According to Lebanese PM, "Stability Comes First"

Article Summary
Bahji Abou Ghanem interviews Lebanese Prime Minister Najib Mikati about the Lebanese Economy. Mikati asserts that Lebanon’s banking sector is sound and that there is no reason to believe that regional developments will negatively impact the Lebanese economy. He also addresses recent demands for wage increases and challenges facing the country’s telecommunications and electricity sectors.

At the time of this interview, Prime Minister Najib Mikati had been in office for 156 days since the [Lebanese] parliament voted to express confidence [in his cabinet]. Five months into the [new government’s term], the road has been anything but pleasant. Instead, it has been bumpy and fraught with obstacles.

Needless to say, Prime Minister Najib Mikati has always been keen on surmounting hurdles and overcoming obstacles by seeking compromise and common ground [between the parties], even as [the list] of contentious issues continues to grow.

While almost everyone agrees that Prime Minister Mikati has succeeded in [achieving stability] and believes that this [stability] is [Lebanon’s] most valuable asset, there are some who consider that an even greater deal of stability is necessary for our economy not to fall prey to economic crises and [political] tension.

Mikati gave his first interview [about the economy of Lebanon] to Al-Iktisad Wal A’amal [The Newspaper of Economy and Labor]. In this interview, [he notes] that the economic issues [plaguing the country] necessitate compromise, settlements and solutions. [Our conversation] with the President lacks [the characteristics] of a "scoop," but it outlines Mikati’s wisdom and proficiency in managing the public affairs [problems] plaguing this period. It clearly reflects [his] ample optimism, confidence will and determination.
President Mikati is able to remain “impartial" - at least according to his own understanding of the word - amid a great deal of intransigent positions.

No Concerns about the Economy

Al-Iktisad  For the first time, Lebanon faces local, regional and international pressures due to the local economic slowdown, the developments across the Arab world and the international pressures related to them - in particular the sanctions leveled against Syria. How is Lebanon dealing with these challenges?

Mikati  You have mentioned that this is the first time Lebanon has gone through a [critical] phase such as this one. Allow me to to say that Lebanon has already faced greater difficulties in the past, and it has always managed to solve them and completely recover from their repercussions. The civil war that lasted 15 years [1975-1990] is a perfect example. Throughout this war, we witnessed the survival of our economic sectors. We saw that people retained absolute confidence in Lebanon, its regime and its banks. This is why I can frankly say that I have no concerns about the strength of the Lebanese economy. Despite all of the international and regional developments, be them political or economic, growth is still solid [in Lebanon]. I am optimistic about the potential of the national economy and the skills of the Lebanese, and I am trying my best to protect Lebanon and its economy from the global financial and economic crises as well as from the political and security implications of regional developments.

The South and Syria

Mikati In order to promote this [stable economic] climate, we need a stable political situation. We can contain certain things, despite the events taking place in the South [of Lebanon]. In fact, we denounce the attacks [that have taken place there], especially when international troops, and French peacekeepers in particular, are targeted. I am almost certain that the situation in the South is stable, and [I have no doubt that] there will always be a permanent cease-fire. I am confident that the international forces operating in the South, along with the Lebanese army, are carrying out their duty to the fullest. I think that this is the most crucial element in ensuring stability, because all of our [security problems] usually emanate from the South.

The second obstacle that we have already overcome is the issue of the Special Tribunal for Lebanon (STL). This leaves one single matter threatening the stability [of the country], that of the Syrian situation and the implications surrounding it. On this issue, we have chosen to adopt a policy of non-interference. I am trying to establish a kind of wall to protect us from any repercussions [coming out of Syria]. The stability of Lebanon and its territorial integrity are essential. We believe that this is the safest kind policy and we will keep it up despite the objections [of certain others]. Political stability is the key to economic and business stability, and one day we will discover that it is the most valuable asset one can preserve during such a crucial phase.

