REPUBLIC OF 2642 LEBANON UPDATE

Public Disclosure Authorized The World Bank Group

THE WORLD BANK GROUP | BUILDING PARTNERSHIPS TO PROMOTE TRADE & INVESTMENT |

FI Conference on "Building Part- In addition to Lebanon, the SME Middle East road show nerships to Promote Trade and covered the following countries: Investment", December 12, Jordan (December 10, 2002) in collaboration with the 2002 Young Entrepreneurs Association, and under the Public Disclosure Authorized chairmanship of the Minister of Planning of Jordan.

During the month of December 2002, The World Bank Syria (December 15, 2002) in collaboration with the Group hcld a road show for the Small and Medium Enter- Federation of the Syrian Chambers of Commerce, and prise Group (SME) in the Middle East Region. The road under the sponsorship of the Minister of Economy and show covered three countries: Jordan, Lebanon and Syria. Foreign Trade.

In this context, a conference entitled "The World Bank A conference was also scheduled in Iran on December 17, Group, building partnerships to promote trade 2002 but was postponed until further notice. and investment in Lebanon" was held on December 12, 2002 at the Beirut Chamber of Commerce, Industry The one-day Workshop Agenda included the following and Agriculture. The Conference was organized by the sessions: World Bank Group (WBG) and the Federation of Cham- bers of Commerce, Industry and Agriculture of Lebanon 1) Lebanon, Europe and the Middle East: the at stakes Public Disclosure Authorized (the Federation), under the chairmanship of the Ministry of the conference. of Finance and in partnership with leading intermediary 2) Three testimonies from Lebanese companies on the organizations such as the Association des Banques du Le- investment climate and business opportunities in Leba- ban Association of Lebanese Industrialists, Rassemble- non: one testimony from a Lebanese company (Unice- ment des Chefs d'Entreprises Libanais (RDCL), Invest- ramic), one from a Joint Venture company (Snaidero ment Development Authority of Lebanon (IDAL), and the Middle East and Indevco), and one from a consultancy Council for Development and Rcconstruction (CDR). company established in Lebanon (Investment Advisory).

The purpose of the Conference was to provide an oppor- 3) The World Bank Group, partnerof the private sector tunity for Lebanese companies to meet with representa- in Lebanon with speeches from the WB MENA regional tives of the WBG, comprised of the International Bank for advisor on procurement, IFC, and MIGA. Reconstruction and Development (IBRD), the Interna- tional Finance Corporation (IFC) and the Multilateral In- 4) How to take advantage of the business opportunities vestments Guarantee Agency (MIGA) to discuss opportu- offered by the WoFid Bank Group? Three parallel work- nities to work together. The Conference presented various WBG partnerships, programs, and services for the privatc [ Public Disclosure Authorized sector and explained how Lebanese companies can take New Country Manager for the WB Lebanon Office 3 advantage of WBG business opportunities. The Confer- Bank Group Operations 4 ence also looked at ways in which Lebanese companies Recent Economic Developments 6 can expand their business opportunities both nationally The Macroeconomic Road to Arab Competitiveness 10 and internationally. World Bank Publications 13 The World Bank Lebanon Team 16 Republic of Lebanon Update shops were held with 15 to 20 participants each. The three major levels, and in three languages (Arabic, English workshops consisted of questions and answers sessions and French): with subsequent individual meetings held with a number of participants: 1) Information sharing on products, services and Workshop 1: How to bid on World Bank projects? activities provided by intermediary organizations such as Workshop 2: How to invest with a political risk the chambers of commerce, business and trade guarantee from MIGA? organizations, or investment promotion agencies. Workshop 3: Presentation of the SMExchange program to intermediary organizations from Lebanon and Europe. 2) Capacity building of intermediary organizations in the South of the Mediterranean in partnership with their As a result of this one-day conference, an agreement was counterparts in Europe, and based on the transfer of best reached whereby the WBG would establish a Liaison Of- practices in the fields of access to financing, export ficer desk in Lebanon which will be hosted by the Federa- promotion, information technology, institution building, tion of Chambers of Commerce, Industry and Agriculture and training. in Lebanon. This desk would operate as a strategic door- opener to bring the Bank closer to companies in Lebanon 3) Intermediary Organizations whereby available data is and to bring companies closer to the Bank. Liaison Officer from public sources. desks help to disseminate information about the World Bank Group by organizing local events or facilitating con- Browsing can be done by region (Europe, MENA), as well tacts between the local companies and the Bank. They are as by country (any country in Europe or in the MENA also able to foster closer strategic dialogue between the region). The site also has a calendar of activities by private sector and the Bank on issues of interest to devel- country, and a section on news and upcoming events. oping countries. SMExchange classifies the services provided to SMEs * SMExchange into five major categories: (I) Access to Financing, (2) Export Promotion, (3) Information Technology, (4) The World Bank's SMExchange programme is a capacity Institubon Building, and (5) Training building endeavor which links intermediary organizations (chambers of cormmerce, business or trade associations, In the case of Lebanon, services available fall basically investment promotion agencies...) in developed and de- under the Export Promotion section with some activities in veloping nations to support SME development through the Training All services available are channeled through the transfer of knowledge and experience. Its ultimate mission Chamber of Commerce, Industry and Agriculture of is to stimulate trade and investment between the SMEs in Beirut and Mount Lebanon (CCIAB). the North and South. Export promotion activities provided to SMEs in Lebanon The MENA SMExchange programme is based on three consist of: tools designed to facilitate the knowledge transfer: * Export promotion tools; -1- A website (www.SMiExchange.org) which contains * Administrative procedures; infornation on capacity building programs, offered * Market place for export promotion; and requested, by intermediary organizations from * Speeding up goods at border crossing; the North and South; * Lebanese Arbitration Center. 2- An SMExchange Liaison Officer (SMELO) from a European intermediary organization seconded to an intermediary organization in the South for a three Export Promotion Tools (ATA Carnet) year period; and The ATA Carnet is an easy-to-use tool consisting; of 3- "World Bank Group Roadshows" to get the World vouchers that can be taken out by the Customs Authorities Bank, IFC and MIGA closer to the companies in de- of the countries concemed when crossing the border, thus veloping countries through conferences and seminars avoiding the usual time consuming formalities. The ATA organized in partnership with intermediary organiza- camet covers the transport of a wide aray of goods, exept tions, explaining how to better use WBG private sec- perishable and consumable items. Camets are issued tor services. exclusively by Chambers of Commerce affiliated to the Intemational Bureau of Chambers of Commerce (IBCC) The World Bank SMExchange website is a market place guarantee chain, whose members cover 56 countries and for information sharing and capacity building between territories. Other members are steadily joining the chain as intermediary organizations from East and North Africa, more govemments sign the ATA Convention. Members of eager to promote trade and investment between their SME this chain have agreed to pay Customs Authorities any members. The site provides easy access to information on import duty required should irregularities be discovered,

