LONDON, 7 August 2006 — One of the ironies and perhaps perversities of Israel’s war on Lebanon is the fact that American tax dollars are both effectively financing the destruction through the supply of smart bombs and other military hardware to Israel, and the reconstruction of Lebanon once hostilities finally cease through the inevitable aid, donations and soft loans.
If ever, American taxpayers wish to start questioning the direction of US aid to Israel, which amounts to more than $3 billion a year, it should be now. The US has every right to aid Israel, just as American taxpayers have every right to ask and expect their government to direct this aid to the real economy instead of underwriting what is euphemistically called the “fourth most powerful military machine in the world”.
Draining defense expenditures are not confined to Israel. In fact, most emerging countries are faced with a similar problem including those in the Middle East. Egypt, Saudi Arabia, Syria and Algeria are just some examples. One wonders what impact it would have on the economy of these countries if the defense dollars were instead diverted to building and improving infrastructure, and providing primary education, healthcare, social housing and jobs.
Unfortunately, Israel and Lebanon seem to have acquired their version of the “Turkish Syndrome”. Until 1980, there used to be a standing joke that every ten years the Turkish army would stage a military coup. It had happened almost to the clock the three previous decades. Israel and Lebanon seem to have embarked on a twenty year-or-so cycle of violence. Without a comprehensive settlement of the Arab-Israeli conflict, the chances of history repeating itself for the third time must be very good, given especially the dysfunctional structure of the Lebanese state.
As Ankara found out, the economic and political cost to Turkey was huge. Hence the political and economic sea change pioneered by the late Turgut Ozal, first premier and then president of the republic. Perhaps, the economic and political cost is not big enough yet for Israel to pursue a genuine comprehensive peace with all its Arab protagonists and with all issues on the table. Only then can Israel even begin to assume the moral high ground driven primarily by the oft-cited mantra of it being “the only democracy in the Middle East”.
Genuine democracies, for a start, do not embark on a war of wanton and disproportionate destruction of another country, especially when they have an overwhelming superiority of military arsenals and capability. Democracy also implies responsibility, restraint and proportionality.
As Sami Haddad, the Lebanese economy minister, stressed, “Israel’s response has been completely disproportionate and the IDF (Israeli Defense Force) has been sadistically attacking the Lebanese infrastructure. The death toll is close to 1,000.” Implicit in Haddad’s words is that Israel has a right to defend its territory and citizens against Hezbollah, but not at the expense of the Lebanese infrastructure and economy. For years now Israel has chauvinistically been violating Lebanese airspace and waters almost on a daily basis at will, without a word uttered in protest by the United Nations and the international community.
The economic cost is mounting by the hour. Before the war, Lebanon’s economy, according to Haddad, was on track to grow at 6 percent of GDP for the year. Four weeks into the conflict, GDP growth is nose-diving toward negativity surpassing below zero percent. The government was expecting a bumper tourism season, which would have contributed importantly to the country’s current account. The destruction of the infrastructure alone is estimated to cost about $5 billion to rebuild. Lebanon’s foreign exchange reserves totaled $11 billion before the war, while the foreign assets of the Lebanese commercial banking sector amount to $15 billion.
According to the Association of Lebanese Industrialists, 95 percent of industry has ground to a halt. Power stations, petrol outlets, steel factories and bottling plants have been bombed. The destruction of the transport infrastructure, the naval blockade and the on-going aerial bombardment have put paid to the work of industries still standing. The import of raw materials and distribution of goods are at a complete standstill. To add to the problem, many businesses in Lebanon are not insured against war. As such the business cost of the war is projected to run into billions of dollars.
The country’s credit ratings are also taking a pounding. Capital Intelligence, the Cyprus-based international emerging markets rating agency, lost no time in revising the outlook on Lebanon’s B- long-term sovereign credit rating to negative from stable. Similarly, the outlook on the B- long-term foreign currency ratings of six Lebanese banks — Bank Audi-Saradar Group, BBAC, BLOM Bank, Byblos Bank, Credit Libanais, and Fransabank — has also been revised to negative. Some businessmen would have preferred the ratings to be suspended until after the hostilities ended.
Many countries, including the GCC states have rallied to help Lebanon. Saudi Arabia, Qatar, Kuwait and the UAE have given some $2 billion to the Banque du Liban (the central bank) to support the Lebanese pound, partly to protect their own investment in the country and partly to pre-empt capital flight and speculation on the Lebanese currency. The GCC has about $15 billion of investment exposure especially in the real estate, tourism, hospitality and financial services sectors in Lebanon. The Dallah Albaraka Group, headed by Saleh Kamel, for instance, is a major investor in Lebanon.
War, by its very nature, always carries a heavy environmental cost. Ordinance on impact are harmful and damaging to both humans, flora and fauna in terms of the chemicals they release. The bombing of the Jiyyeh power station about 30 km south of Beirut, on July 13 and 15, has resulted in what Haddad says is “the worst oil spill in the Eastern Mediterranean for many years”. The spill is affecting more than 80 km of the Lebanese coastline and has reached Syria and could threaten Cyprus, Turkey and Greece if left unchecked.
The United Nations Environment Program has confirmed through initial satellite imagery that the oil spill is “of a significant magnitude and spreading”. Already the spill has caused an estimated $200 million in damage to fish and bird stocks and destruction of coastline and habitats.