The "Tooz" of the Arab Spring

Al-Iktisad  Where does Lebanon stand today regarding the ongoing events in the Arab world?

Mikati  The [outcome] of the Arab Spring is not yet clear. It is still nebulous. In springtime, Khamsin winds [dry, hot and dusty local winds blowing in the Arabian Peninsula], which the Gulf People call "tooz," blow and obstruct visibility, especially if they are strong. We truly are in the Spring, but we do not know what comes after this Spring. Our Arab brothers have always seen Lebanon as a safe place for their funds. But today, with the measures and sanctions taken against certain states and their nationals [Syria], and out of fear that these countries are using Lebanon as a shelter [for their funds], our country has been put under the international microscope. Therefore, [Lebanon] is benefiting from the [current] situation, but not as much as it used to from previous coups and revolutions. We will certainly benefit from the business that certain individuals are no longer able to do in their own country [and therefore bring to Lebanon]. [However], the government, the [directors] of the Bank of Lebanon and [official] economic bodies are strongly and wisely examining the facts in order to avoid any trouble that could harm or affect the banking sector. In sum, we may benefit from these events, but we should be careful to avoid getting involved in business that could affect Lebanon's relations with the international community.

I am trying my best to protect Lebanon and its economy from the global crises and the Arab developments.

Al-Iktisad  But if the Arab Spring manages to establish, as we expect, new [Arab] regimes that embrace openness, freedom and democracy, what would be make Lebanon special in the region?

Lebanon has always been special because of its human resources. Therefore, even if these neighboring countries manage to nurture democracy and openness, they will be unable to recover without Lebanon’s human resources, banking sector and diverse expertise. We wish all Arab countries all the best, but we do not dread these changes, because Lebanon has been genuinely working for decades, not years, to gain necessary experience.

Business and Investment Climate

Mikati  Today more than ever, Lebanon needs to foster an appropriate and competitive climate for doing business. However, The International Finance Corporation (IFC) ranks Lebanon in very low in this domain.

A team working for the [prime minister’s cabinet] is examining every step necessary to encourage a better climate for investment in Lebanon, and to facilitate transactions. Very important measures will be announced in the near future. I am sure that the private sector can play a significant role in Lebanon, and that it can account for all of these investments. The state has to ensure stability. It has to establish an appropriate climate that stimulates [investments] and regulates business. For its part, the private sector is capable of stimulating, developing and diversifying the economy, which will allow it to spread its wings. In early December, economic activity increased. This upturn will be noticeable in upcoming statistical releases [on economic activity in Lebanon]. Especially notable is the increase in deposits after Lebanon delivered on its obligations towards the international resolutions [the funding of the UN Special Tribunal for Lebanon].

Beirut Boosting Growth

Al-Iktisad  When you were Prime Minister in 2005, you established a road map for an integrated plan based on the fact that Beirut was boosting growth.  What is left of this plan?

Mikati  Back then, I called this plan the “Charter of Beirut.” We need to have a new economic and social charter. This charter is underway. The economic bodies and Labor Union have promised to hold a conference here in the government’s headquarters to discuss the economic and social issues [facing the country] and come up with a unified plan to resolve these issues. This meeting will be held early in the new year - probably in January - because we need stability at the economic, social, political and security levels.

Problem of Privatization

Al-Iktisad  Expected provisions within the new charter have led to the ministers adopting conflicting positions on the nature of the relationship between [the public] and the private sector. Some [ministers] think that there should be a public-private partnership (PPP). Others see privatization as essential. What is your position on this matter?

Mikati  It is common knowledge that there are political factions in Lebanon which hold divergent opinions regarding economic policies. We have not yet managed to approve the PPP, although the topic will soon be brought before the Cabinet. [The proposal] will then be referred to parliament before its implementation. This issue is one of our priorities, and I hope there will be no delay. I hope we will be able to overcome any obstacle that we come across.

Al-Iktisad  Are you personally for the PPP?