H -@- gm Republic of Lebanon Update

such as sale of the goods or failure to take them out the three Chambers of Commerce and Industry of Tripoli, within the time limits specified. Saida and Zahle, the Bankers Association, the Association of Lebanese Industrialists, the Beirut Traders Association, Administrative Procedures the Association of Insurance Companies, and the Association of Construction and Public Works These procedures cover the issuance of Certificates of Contractors. The Lebanese Arbitration Center maintains Origin relative to the export of goods, authentication of close relationships with similar centers in the Arab world signatures and documents relative to commercial and and other interational organizations. industrial entreprises, certification of the commercial status of member entreprises, and approval of invoices and The French-Lebanese Exchange Training Center issuance of required certificates for the authentication of the export prices of goods. This Training Center is the result of a partnership between the Regional Council of the lie de France, the Chamber of Market Place for Export Promotion Commerce and Industry of Versailles Val d'Oise-Yvelines and the CCIAB. The mission of the Center is to promote A Market place will be designed to include: and implement technology training programs that meet the * Sectoral surveys; needs of both employers and employees, as well as those * A job-market watch. of fresh graduates. The Center also carries out employment orientation sessions for its trainees. Speeding up Goods at Border Crossing The TIR System is an international transit system which was designed to speed up border-crossing. It is based on Further Information? an international treaty, the TIR Convention of 1975, which Mr. Gilles Garcia was drawn up under the auspices of the United Nations. Manager. EnterpriseOutreach Services Under the TIR System, at least one of the transport World Bank- Vice Presidency for Europe operations must be carried out by road, meaning that Tel: 33(1) 40 69 30 15 multimodal transport can be included. The System now Email: [email protected] has 64 contracting parties, mostly in Europe, the Middle East, and Central Asia. It is the only transit system with a Mr. Albert Nasr world-wide vocation. The TIR Convention is operational Beirut Chamber of Commerce, Industry & Agriculture today in 47 countries, and is based on four principles: Tel: 961-1-744-163 Email: [email protected]. lb 1) Goods must be carried in sealed containers, load Mr. Omar Razzaz joins the Lebanon compartment, or in trucks approved by Customs World Bank Office Authorities. Mr. Omar Razzaz has recently been 2) International recognition of the controls operated by appointed as Country Manager for Customs Authorities both at departure and destination, Lebanon in the Middle East and i.e., no material inspection of the goods may be carried out North Africa Region. Mr. Razzaz, a by the Customs Authorities in the countries of transit. Jordanian national, joined the Bank in 1993 as a Young Professional. He ,. 7 - 3) An international chain of guarantee, in favor of the worked on privatization prograins in r Customs Administrations, securing the eventual loss of Africa and Eastern Europe and X taxes following any irregularity in the TIR procedure is in Central Asia as a member of the - - - place. Private Sector Development Department from 1994 to 2000. Mr. Razzaz joined the Middle East and North Af- 4) The TIR Camet itself, which contains all details about rica Region in the position of Lead Urban Sector Special- the cargo, the TIR holder, the issuing associations, and the ist in the Finance, Private Sector and Infrastructure follow-up of all control operations effected by the Group in 2000. Since then, he has been leading sector Customs Authorities is in use. work and lending operations on municipal development! low income housing issues in Yemen, Jordan, Lebanon, The Lebanese Arbitration Center WBG and lran. In May 1995, the CCIAB established the Lebanese In his new position Mr. Razzaz will be, in close collabo- Arbitration Center whose mandate is to settle all disputes ration with the Country Director, responsible for coordi- of intemal or international character by the use of nating the Bank dialogue with the Lebanese Govern- procedures for arbitration or optional conciliation. Many ment, strengthening the Bank's outreach efforts, and institutions have so far contributed to this Center, namely: managing the financial and human resources of the Bei- rut Country Office with a view to enhancing its role in the implementation of Bank operations. _ E~~~~~~ BANK GROUP OPEMATIONS Vocational and Technical Education Project (VTEP). (US$29.0 million.) The Project's objective is to improve the performance of the VTE System by making it more demand- * IBRD Ongoing Projects driven and responsive to market needs.

The current World Bank portfolio in Lebanon consists of 13 General Education Project (GEP). (US$56.6 million.) This Projects for a total commitment amount of US$517.94 mil- Project is designed to support the Government's effor's to lion, of which US$136.34 million has been disbursed through enhance the capacity of the Ministry of National Education to September 30, 2002. function as an effective manager of the education sector and to restore the credibility of the Public Education System. Irrigation Rehabilitation and Moderntization Project (IRMP). (USS57.23 million.) The Project is designed to help First Municipal Infrastructure Project (MIP-I). (US$80.0 increase agricultural production, agriculture-based income million.) This Project aims at addressing urgent municipal and employment in previously neglected rural areas, and works while setting the stage for the gradual assumption of achieve improved sustainable management of water re- responsibility for municipal services at the local level. sources.

Revenue Enhancement and Fiscal Man- agement Technical Assistance Project ___ (REFMTAP). (US$19.94 million.) The _ . 'a41 : 1 11'! ' U11_ Project seeks to support Government ef- Approval Loan Amount forts to enhance revenue and strengthen Project Name Year Amount Disbuirsed fiscal management. USS Million Irrigation Rehabilitation and Modernization 1994 57.23 41 .63 Health Sector Rehabilitation Project Revenue Enhancement and Fiscal Management 1994 19.94 14.85 (HSRP). (US$35.7 million.) The objec- Technical Assistance tive of this Project is to improve Leba- Health Sector Rehabilitation 1994 35.70 14 59 non's health conditions through better Solid Waste/Environmental Management 1995 25.00 6.69 allocation and use of resources in both the Administrative Rehabilitation 1995 20.00 18.30 public and private sectors. National Roads 1996 42.00 15.97 Agriculture Infrastructure Development 1996 24.00 10.82 ment Project (SWEMP)n(US$25 0 mil- Vocational and Technical Education 1998 29.00 1.03 General Education 2000 56.57 1.29 lion.) This Project is designed to help im- Gc5 prove the methods of solid waste collec- Municipal Jnfrastructure - 1 2000 80.00 11 17 tion and disposal; improve cost recovery Community Development 2001 20.00 0.00 and modernize municipal management Ba'albeck Water and Wastewater 2002 43.50 0.00 and finance systems; and strengthen the Urban Transport Development 2002 65.00 0.00 management capacities of sector institu- TOTAL 517.94 136.34 tions. Community Development Project (CDP). (US$20.0 million.) Administrative Rehabilitation Project (ARP). (US$20.0 mil- This Project is designed to raise living standards in targeted lion.) The Project's primary objective is the rehabilitation of poorer communities, and to raise economic activity levels in the Lebanese public administration, while launching the such communities by investing in grass-roots social and process of administrative reform and development. small infrastructure activities, and in employment creation.

