As Islamists exploit financial crisis, Lebanon stands fast

The key to Lebanon's success at insulating itself from the worst of the global financial meltdown has been sound fiscal policy from the Central Bank. Years ago, Riad Salameh issued a bank circular prohibiting Lebanese banks from subscribing to subprime mortgage products. This rule complemented already extant regulations, limiting banks' participation in other risky products like derivatives. While banks could directly petition Salameh for waivers, Central Bank sources confide that these requests almost universally received his pocket veto. In any event, given the high rate of return on government products and other local and regional investments, there was little need for Lebanese banks to gamble.

Salameh's high stature in Lebanon and the region pales in comparison to that of Hassan Nasrallah, the charismatic secretary general of Hezbollah, the Party of Allah, whose claim to fame is fighting the Israeli army to a standstill in the summer of 2006 – at an estimated cost to Lebanon of $4 billion. Focused so much on "resistance," it is little surprise that neither Mr. Nasrallah nor Hezbollah – which controls a bloc of some 35 seats in parliament – has ever articulated an economic plan.

Unfortunately for Lebanon, however, this could soon change. Should Hezbollah come to power in June 2009 parliamentary elections, the Shiite militia might be tempted to institute the ruinous economic policies of its religious authorities in the Islamic Republic of Iran. And there is little reason to believe that implementation of recommendations advocated by Jordanian and Egyptian Islamists would achieve any better result.

In the context of this intellectual void, Lebanon's economic miracle provides a useful example for the regions' Islamists – Hamas included. Hamstrung by internal political tensions and interminably undermined by unfriendly neighbors, Lebanon has to date nonetheless skirted the worst of the crisis through prudent fiscal policies within the confines of the free market. Lebanon may eventually be affected by the spillover, but it will be better placed to endure the crisis and rebound quicker because of wise financial oversight. The answer isn't Islam or sharia banking; it's good policy.

• David Schenker is director of the Program in Arab Politics at the Washington Institute for Near East Policy. From 2002 to 2006, he served in the Office of the Secretary of Defense as country director for Syria, Lebanon, Jordan, and the Palestinian territories.

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