Mikati  Of course! [Economic] projects used to be funded by the treasury until they became an exhausting burden and had to consequently be stopped. We then started resorting to banks and international institutions, which helped us [take a giant leap forward]. But today, these means have been exhausted as well, and the only solution left is the PPP. [With the PPP] the private sector can finance and manage public facilities. We are convinced that the private sector is the nerve of the Lebanese economy and that the banking sector is its backbone.

Budget Under Scrutiny

Al-Iktisad  At the opening ceremony of Lebanon's Economic Forum organized by the Economy and Business Group, you asserted that "there will be no spending without revenues” and that “we are not fans of taxation.” In light of this statement, what [can you say about] the budget [draft law]?

Mikati  The draft is being scrutinized by the government. We will study it, and I will ask [the ministers] not to add any new taxes to it and settle for the [previously agreed upon] 2012 taxes instead. This will entail a deficit ceiling that does not exceed 6% to 7% of GDP. We will limit our expenditure to this range. We will take precautions so as to cover the wage increases of the public sector, and any additional spending will be coupled with additional revenues.

Our first priority is to have a balanced budget that takes into account the financial condition [of our government]. Other issues will also be prioritized such as carrying out structural reforms, addressing debt, increasing revenues, rationalizing expenditure, stimulating productive sectors, correcting the public sector wages, enhancing productivity, creating job opportunities, stopping immigration and increasing Lebanon's competitiveness.

The Banking Sector

Al-Iktisad  How do you assess the performance of the banking sector, and do you dread that the Syrian situation will have any effects on it?

Mikati  The banking sector is sound, and it represents the backbone of the Lebanese economy. According to reports we are receiving from both the Governor of the Bank of Lebanon and the Committee on Banking Supervision the sector is perfectly sound. I have no concerns about its pace of growth, even though it is registering lower rates. I am sure that the sector is avoiding any non-compliance with international laws and that there have been no attempts to cheat or challenge any of the international action that the banks are supposed to be abiding by.

In addition, banks in Lebanon are eligible to meet the Basel III international standards. Moreover, the Central Bank and The Association of Banks have agreed on a set of steps to be implemented gradually.

Regarding the situation in Syria and its repercussions on the banking sector, especially concerning those most directly involved institutions, [these repercussions] are limited and we will be able to check their worst implications. Indeed, despite the pressure placed on them, Lebanese banks have managed to prove their efficiency. They passed all previous tests [they were forced to take] thanks to the wise policy adopted by the Bank of Lebanon and those banking leaders keen on maintaining and preserving the local and international confidence they have gained [over the years].

Wage Increases

Al-Iktisad  The issue of [wage increases] has not yet been resolved, and both decisions [proposed by Labor Minister Charbel Nahhas and Prime Minister Najib Mikati] have failed to satisfy the demands [of demonstrators]. The relationship between [employers and employees] may have been affected. Why [is this happening]? What is the solution?

Mikati  This issue was initially managed in an excellent manner. However, in the early months, the government witnessed an unexpected strike. I wanted to spare Lebanon anything that might affect its stability out of fear of the potential security problem that might have accompanied the strike. The increase [in wages] was approved, but it was considered unfair, and this led to [a divergence in opinions on the matter]. We referred the issue to the Shura Council and I was keen on abiding by its decision, even if it is not binding on the government. We returned the matter to the Minister of Labor which he reviewed in cooperation with the [Price] Index Committee. The Minister of Labor, in turn, submitted a number of good projects that can now be studied and approved. There have been different viewpoints, especially regarding the inclusion of transport allowances into salaries. To be honest, we did not agree on the proposal so we submitted another project and this one was approved. I know that these increases did not meet the workers' [demands] due to the high cost of living. However, a pragmatic and rational approach to economic problems requires a balance between the demands of the people and the offers of the economic authorities.