National Roads Project (NRP). (US$42.0 million.) The ob- Urban Transport Development Project (UTDP). (US$65.0 jective of this Project is to improve the capacity of the road million.) The Project's objectives are to provide the city of administration to undertake the rehabilitation of the primary Beirut and the Greater Beirut Area with the basic institutional road network. framework that is currently lacking, and to support critical investments needed to maximize the efficiency of existing Agriculture Infrastructure Development Project (AIDP). urban transport infrastructure. The Board of Directors ap- (US$24.0 million.) The Project's objectives are: (a) increas- proved the Project in June 2002. ing farmers' incomes and conserving the environment through land terracing and development and storage of runoff Ba'albeck Water and Wastewater Project. (US$43.5 mil- water; (b) improving access to rural areas; and (c) upgrading lion.) The major development objectives of the Projecl. in- institutional capabilities. clude: improving the access of satisfactory water supply and wastewater services to the region's residents; introducing Republic of Lebanon Update

appropriate sector reforms - particularly the development Contractor (MC) through a lease or concession contract that and strengthening of the capacity of the existing Ba'albeck would secure the long-term financial needs for sector invest- Hermel Water and Irrigation Authority and, once it is estab- ments. The Board of Directors approved the Project in June lished, the Bekaa Regional Water Authority; and involving 2002. the private sector in the operation and maintenance of water and wastewater facilitics by preparing for a Management

* IBRD Projects In The Pipeline

Cultural Heritage and Tourism Development Project. assistance to strengthen the capacity of the Directorate Gen- (US$30 million.) The Project will finance site conservation, eral of Antiquities, Ministry of Tourism, and targeted mu- enhancement investments and associated urban infrastructure nicipalities in cultural heritage preservation and tourism de- improvements in selected sites, and provide technical velopment.

* IFC Projects in Lebanon

Uniceramnic. The Project supports the modernization of the Middle East Capital Group (MECG). The Project consists company's existing production line and the expansion of the of the establishment of the first regional investment bank in plant's capacity of glazed ceramic floor tiles. the Middle East, and is headquartered in Beirut.

Bank of Beirut and the Arab Countries (BBAC) Credit Banque Libano-Fran;aise. The Project offers innovative Line. The Project offers innovative residential mortgages to residential mortgages to middle income customers. middle income customers. CimenterieNationale. The Project consists of increasing the Banque Saradar SAL. The Project involves an equity in- company's production capacity by the addition of a new vestment in common shares of the company. clinker production line, and the rehabilitation of some exist- ing facilities. Byblos Bank Syndicated Credit. The Project aims at provid- ing long-term project finance to small- and medium-sized Bank of Beirut Lebanon CreditLine. The Project consists of enterprises in Lebanon for infrastructure project finance, and credit lines to four Lebanese private sector commercial banks to increase its housing loan portfolio. for on-lending to local small- and medium-sized enterprises in the private sector, and to middle income families to fi- Societe GCnerale Libano-Europeenne de Banque. IFC ex- nance either the purchase of their first residence or the ex- tended a Line of Credit to Societe Generale Libano- pansion of their existing home. Europeene de Banque to be utilized in support of its housing finance program. Idarat, SAL. The Project funds the company's investment program in hotels and restaurants and is designed to help Fransabank. IFC extended a credit line to Fransabank to revive the tourism industry, which is a key sector in Lebanon. support its housing finance program. Idarat SHV (Societe Hoteliere "de Vinci" SAL). The Pro- Agricultural Development Company (ADC). The Project is ject supported the company's investment in a Green-field, 5- designed to rehabilitate and expand the existing facilities of plus stars "boutique", all-suites hotel, in an up-scale residen- ADC, which is involved in the poultry business, into an inte- tial district of Beirut. grated broiler meat production facility. Lebanese Credit Insurance (LCI). LCI provides short- and France Telecom Mobile Lebanon (FTML) Services medium-term credit insurance. Subsequent to the formation Cellulaire Liban. The Project helps finance the expansion of of LCI, IFC and Namur Re (part of the Gerling Credit Insur- FTML's digital GSM cellular network from its current level. ance Group), sponsors of LCI, established a specialized global credit insurance company, Gerling Credit Emerging Lebanon Leasing Company (LLC). The Project involves the Markets (GCEM), for the purpose of making similar invest- establishment of Lebanon's first leasing company, providing ments in credit insurance companies in emerging markets lease finance to local small- and medium-size enterprises. It with initial authorized capital of EURO20 million. LCI was also includes two credit lines from IFC to fund LLC's leasing transferred to GCEM as its first investment. activitics. R_p__ effo__ Lebanon Updat .

penses); and (2) the decline in the trade deficit is mainly due to a RECE NT ECONOMIC decline in imports (rather than increasing exports). DEVELOPMENTS Figure 3. Dollarisation Rate of Fiscal, trade and financial developments during the Third Commercial Banks' Deposits Quarter 2002 (Q3-2002) confirm the upswing of the Leba- nese economy discerned during the previous quarters. First, 75%. the primary budget surplus (public revenue minus non-debt expenditures) rose in Q3-2002 compared to the same period in 2001. Second, trade deficit continued to decline in Q3- 65% - 2002 confirming the positive evolution observed during the first two Quarters of 2002. Third, demand for Lebanese Pounds rose against the Dollar, relaxing pressure on the par- ity and enabling the Central Bank to reconstitute part of its __%_- depleting foreign reserves.

50% Figure 1. Quarterly Primary Surplus a °g gO (US Dollars, millions) N N N N N N N N N

250 Source: Banque du Liban.

200 - r-12001 The implementation of the VAT may have been at a cost in 150 termns of GDP growth in the short run, as it probably lowered 1 2002 the demand for domestic goods and investment - although no 100 indicator can strictly confirm this. But, it is believed to be a 50 measure that will enhance growth potential in Lebanon in the long run, as it will reduce the anti-export bias and will pro- o- _ l , l 7_ vide the Govemment with additional means of financing its -50- Q1 Q2 Q3 expenses. In turn, reducing the fiscal deficit could lower interest rates and encourage productive investments, all help- ful for growth and poverty alleviation in the medium to long Source: Ministry of Finance. Includes Treasury operations. run.

Figure 2. Quarterly Trade Deficit In the shorter run, VAT implementation already constitutes (US Dollars, millions) one important pillar of the Government's plan to reduce its debt stock, estimated at US$ 29.7 billion (approximately 173 1,650 - percent of GDP) by end September 2002. This remains how- 1,600 - ever insufficient to halt the growth of public debt. Recogniz- 1,550- ing the severity of the situation, the Govemment has an- 1,500 - nounced its intention to launch an overall program basecl on 1,450 - 2001 the following three pillars: (1) strong tightening of public 1,400 - 02002ot5 1,350 [3_ finances, (2) privatization and (3) active asset-liability man- 1,300 agement. According to the Government, this plan, if fully 1,250 implemented, would result in a decline in the debt to CiDP 1,200 ratio from 173 percent in 2002 to 133 percent in 2007. Q1 Q2 Q3 As of the writing of this article, the so-called Paris II Donors Conference had just been convened, with pledges from Do- Source: Customs Administration. nors amounting to approximately US$ 4 billion. This should definitely help the Government to achieve its goal of break- This is good news in light of the three great challenges Leba- ing the debt dynamics. However, while this external support non is facing: (1) the reduction in the fiscal deficit and the constitutes an important signal to the economic community, need to slow down the growth of public debt; (2) maintaining only the materialization of the measures announced by the confidence in monetary and exchangc rate policics and Leba- Govemment can help significantly mitigate the strong macro- non's financial institutions; and ultimately (3) the rcstoration economic imbalances. of real sector growth. Using the most recent data available, the following summa- The successful implementation of the Value Added Tax rizes economic developments during the period JIJly- (VAT) explains to a large extent the following two develop- September 2002: Real Sector Indicators- Public Finance and ments: (1) the decline in the public deficit is, above all, the Public Debt; and the Financial Sector. result of increased tax revenue (rather than diminishing ex-

