgetary and debt situation has been made much more precarious by the conflict. Government debt stood at 175 percent of GDP (Gross Domestic Product) at end-2005, one of the highest ratios in the world. The conflict has made matters much worse,” the IMF said.

The country’s main creditors are Saudi Arabia and France. Both have pushed for a neo-liberal set of policies in Beirut which led to the privatisation of pubic assets and, critics say, the empowerment of local elites and foreign companies at the expense of the middle classes and the poor.

The European-based Committee for the Abolition of Third World Debt (CADTM) notes that in 2004, Lebanon paid out 4.4 billion dollars to service its external debt and warns that new borrowing will bring further pressure from rich nations and international financial institutions like the IMF.

“This implies another increase in its debt and in new economic measures of structural adjustment which accompany it,” said Éric Toussaint and Damien Millet of CADTM in a brief assessment of the country’s new needs.

“Therefore, the Lebanese people are going to have to pay very dearly, in the years to come, for consequences of this war inflicted by Israel in violation of international treaties governing relations between states.”

Just like Iraq in 2003, a foreign country came in and destroyed the country’s infrastructure, only to give foreign companies and institutions power in the subsequent reconstruction efforts, they said.

For example, the Paris Club of bilateral creditors gave Iraq a partial and conditional debt reduction in 2004 as long as it followed economic prescriptions from the IMF. The Paris Club figures say the country’s total debt for 2005 was 63.2 billion dollars, or 183 percent of GDP.

Now Iraq is back to borrowing from multilateral lenders like the IMF and the World Bank. The IMF alone lent Iraq 685 million dollars last year.

“The Lebanese people paid the first time by giving their lives, losing their loved ones, enduring the destruction of their homes, their property and infrastructure,” the authors said. “They must not pay a second time by being bled dry to finance reconstruction.”

Israel has also destroyed most of the Palestinian infrastructure, consistently targeting power generation stations as well as government ministry buildings.

“Palestine, Iraq and Lebanon must demand accountability from their aggressors,” the CADTM analysts say.

For Lebanon, they suggested that its people demand cancellation of their debts instead of allowing their government to seek more aid and new loans.

“For Lebanon, a possible solution resides in the immediate cancellation of its debt and the establishment of funds for its reconstruction, which would be fed by reparations deposited by Israel,” the authors suggested.

The United States, which backed the Israeli campaign and helps equip and finance the Israeli army, should also contribute to the fund.

“It is only then that it will be possible to say that the Lebanese people will have received justice,” they said.

In a telephone interview from Paris, Millet acknowledged that their proposal will not fly without the commitment of the Lebanese government, which as part of the local elite and ruling class, is unlikely to back a proposal that would not benefit the local businessmen.

He argued that some rich Lebanese whose wealth is held in Western banks should invest in their own country’s bonds.

“They have no interest in (debt) cancellation because cancellation will give power to those who suffer from the debt (the poor and the middle classes),” Millet said.

The IMF itself acknowledges that without highly concessional new financing for Lebanon, there is a real risk of the total collapse of the Lebanese economy. The institution did not mention grants or debt cancellation.

The combination of a growing government financing need, higher world interest rates, and lower GDP growth will all certainly cause Lebanon’s debt to spiral upward.