With End of Its Civil War Lebanon's Economy Rustles

THERE is a big hole in the middle of Beirut where the business district used to be. Gone are the bomb-damaged ancient souks, art-deco cinemas, and nightclubs that made the Lebanese capital the Middle East's most glamorous playground and vibrant financial center.

In their place will go modern offices, state-of-the-art telephone networks, and luxury apartment blocks, courtesy of Solidere, the private company set up to rebuild Beirut's central district after the 1975-1990 civil war. By starting from scratch, company officials emphasize, they have the chance to introduce the latest technology, turning Beirut into the most modern city in the region.

''This really is a huge project and an excellent asset for Lebanon,'' says Ramez Maluf, international manager at Solidere. ''It will take the country forward from an era of kidnapping and war into reconstruction and development.''

Solidere, which by January 1994 had raised $650 million from Lebanese and Arab sources in a heavily oversubscribed share issue, is one of the first private companies charged with such a huge reconstruction project in the Middle East. It is also the spearhead of Prime Minister Rafiq al-Hariri's reconstruction plans.

Mr. Hariri, a billionaire Sunni Muslim businessman, has brought stability to the country since winning the 1992 elections, the first in 20 years. One of his first tasks was to relaunch the Council for Development & Reconstruction, a superministry empowered to oversee the country's revival. The CDR has raised $3 billion for reconstruction projects so far and plans to spend a further $15 billion over the next 13 years.

''Some of the projects are self-financing,'' explains Nohad Baroudi, secretary general of the CDR. ''The $550 million airport expansion, for instance, will give us a 6 million passenger capacity by 1998. That will be financed within seven years by a new passenger tax, and we've received a bridging loan from the central bank to cover us until then.'' Other funding comes from a combination of concessionary and commercial loans. One-third of foreign borrowing has been secured.

The government's aim is to rebuild the country's physical infrastructure - roads, electricity, sewage, and telecommunications - and to improve technical and vocational training in order to lure affluent overseas Lebanese back to the country. Some Lebanese money has already been repatriated - $6.5 billion of incoming funds covered last year's $5.4 billion trade deficit - but officials hope that figure will rise as more investment opportunities become available.

''The Lebanese economy is basically private-sector driven,'' says finance minister Fouad Senioura. ''Our intention is to create the proper climate where the private sector can flourish again.''

Lebanon's central bank estimates that the economy shrank by 4 percent on average during each year of the 16-year civil war. The conflict began with Muslims and Christians tussling for political control of the country, but quickly descended into a bitter tribal warfare between and among the country's 17 religious groups. The government is forecasting annual economic growth averaging almost 8 percent a year over the next 13 years; its aim is to double gross domestic product per capita by 2007.

Frequent visitors to Beirut say they notice significant improvements on each visit. State-supplied electricity, which had completely collapsed during the war, now runs in most areas for at least 12 hours a day. The telephone network, once so erratic it was almost useless, now has an acceptable call-completion rate. But Lebanon's future also rests on overcoming the political costs of the civil war, which left behind sectarian fault lines.

''Lots of Lebanese abroad happen to be on the Christian side of the great divide,'' explains a senior Western diplomat in Beirut. ''This is one aspect of the low level of Lebanese capital repatriated so far. The Christians are uncertain of their share of the final political scene.''

Potential investors point out other uncertainties. Syria's influence over Lebanon is immense - a legacy of the Syrian military intervention that ended the civil war - and is reinforced by the presence of some 35,000 Syrian troops deployed throughout the country. Few believe that Lebanon could survive unscathed from a turbulent succession struggle in Damascus. Western diplomats say that Lebanon can only really address these issues after a comprehensive peace settlement with Israel, but Beirut's hands are tied until Syria reaches its own agreement with Tel Aviv.

In the meantime, Lebanon is getting on with the reconstruction. ''Basically, Lebanon is going to do very well,'' says the Western diplomat. ''They have all the language skills, they have a commercial network, and they are incredibly entrepreneurial. But it will take time.''

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