W OOX Republic of Lebanon Update

* Real Sector Indicators of the 10 percent VAT rate, which so far has performed very well, and suggests that fiscal targets can be reached in 2002. GDP Growth. Strong economic growth remains a critical component of the recovery program, and should aid the Gov- Monthly fiscal data released by the Ministry of Finance for emnment in raising additional tax revenue to reduce its debt. the Third Quarter of 2002 reflect a significant improvement The absence of national accounts precludes a rigorous moni- on the revenue side, thanks to the VAT. Budget revenue was toring of economic activity. This lack of data leads to vari- up 34.9 percent (when compared with Third Quarter of ous interpretations of developments in the real sector (in con- 2001), while budget expenditures increased by 7.6 percent, trast to the financial sector, which is well covered statisti- leading to a decrease in the budget deficit (before Treasury cally). operations) of 21.5 percent during this period.

Most indicators, nevertheless, converged to signal continued Compared to a quarter ago, this performance however marks slow GDP growth over the Third Quarter of 2002: inflation a slight backward movement, as the budget deficit was 30.7 remained low (consumer prices declined one percent between percent lower in Q2-2002 than in Q2-2001 (against 21.5 per- June and September 2002 according to the Association of cent for Q3-2002 compared to Q3-2001). This is a conse- Banks in Lebanon, despite the fact that monthly VAT collec- quence of various developments. On the revenue side, the tion rose almost 21 percent during the same period, most third Quarter 2002 suffered from a strong decline in domestic likely due to an increased tax base). Nominal imports grew 3 tax revenues (- LL300 billion, from 578 to 278). This de- percent compared to Second Quarter of 2002, but declined 12 cline was only partially offset by greater import tax revenue, percent compared to a year ago. This decline could stem as well as non tax revenue (+ LL178 billion). In total, budget from a substitution of the demand in favor of domestic revenue therefore declined by LL72 billion. goods, less affected by VAT. However, the fact that exports have not declined during the same time is rather an indication Changes on the expenditure side were less pronounced, as of a stagnating domestic demand than of a substitution effect. total budget expenditure declined by LL72 billion from Q2- Exports indeed increased by 11 percent in the third Quarter 2002 to Q3-2002. But this general trend however masks very of 2002 compared to last year, which could signal real and contrasted evolutions of the different lines of expenditure. anticipated depressed domestic demand, thereby encouraging Non-interest budget expenditure increased 25.4 percent com- enterprises to orient a larger share of their production to- pared to the previous quarter, and 33.1 percent compared to a wards external outlets. The appreciation of the Euro, in year ago. On the contrary, interest expenditures declined which most imports are denominated, might also explain why 23.2 percent compared to Q2-2002, and 11.6 percent com- the value of imports (expressed in USS) rose during Q3-2002. pared to a year ago.

Some other indirect indicators of economic activity however Accounting for Treasury receipts and expenditures, the over- point in the opposite direction: cleared checks increased 10 all quarterly deficit (budget and Treasury) decreased by LL76 percent compared to Q2-2002, while during the same time billion (US$50.8 million) compared to Q2-2002, and by inflation remained low. This could reflect an increase in LL227 billion (US$150 million) compared to a year ago, to money velocity during Q3-2002, i.e., an acceleration in the stand at LL921 billion (US$610 million). Overall, fiscal tar- volume of transactions. gets (in terms of ratio to expenditures) seemed to remain in line with projected improvements for the year. Estimates from observers and institutions for 2001 and pro- jections for 2002 of real GDP growth range between -1 and Figure 4. Revenue, Expenditures, Deficit +2 percent. However, all these estimates are based on a very Budget and Treasury Transactions limited statistical basis. The recent decision made by the (Lebanese Pounds, billions) Government of Lebanon to join the General Data Dissemina- * Customs Rev. and VAT * Debt Service tion System is an important step in this regard, as it should o Othcr Receipts U Other Budget Expenditures greatly help Lebanon to upgrade its statistical capacity and 3,500 El Deficit 0 Treasury Payments reach international standards in terms of data collection and 3 000 _ dissemination. 2,500 - 1,500 Public Finance and Public Debt 500 500 The 2002 budget foresees a deficit of LL3.8 trillion (US$2.5 1500 - billion), which represents 40.1 percent of total expenditures. 2 500000 If realized, this would be a considerable improvement over 3,000 - the LL5.1 trillion (US$3.4 billion, 50.9 percent of expendi- 3 5_0 tures) budgeted for 2001, and the LL5.9 trillion (US$3.9 bil- o o oo lion, 56.3 percent of expenditures) achieved in 2000. The o o oo 0 majority of the expected improvement (LL800 billion, Souirce: Ministry of Finance. US$530 million) is expected to come from the introduction

_0. _S -epmmk of LebanonB't©l'T Up 31te =

Public debt continued to grow in the Third Quarter of 2002, through privatization, securitization, and a gradual drop in the natural result of ongoing deficits. As of end-September interest rates on public debt, as a result of greater confidence 2002, net public debt reached LL44.7 trillion (US$29.7 bil- in the ability of the Government to fulfill its financial com- lion), up from LL40.8 trillion in end-December 2001 levels mitments. (US$27 billion) and LL43.7 trillion from end-June 2002 (US$29.0 billion). (Source: Ministry of Finance.) Figure 6. Lebanese Pound Treasury Bills Outstanding by Holder Figure 5. Gross Public Debt (Lebanese Pounds, billions) (Lebanese Pounds, billions) ElCommercial Banks ONon-Banking System OCentral Bank n Public Sector Deposits U Lebanese Pound T-Bills 30,000

50,000 U Eurobonds 0] Other Foreign Curr. Debt 28,000- 45,000 26,000 - 40,000 24,000- 35,000 22,000 30,000 20,000 25,000 18,000 20,000 1.0 15,000 14,000 10,000 12,000 5,0000 ~~~~~~~~~~~~~~~10,000

5,000 0 7 0 c 0 - 0 ooo 0 C a, , o o q ,o - - C- , a~~~~,s - - ~~ .,~ C- o~~ 0 o0) CD 0~o 0 o 0 o 0-o o C)Co 8o o o - o? o000 o o o o C?o0C0 o 0o _ eq O O rqO cliO O O O O Source: Banque du Liban.

