3. How do you think the transition to a normal economy in Lebanon, after the war in 2006, would differ from the experiences of European countries after World War II?

Case Study Title: The Role of Social and Political Factors In the Lebanese Economy

Lebanon is a nation that tolerates and respects multiple cultures, religions, and ethnicities while its economy today tries to follow its past preferences of favoring strong fiscal and monetary freedoms as well as developing a labor market that is highly flexible.

Prior to the Lebanese civil war between 1975 and 1990, the country had enjoyed relative calm and prosperity. Tourism, agriculture, small-and medium-sized manufactures, education, and banking all promote a successful economy. Lebanon became known as the finance and banking capital of the Arab world and the "Paris of the Middle East." Before the war, Lebanon had a competitive and free market environment and a strong laissez-faire commercial tradition. There were no restrictions on foreign exchange or capital movement. Bank secrecy was strictly enforced, and there were practically no restrictions on foreign investment. Corporate tax rates and inflation were relatively low. The financial sector was well developed prior to the civil war and has since developed again into a system aligned to fit the demands of the region, including a range of private banks and services.

The civil war seriously damaged Lebanon's economic infrastructure, cut national output by half, and ruined a wide range of businesses in service and manufacturing sectors. It ultimately ended Lebanon's position as a Middle Eastern banking hub. The subsequent period of relative peace enabled the central government to restore control in Beirut, but how was this achieved? Steps were taken to re-establish its taxation system and to regain access to key port and government facilities. Furthermore, economic recovery had been helped by a financially sound banking system and resilient small- and medium-sized enterprises, with family remittances, banking services, manufactured and farm exports, and international aid as the main sources of foreign exchange.

Immediately following the end of the civil war, there were extensive efforts to revive the economy and rebuild the national infrastructure. By early 2006, a considerable degree of stability had been achieved throughout most parts of the country, Beirut's reconstruction was almost complete, and an increasing number of tourist from all around the world were beginning to head toward Lebanon's resorts. As a result, GDP increased from $2.838 billion in 1990 to $2438 billion in 2006 (an increase of nearly 700 percent in 16 years), and unemployment dropped to 8.1 percent in 2004.

But a new shocked to the country's economy occurred in 2006. After a month only of fighting Israel in July 2006, Lebanon suffered significant damage to businesses and infrastructure. Many countries struggled to get as many of their citizens as possible out of the country safely and quickly. The tourism industry faced a massive loss. Lebanon was in crisis again. In September 2006, Rafiq Hariri International Airport in Beirut re-opened, and efforts to revive the Lebanese economy were to begin once more. Major investors to the reconstruction of Lebanon included the European Union and Saudi Arabia as well as many other countries across the world. Lebanon's recent economic history has been a series of taking one step forward and two steps back yet there is still promise for a bright future if peace can be maintained.

Toward achieving its targets, Lebanon has received external support as well. International support in humanitarian demining programs and victims' assistance program have been significant. Moreover, there are external contributions and involvements in the reconstruction of Lebanon. A program of relief, rehabilitation and recovery has been in force from 1975 to 2005 and has totaled more than $400 million in aid to Lebanon by the United States. For relief, recovery, rebuilding, and security in the wake of the 2006 war, the U.S. government substantially stepped up this program, pledging well over $1 billion in additional assistance for the 2006 and 2007 fiscal years.

From an internal perspective, liberalization of the economy, investment, and business activities are confronted by other challenges. Intrusive bureaucracy and chaotic regulatory regimes slow down local businesses and discourage foreign investment. Besides, fair adjudication of property rights is not guaranteed because the Lebanese courts are subject to significant influence from the Lebanese security services, government, or even the police. More importantly, in order to create a productive and stable business environment, it is essential for Lebanon work diligently on improving its ability to stamp out fraudfor example, Lebanon has recently adopted new laws to combat money laundering.