It is currently impossible to increase the minimum wage beyond US $600. In the competing neighboring countries such as Syria, Egypt and Jordan the minimum wage is US $150. How can we compete with minimum wages that are four times less than ours in sectors such as industry and tourism? The government has tried to balance between the increase [in wages] and the capabilities of its institutions. I think that the issue was well managed because it was welcomed by [various] economic bodies. For its part, the [Lebanese] Labor Union did not object to its content, although it did bring forward minor reservations that can be discussed and solved.

I understand that certain employers are restless and suffering, but part of the [current] economic pressure results from the debt crisis and its implications. [In addition], we have [other] economic problems that can only be solved gradually.

A Plan [for the Electricity Grid] is Underway

Al-Iktisad  What about plans [for fixing the problems of] electricity? When will we start to see positive results?

Mikati  The plan for the electricity is underway and we are waiting for the related studies. We are also pursuing efforts to [obtain financing] for this plan from certain Arab funds.

Regarding the US $720 million, they have been allocated to services, such as collection [services] and others. It is true that the ministers [responsible for dealing with this issue] have approved the decision, but no executive steps will be signed prior to our approval [of the plan], or prior to the conclusion of a thorough examination.

In addition to the electricity plan, we must find ways to reduce the use of oil, water and electricity resources, as well as to save and store energy and use alternative sources. This will enable us to reap economic benefits and will contribute to the protection of the environment and the mitigation of pollution. This, in turn, requires waste recycling projects.

Telecommunications Policy

Al-Iktisad  What about the telecommunications sector? The distinction between the role of the public and private sectors does not seem clear.

Mikati  The speed and cost of communication services are the basis of the investment climate. We have the largest submarine cable, [and this will offer us a great deal of] capacity. It reaches to the shores of Tripoli and will [soon] be available through an internal network to the largest possible number of people. And, when [it becomes] available, [faster] Internet and data transfer will be [possible]. There is no doubt that this will help attract investors to Lebanon and [allow them to] establish their businesses and headquarters in the country. It will impact [the capacities] of other industries as well, including the offices of auditing and engineering [firms]. This is important. We want to reduce the prices and develop the [telecommunications] sector.

In fact, Lebanon has many sectors yielding peculiar benefits. Foremost among these are the Information and Communication Technology (ICT), the content industry, the cultural and creative industries and all of the activities requiring an advanced communication sector.

The Budget proposal is [currently] under scrutiny by the government, and there is no spending [occuring] without the revenues [to pay for them].
Lebanon cannot handle a minimum wage exceeding US $600.
We must implement a framework of controls, and I stand ready to support the silent majority and fight corruption.

Oil and Gas

Al-Iktisad  What about the [current projects] regarding oil and gas [discoveries off the Lebanese coast]? When will they be implemented?

Mikati  All the paperwork related to the extraction of oil and gas are ready. However, in order for them to be issued, a body governing [the oil sector] needs to be established. [This body] must make recommendations on regulatory decrees before they are approved by the Minister of Energy. Once this body is established, these documents will be immediately released. The first phase of the exploratory process will be announced during the first half of 2012.

As for our rights to our territorial waters, it is crystal clear that the major fields of oil and gas are in within our territory. This is not subject to any legal dispute. We are expecting promising results, but [to see these results] we need a minimum of seven years from the moment that we begin drilling.

All Together for Work

Al-Iktisad  To conclude the interview, I would like to ask you whether or not you are satisfied with what we have achieved with reference to your [campaign slogan] "All together for our country, for work?”

Mikati  I am happy with the slogan, and with what I am doing to serve my nation. What interests me the most is that public departments be good, fair and credible. We have to start activating control devices and we must immediately fortify judicial institutions [against corruption]. We have to start carrying out structural reforms. I am ready to support the silent majority in Lebanon to put an end to corruption, the [sectarian] quota system and favoritism.

We have faced many difficulties ever since we received the vote of confidence from parliament in July. Foremost among these [difficulties] are Lebanon's international relations. But during these months, we have managed to overcome these obstacles and reinforce the role of the state.

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