Source: Ministry of Financc. The Ministries of Lebanon, the Council of Ministers, or the The Government of Lebanon continued its policy of turning Prime Minister's Office (LL290 billion) - and under it, the to Eurobonds to finance its deficit, with US$750 million is- Council for Development and Reconstruction, and the Minis- sued during the third Quarter of 2002, (Source: Ministry of try of Public Works (LL80 billion) should absorb the largest Finance), driven partly by choice - reflecting the lower inter- shares of total cuts in expenditures. est cost on foreign currency borrowing - and partly by neces- sity, given the limited capacity of the commercial banks to Total revenues are to increase by LL900 billion (US$597 continue absorbing increasing amounts of Pound- million), LL275 billion (US$182 million) through improved denominated Government paper. direct tax collection and LL300 billion (US$199 million) through an enlarged VAT base. In addition, the Minister of However, Q3-2002 seems to mark a turning point, as the de- Finance plans a significant increase in non-tax revenues, in- mand for the Lebanese Pound increased against foreign cur- cluding fixed-line charges and other types of administrative rencies. Such a demand for Lebanese Pound increased both fees. in relative and absolute terns, which in turn enabled the Cen- tral Bank to reduce its holding of T-Bills, as well as to recon- stitute part of its depleted foreign reserves. iE FldaL secto:G

As of the writing of this issue, the Parliament had started Growth in broad money (M3) rebounded during the third discussing the budget for 2003. The Government's budget Quarter of 2002. The annual growth rate of M3 was 5.1 per- proposal can be qualified as highly necessary in light of the cent, compared to 3.8 percent in June 2002 and 5.4 percent in challenges Lebanon is facing, as it targets a further decrease March 2002; the share of foreign currency deposits in MA3 in total deficit (to reach 24 percent of total expenditures by reached 67.3 percent in September 2002, down from 69.6 end-2003, against 41 percent targeted for end-2002). It can . ' * be qualified as courageous as well, as its austere nature will impose an additional tax burden on its population and econ- After four consecutive months of slight decline (February, omy. Although the budget is insufficient to stabilize the debt March, April, May 2002) growth in private sector commer- over GDP ratio, it is obviously pointing in the right direction, cial banks' deposits in Lebanese Pounds resumed in June and its efforts should be sustained over the next few years to 2002, and accelerated thereafter, as confidence in the ability reach this objective eventually, of the Central Bank to maintain the parity improved. Banks in turn converted a large part of these new deposits in T-bills. As such, non-interest expenditures are to be reduced by Loans to the private sector resumed as well, although at a LL475 billion (US$315 million), and interest expenditures by more moderate pace. LL500 billion (US$330 million) - the former mainly through a cut in capital expenditures (LL471 billion); the latter

XFC; ..... ~,,, Republic of Lebanon Update

Figure 7. Commercial Banks' Selected The Central Bank's net international reserves rose over the Lebanese Pound Assets and Liabilities Third Quarter of 2002 by US$538 million, reflecting dimin- (Lebanese Pounds, billions) ishing pressures on the Lebanese Pound. Gold valuation in- creased by US$37 million during this period, while foreign Banks' Treasury Bill Hoedinds liabilities increased by US$97 million. Loans to Private Sector in Lebanesc Pounds Customers' Lebanese Pound Deposits Figure 9. Central Bank Reserves

25,000 - Gold, Foreign Currency Holdings, Foreign Liabilities, Net International Reserves (US Dollars, millions) -ency Currencies Gold Even2though0thesharef0deposits0in0foreignude--2,000lilForeign

mained - Foreign Liabilities -sNet Reserves, iel. Gold 10,000

S 000

6,000-

~~~~~~ ,., 4,000

Source: Banque du Liban and World Bank staff calculations. 0

Even though the share of deposits in foreign currency de- -2,000 clined during the third quarter 2002, its absolute value re- sy mained stable as a result of strong growth in M3. Pfivate 0'… D0C 0~ 0. 0,C0 0 0 0 0~ 0= 0D 0 sector deposits in foreign currencies increased by0.lI percent Ir1 i ct ci r" CeN (N ci" in September 2002 compared to June 2002, and by 2.3 per- Source: Banque du Liban. cent compared to September 2001. On the assets side, the share of loans to the private sector over total assets in foreign This general upswing in Lebanon's extemnal position is fi- currencies declined in September 2002 to 47.3 percent from nally reflected in Figure 10, which depicts changes in the 48.6 percent three months before, and 51.9 percent a year Central Bank and commercial banks' net foreign assets. Dur- ago. On the contrary, commercial banks' Eurobond holdings ing the third quarter 2002, foreign assets in the banking sys- increased by 14.8 percent compared to June 2002. tern grew by US$516, out of which US$433 in the Central Bank and US$82 million in commercial banks. In the year Figure 8. Commercial Banks' Selected Foreign since end-September 2001, net foreign assets of the banking Currency Assets and Liabilities sector have declined US$412 million. (Lebanese Pounds, billions)

Commercial Banks' Net Foreign Assets Figure 10. Monthly Changes in Net Foreign Assets Banks'B Foreign Currency Deposits with BdL Central Bank, Commercial Banks, Total Banks' Eurobond Holdings Loans to Privatc Sector in Foreign Currency (US Dollars, millions) l Customers' Foreign Currency Deposits Central Bank Commercial Banks -Tota 45,000 - 1000 40,00075 35,000 30,000 wi[E ~~~~~~~~~~~500- 25,000 ~~~~~~~~~~~~~250--I m

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* Introduction Economies that, in reality, have cost advantages in la- bor and domestically-produced inputs begin alteiing The road to competitiveness is a long journey, and as their production processes and substituting for capital such, requires responsible macroeconomic policy and a equipment and imported inputs. And the greater the supportive business environment to facilitate long-term overvaluation that takes place, the more difficult it be- planning, promoting investment and knowledge trans- comes for the existing drivers of competitiveness, to fer, supporting the efficient allocation of resources to maintain their competitive edge, and the more it dis- insure that the drivers reach the intended destination. courages new drivers from getting on the road. And the drivers on this road-trip to competitiveness are the firms/enterprises that find ways to create increasing What has been the experience of the Middle East and value added through their ability to invent products, North Africa Region (MENA) with exchange rate m.an- adopt new technologies, and respond to changes in agement? In a recent paper of the World Bank, this market conditions at home and abroad. issue was examined by looking at the degree of ex- change rate misalignment in the region. The findings Building on this analogy of a road-trip, below is a focus are discouraging. In the past three decades, MENA on three of the key forces in the macroeconomic arena countries experienced substantial overvaluation of their that determine whether the drivers on the road to com- exchange rate--around 29 percent a year from the mid- petitiveness are best equipped to venture on the chal- 1970s to the mid-1980s, and 22 percent a year from the lenging expedition of long drives, unexpected terrain, and mid-1980s to 1999. Currency overvaluation has been the satisfaction of an ever-approaching destination. prevalent in MENA for a long time, unlike most other re- gions and especially relative to trends in the past few years. m Exchange Rate M#lanagemenrtt What accounts for the significant overvaluation that has One of the central requisites for competitiveness is ap- prevailed in MENA? It is almost wholly the result of propriate exchange rate management. In a sense, it is relying on.fixed exchange rate regimes that no longer the option to manually manipulate brake and gas ped- are appropriate for responsible economic management. als, or to rely on cruise control when determining your Prior to the late 1980s and early 1990s, most economies speed on the road. in MENA opted for a fixed exchange rate regime as the most effective strategy for combating high inflation. And what are the pitfalls that can develop from inap- The adoption of fixed exchange rates, either defacto or propriate exchange rate management? The most impor- de jure, was successful in contributing to macroeco- tant is an overvaluation of the currency. From almost nomic stability. However, once the immediate threats all assessments of economic policy and performance of inflation running out of control had been averted, throughout the world, it has been shown that best per- only a handful of countries shifted to more flexible ex- formers are countries that have maintained an "appro- change rate arrangements. From the battery of empiri- priate" exchange rate regime. In particular, countries cal investigations looking at the subject, a central piece that have been successful in promoting manufactured of evidence has emerged: exchange rates are over- exports have avoided exchange rate overvaluation. whelmingly more likely to become overvalued under fixed systems than under more flexible ones. Profitability of production hinges on prices. Prices of inputs that go into the production process, and the price In the analogy of the road-trip, the choice of the ex- that can be obtained in the market for output. Over- change rate regime is akin to relying on cruise control valuation is damaging to competitiveness because it to determine your speed of travel. While taking pres- artificially alters the price ratio between tradables and sure off the driver of the vehicle, the cruise control op- non-tradables. So the producers of tradable goods find tion does not take into account weather conditions, the they are less able to compete with either imported terrain of the road, or other vehicles in your path. If goods or with other countries' exports. your foot is not free to access the gas and break pedals, you can't change gears, limiting your maneuverability options. And so it has been in the MENA economies,

U _eES Republic of Lebanon Update having to adjust the exchange rate periodically as it has But almost all countries have been affected by associa- gotten off course. But these fixes are only temporary tion, through lower tourism revenues, and more gener- and do not wholly address the problem. Moreover, ally through lower confidence in their economies, these ad-hoc adjustments to the exchange rate discour- bringing down private domestic investment and FDI, age the entry of companies into the export market, since etc. exchange rate volatility sends confusing signals to eco- nomic agents and raises the uncertainty of long-run in- What is the cost of volatility to competitiveness? Per- vestment in producing tradable goods. haps the biggest cost is lower private investment from domestic and external sources. An economic slowdown The point: Keep your foot on the gas pedal. Choose an and drop in private consumption triggers a response by exchange rate system that will suffer from fewer limita- businesses to cut their expenses and investments to tions and distortions, so that economic agents - these adapt to declining demand. Weaker business activity drivers of competitiveness - know where their true cost further dampens consumer confidence, exacerbating the advantages lie and are able to make decisions based on recession. At the same time, the effect on investment is those advantages. not altogether compensated for by a commensurate economic boom the following period. * Output Volatility and External Balances In addition to capacity constraints, volatility dampens investment because economic agents cannot be certain The second issue is what could be compared to driving that a recovery is sustainable. So businesses tend to through rough and rocky terrain on the road to competi- adapt their investment decisions more to the down- tiveness: MENA countries have historically suffered swing in the business cycle rather than the upswing. from excessive volatility in output and external bal- This dampening effect on investment, particularly for- ances. In the 1970s and 1980s, output was more volatile eign investment, makes competitiveness for existing in MENA than in Latin America or in East Asia and the companies in the region substantially more difficult, Pacific. And although volatility has fallen in the 1990s, with fewer opportunities for information flows between it still exceeds, by far, the world average. economic agents, and thus fewer opportunities to tap into the technological, organizational, and managerial There are several reasons behind the high volatility in capabilities of other companies. MENA. First, countries in the region remain relatively The volatility in output growth and extemal balances is un-diversified and dependent on a few export com- The tola rivin ont a g ment of teroadbat is modities that often experience strong fluctuations in compared to driving on a segment of the road that is relative prices. Oil prices in particular have tended to full of potholes and fallen rocks. Volatility creates a cause sharp fluctuations in fiscal and external accounts, lack of confidence in the road-trip altogether. And either through direct dependence on oil revenues or while ensuring that the vehicle is equipped with the ap- through strong linkages between oil producers and propriate shock absorbers is a multi-step process, in- other countries in the region through trade, financial cluding diversifying economic structures and stabilizing and labor flows, including workers' remittances. the security environment in the region, there are other steps that can be taken on the macroeconomic policy Moreover, several countries in the region are subject to front to mitigate the effects of volatility. frequent droughts, which in turn produces sharp cuts in rural incomes and agricultural production. Volatility is In particular, monetary and fiscal (and even exchange higher in agriculture than in any other sector, and agri- rate) policies are often a transmission channel for ex- cultural volatility is the main force behind output fluc- ternal shocks. Weak policies amplify the impact of tuations in many non-oil-exporting countries. Morocco, volatility as it is transmitted to the economy. In some for example, experienced as many as five droughts in MENA countries, pro-cyclical fiscal policies have his- the 1990s, and booms and busts in total output were torically acted as an important amplifier of terms of correlated directly with these droughts. trade shocks. The. absence of mechanisms for inter- temporal government smoothing of revenue shocks has In addition, most countries in MENA are adversely af- in turn rendered government expenditures very volatile fected by the instability of regional security, either di- in the past, and although public expenditures volatility rectly, by association, or through the various economic was reduced in the 1990s compared to earlier decades, linkages within the region. For those areas directly af- it was still twice as high as output volatility. fected by conflict, the economic costs of an interrupted and damaged economic structure have been very high.

momMGMM~ * Republic of Lebanon Update -

There exist mechanisms for reducing revenue uncer- businesses (whether public or private) exercise effec- tainty, as well as the transfer of volatility from revenue tive control over rules and regulations and utilize them to expenditure levels, some of which have been applied to profit, at the expense of the rest of the private sector. by natural resource dependent countries. These include Glaring examples of this are infrastructure and tele- market-based options hedging and stabilization funds. communications, but the list extends to taxes, licensing, The latter has been favored by developing countries and manipulating the loopholes within the system. like Venezuela (oil) and Chile (copper), and has re- cently been implemented by Algeria. These types of The privileges extended to some elite firms prevent mechanisms need to be explored throughout the region. other entrepreneurs from entering and competing. But the damage extends beyond competition. The process More generally, the advice on volatility follows the of reform also suffers when time and resources are road-trip analogy. If the journey takes you through wasted on maintaining unfair advantages and restricting rough terrain, then you are better off insuring that the access to consumers. Rent seeking behavior in govern- proper mechanics are in place to handle it, than to wait ment is rewarded, reformers are discouraged, and for an accident. And detours and bypasses, while not ideal, needed changes in governance are delayed or worse, can still ensure that the trip is taken and the journey is com- derailed altogether. pleted Related to this, there is the host of reforms that are * The Road to Competitiveness needed in the area of the legal and regulatory frarne- work. In many of the MENA economies, there are some Finally, the third point is about the road to competitive- reforms underway to revise and modernize company ness. In the long run, that road is built on raising pro- laws, investment codes, and customs and tax regula- ductivity. Period. As has been the case since the indus- tions. Some of these reforms are being considered in trial revolution at least, productivity is the fundamental connection with accession to the WTO or EU member- source of competitiveness. ship. But as a whole, the business environment in MENA is plagued by burdensome regulations. In Our own institution recently looked at productivity Egypt, entrepreneurs spend about 30percent of their growth in MENA over the past four decades - from the time resolving problems of regulatory compliance. In 1960s to the 1990s. What we found was interesting. Morocco, it still takes up to six months to register a While the region experienced negative productivity business. growth over both the 1970s and 1980s, there has been substantial improvement in productivity growth in the Transparency of regulations is also a problem. To cre- 1990s. This is the good news. ate an enabling environment for the private sector, the MENA region needs to insure that the road to competi- The more disappointing news is that despite this almost tiveness is not full of yield signs, red lights, and one- universal turnaround in productivity growth, it has way streets. It needs to create the reforms that can failed to generate a comparable private sector invest- eliminate the gridlock of honking cars and unnecessary ment response. In fact, investment per worker declined U-turns that currently hinder the speed of the traveler, from the 1980s to the 1990s in eight out of ten countries. and hinder the rate of private sector growth. As a result, there has been no growth "pay-off' from the ac- cumulation of productive privately owned capital. These are just a few of the reforms that come to mind as being essential for making the road more attractive to What is preventing the private sector from responding? domestic and foreign private investors. Clearly, private investment depends on a host of fac- tors. They encompass the range of reforms that are * Conclusion needed to create an environment in which private in- vestments in value-creating industries can thrive. One In an age of instant communication and supersonic area here deserves particular focus. These are what are travel, the lure of the open road has become eclipsed by called the traffic signals on the road to competitiveness: the conveniences of expediency. But economic com- that is, the systems of governance and the related mat- petitiveness cannot be achieved through shortcuts or ters of legal and regulatory reform. alternatives. A successful end must have a successful beginning, and a successful middle as well. In this re- To begin with, there is little doubt that the current sys- spect, the responsibility of macroeconomic policy to tems of govemance in MENA stifle the development of providing the essential background forces is unques- a private sector. Chief among the govemance problems tionable. is the issue of state capture, where groups of influential U Republic of Lebanon Update

social cohesion, and protecting the environ- World Bank Reports ment.proving The World Development Report 2003 empha- on Lebanon sizes that many good policies have been identified, but not implemented, due to distributional issues and barri- Health Sector in Lebanon: Issues and Prospects (Re- ers to developing better institutions. The Report re- port No. 21593). This Report provides an assessment of views institutional innovations that might help over- Lebanon's health sector. It contains an analysis of the come these barriers, and stresses that ensuring eco- system's strengths and weaknesses, and policy recom- nomic growth and improved management of the mendations for reforming the system. The most impor- planet's ecosystem requires a reduction in poverty and tant lessons are the need for the Ministry of Health to inequality at all levels: local, national, and interna- be the central player in a pluralistic system, particularly tional. As in previous editions, the World Development in defining the areas of public and private sector opera- Report 2003 contains an appendix of selected indicators tions based on a needs assessment, and having the ca- from the World Development Indicators. pacity to monitor and regulate the private sector. In the absence of a policy framework and of a regulation ca- pacity, there is a danger that health systems based on The fWorld Barik ,AfHuadl [kep6it :2#02: vdihiie Ij, public and private participation will not produce the Year ;n FReview f(ISBTO (01872113-J5;-755kU: S]W5-I.'I 57). desired health outcomes, nor provide health services The Annual Report is prepared by the Executive Direc- that are equitable, efficient, and of good quality. tors of the International Bank for Reconstruction and Development (IBRD) and the International Develop- ment Association (IDA) in accordance with the by-laws Public Expenditure Review: Education Sector (WS of the two institutions. James D. Wolfensohn, President No. 21567). This Study reviews the allocation and utili- of the IBRD and IDA, and Chairman of the Board of zation of Govemment resources for education. The dis- Executive Directors, submits the Report, together with crepancy between the extents of public expenditures for the accompanying administrative budgets and audited education in Lebanon and their productivity suggest financial statements, to the Board of Govemors. that these resources could be used more efficiently.

Trade CA4N 2'00 '(ISBN:~'0-82Ii 50-SE73 'S~KLJ. I.5ff7/4). Reconstruction in Lebanon: Chiallenges for Macro- Trade CAN 2002 iSBacr rehe-nsive dta and ver- 20959). This Re- sate tob for the economic Management (Report No. satleoolox or heanalysis of the competitiveness of port sets out to investigate whether the existing macro- natios t is bae onathe of th N ioteti on imbalances in Lebanon should be considered ntosItibaeonheficlU.N. it.a oa economic trade statistics, using the four-digit standard interna- as a serious threat to the reconstruction process, or as inevitable, transitory phenomena, and what is the ap- tional0 trade classification. It covers the period 1985- propriate macroeconomic stance to deal with these im- 2000 for allcexporter countrkessn the world Arond the balances. central concept of "markct share," Trade CAN offers novel indicators of the quality, structure and performn- ance of international trade specialization of nations. Trade Policy Developments in the Middle East and North Africa (Report No. 20322.) Focusing on trade Trade CAN 2002 contains a user-friendly interface that and trade policy, this Report reviews recent trends in allows rapid data retrieval and easy report preparation. trade performance, assesses current trade and invest- Trade CAN will be highly useful to policy makers, con- ment regimes, and discusses some of the emerging mi- sultants, academic researchers and students of intema- croeconomic policy challenges. tional trade, providing empirical and analytical support for analyzing general and specific trade trends and Other Bank comparative performance by countries and regions. Publications Empowerment and Poverty Reducdion A,Sourc&boWk (ISBN: 0-8213-5166-4 SKUs: S16i65. Empowerment World Development Report 2003 (ISBN. 0-8213-5150- and Poverty Reduction: A Sourcebook is an outcome of 8 SKU: 15150). Now in its 25th edition, this year's World Development Report 2000/2001: Attacking Pov- World Development Report examines, over a 50-year erty, which highlighted opportunity, empowerment, and period, the relationship between competing policy ob- security as key elements in the creation and implemen- jectives of reducing poverty, maintaining growth, im- tation of poverty reduction strategies. This Sourcebook

IIa Kl.. Fo- V411Y U Republic of Lebanon Update provides a framework for empowerment that concen- cuses on serving Bank staff and partners in accessing trates on increasing poor people's freedom of choice knowledge resources on dcvelopment issues in a timely and action to shape their own lives. This framework manner. Backed by the World Bank Group's AdvisDry pertains to five areas of action to improve development Services and the wider development community, the effectiveness-provision of basic services, improved Service will help you locate research papers, best prac- local governance, improved national govemance, ac- tices, terms of reference, presentations, key policies, cess to justice and legal aid, and pro-poor market de- communities of practice, project information, and use- velopment. ful links from the World Bank and other sites. The goal is to provide you with a response within 24 hours. The This Sourcebook gives 20 "Tools and Practices", which more precise the queries, the more precise will the re- concentrate on a wide range of topics to encourage the sponses be. All responses are derived from publicly empowerment of the poor, from poor people's enter- available resources. prises, information and communication technologies to E-mail: [email protected] diagnostic tools, including corruption surveys and citi- zen report cards. Developing Value: The Business Casefor Sustainabil- ity in Emerging Markets (ISBN: 0-8213-5181-8 SKU: Economic Development and the World Trade Organi- 15181). Developing Value is a groundbreaking report, zation After Doha (WPS2851). The Paper analyzes which challenges the conventional thinking of the role what actions could be taken in the context of the World that business plays in emerging markets. This Report Trade Organization's Doha negotiations to assist coun- examines the assertion that sustainability pertains ex- tries in reaping benefits from deeper trade integration. clusively to rich companies in developed nations an(d is The Paper discusses the policy agenda that confronts not applicable to private sector companies in emerging many developing countries and identifies a number of markets. It is designed to assist business people in focal points that could be used both as targets and as emerging markets, and identify opportunities to help benchmarks to increase the likelihood that WTO nego- increase profits by making progress toward sustainable tiations will support development. To achieve these development. targets, the author proposes a number of negotiating modalities for goods and service-related market access This Report is based on more than 240 real-life exam- issues, as well as rule making in regulatory areas. ples in over 60 countries. 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From Natural Resources To The Knowledge Economy This book details both the quantitative and qualitative - Trade And Job Quality (Report 23440). The Report approaches to the analysis of social capital. Also in- questions whether, after a decade of remarkable pro- cluded is the Social Capital Assessment Tool that com- gress in trade reformn, Latin America and the Caribbean bines quantitative and qualitative instruments in order really integrate into the global market, offering pronis- to measure social capital at the household, community, ing rapid growth, and good jobs for its workers. Despite and organization levels. This Tool can be downloaded the incidence of the loosely called "knowledge econ- from a CD-ROM, which is included with this book. omy", the concern prevails that most countries' rich natural resources are still the determining factors for exports. Policy recommendations include fostering New Service Offered by MENA's Knowledge Sharing openness to trade, market access, and foreign direct Group. The MENA Knowledge Sharing Service fo- investment flows, in addition to building human capital, a w_3 Republic of Lebanon Update institutions, and public infrastructure, without disre- Frontiers of Development Economics: The Future in garding the natural advantages. Perspective (ISBN: 0-19-521592-3 SKU: 61592). With contributions from 35 leading economists, this forward- To this end, policymakers should aim at developing looking book explores the future of development eco- educational systems that provide quality education, fo- nomics against the background of the past half-century cused on lifelong learning and training activities to of development thought and practice. Outstanding rep- build human capital. Emphasis should follow on Re- resentatives of the past two generations of development search and Development (R&D) incentives, and inno- economists assess development thinking at the turn of vations systems, arguing that countries should experi- the century and look to the unsettled questions con- ment with taxation incentives, and subsidies to promote fronting the next generation. The book offers a thor- both private, and public investments in R&D, (depend- ough analysis of the broad range of issues involved in ent on the institutional capacity of governments to en- development economics, and it is especially timely in force tax laws, and monitor the quality of investments). its critique of what is needed in development theory and Moreover, evidence in this Report suggests that Infor- policy to reduce poverty. An overriding issue is mation and Communications Technology (ICT) can whether in the future "development economics" is to be reduce coordination costs, enabling effective industri- regarded simply as applied economics or whether the alization, and market access. nature and scope of development economics will con- stitute a need for a special development theory to sup- plement general economic theory. Frontiers of Devel- The Microfinance Revolution: Lessons from Indone- opment Economics is an ideal reference for all those sia (ISBN: 0-8213-4953-8 SKU: 14953). The revolution working in the international development community. occurring in finance for low-income people refers to commercial microfinance-the delivery of financial services to the economically active poor on a large Electronic Newsletters. You can subscribe to the E- scale through compcting, financially self-sufficicnt in- Newsletters by logging on to the following website: stitutions. 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II =1100=U Republic of Lebanon Update

6 6: -. 1a1W16S1* 6 I Joseph Saba, Country Director Sabah Moussa, Executive Assistant Tel. (202) 473-2992 Tel. (202) 473-9019 Fax (202) 477-1482 Fax (202) 477-1482 E-mail: j [email protected] E-mail: smoussa(worldbank.org

Osman Ahmed, Lead Operations Officer Sereen Juma, Communications Associate Tel. (202) 473-7063 Tel. (202) 473-7199 Fax (202) 477-1482 Fax (202) 522-0003 E-mail: oahmed(worldbank.org E-mail: [email protected]

Carlos Silva-Jauregui, Senior Economist Tel. (202) 473-1859 The World Bank Fax (202) 477-0432 1818 H Street, NW E-mail: [email protected] Washington DC 20433

Sophie Warlop, Operations Analyst www.worldbank.org Tel. (202) 473-7255 Fax. (202) 477-1482 E-mail: [email protected] To Order World Bank Publications: http://publications.worldbank.org/ecommerce

With special thanks to Mary Saba For Information on World Bank Programs in Lebanon: www.worldbank.org/mna/lebanon

X 6: -. S 6^3 * " IS Mohammed Benouahi, Lead Financial Analyst Mouna Couzi, Program Assistant Tel. (961-1) 987-800, ext. 229 Tel. (961-1) 987-800, ext. 231 Fax (961-1) 986-800 Fax (961-1) 986-800 E-mail: [email protected] E-mail: [email protected]

Bassam Ramadan, Lead Operations Officer, Alia Achsien, Program Assistant Human Development Tel. (961-1) 987-800, ext. 245 Tel. (961-1) 987-800, ext. 226 Fax (961-1) 986-800 Fax (961-1) 986-800 E-mail: [email protected] E-mail: [email protected] Zeina el Khalil, Program Assistant Sebastien Dessus, Senior Economist Tel. (961-1) 987-800, ext. 234 Tel. (961-1) 987-800, ext. 225 Fax (961-1) 986-800 Fax (961-1) 986-800 E-mail: [email protected] E-mail: sdessus(worldbank.org

Robert Bou Jaoude, Senior Financial Manage- ment Specialist Tel. (961-1) 987-800, ext. 230 The World Bank Office in Beirut Fax (961-1) 986-800 United Nations House, Sixth Floor E-mail: [email protected] Riad El-Solh 1107-2270

Imad Saleh, Senior Procurement Specialist PO Box 11-8577 Tel. (961-1) 987-800, ext. 224 Beirut-Lebanon Fax (961-1) 986-800 www.worldbank.org.lb E-mail: isalehCworldbank.org

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