For the most current version of this Note, see Background Notes A-Z.

PROFILE

Official Name:
Republic of Lebanon

Geography
Area: 10,452 sq. km. (4,015 sq. mi.); about half the size of New Jersey.
Cities: Capital--Beirut (pop. 1 million). Other cities--Tripoli (240,000), Sidon (110,000), Tyre (60,000), Zahleh (55,000).
Terrain: Narrow coastal plain backed by the Lebanon Mountains, the fertile Biqa' Valley,
and the Anti-Lebanon Mountains, which extend to the Syrian border. Land--61% urban, desert, or
waste; 21% agricultural; 8% forested.
Climate: Typically Mediterranean, resembling that of southern California.

People
Nationality: Noun and adjective--Lebanese (sing. and pl.).
Population (est.): 3 million.
Annual growth rate (est): 1%.
Ethnic groups: Arab 93%, Armenian 6%.
Religions: Christian (Maronite, Greek Orthodox, Greek Catholic, Roman Catholic,
Protestant, Armenian Apostolic, other), Muslim (Sunni, Shi'a, other), and Druze.
Languages: Arabic (official), French, English, Armenian.
Education: Years compulsory--5. Attendance--93%. Literacy--75%.
Health: Infant mortality rate--50/1,000 (1989). Life expectancy--male, 65 yrs.; female, 70 yrs.
Work force (750,000 in 1989): Industry, commerce, services--79%. Agriculture--11%.
Government--10%.

Government
Type: Parliamentary republic.
Independence: 1943.
Constitution: May 26, 1926 (amended).
Branches: Executive--president (chief of state, elected by simple majority of parliament for 6-year term), council of ministers (appointed). Legislative--unicameral parliament (128-member National Assembly elected for 4-year renewable terms; last parliamentary elections in 1992). Judicial--
secular and religious courts; combination of Ottoman, civil, and canon law; no judicial review of legislative acts.
Administrative subdivisions: 5 provinces, each headed by a governor: Beirut, North Lebanon,
South Lebanon, Mount Lebanon, and Biqa'.
Political parties: Organized along sectarian lines around individuals whose followers are
motivated by religious, clan, and ethnic considerations.
Suffrage: Males at 21; females with elementary education, at 21.
Flag: Two horizontal red bands with white center band, on which a green and brown cedar
tree is centered.

Economy
Note: Due to drastic fluctuation in exchange rates over 1992, and flaws in the central
government's economic database, figures throughout this report are not authoritative, but are estimates based on recent economic performance.

GDP (1992): $4 billion.
Annual growth rate: (1992) 10%.
GDP per capita: $1,500.
Natural resources: Limestone.
Agriculture (7.2% of GDP): Products--citrus fruit, vegetables, olives, sugar beets, tobacco.
Industry (21% of GDP): Types--cement production, ready-made clothing, electrical equipment, light industry, refining.
Trade (23% of GDP): Exports--$500 million [f.o.b.--1992]. Major markets--Saudi Arabia,
Switzerland, U.A.E., France, Jordan. Imports--$4.8 billion [c.i.f.--1992]. Major suppliers--Italy, Syria, France, Germany, U.S.
Official exchange rate: [1992 average] 1,683 Lebanese pounds=US$1; [Dec. 1993] 1,711
Lebanese pounds=US$1.

PEOPLE
The population of Lebanon comprises Christians and Muslims. No official census has been taken
since 1932, reflecting the political sensitivity in Lebanon over confessional (religious) balance. The U.S. Government estimate is that more than half of the resident population is Muslim (Shi'a, Sunni and Druze), and the rest is Christian (predominantly Maronite, Greek Orthodox, Greek Catholic, and
Armenian). Shi'a Muslims make up the single largest sect. Claims since the early 1970s by
Muslims that they are in the majority contributed to tensions preceding the 1975-76 civil strife and have been the basis of demands for a more powerful Muslim voice in the government.

There are over 300,000 Palestinian refugees in Lebanon registered with the United Nations
Relief and Works Agency (UNRWA), and about 180,000 stateless undocumented persons resident
in the country (mostly Kurds and Syrians). Palestinians and stateless persons are not accorded the legal rights enjoyed by the rest of the population.

With no official figures available, it is estimated that 600,000-900,000 persons fled the country during the initial years of civil strife (1975-76). Although some returned, continuing instability until 1990 sparked further waves of emigration, casting even more doubt on population figures.

Many Lebanese still derive their living from agriculture. The urban population, concentrated mainly in Beirut and Tripoli, is noted for its commercial enterprise, but chronic instability until 1990 in much of the country has had a strong negative impact on both agriculture and commerce. Lebanon has a
higher proportion of skilled labor than any other Arab country.

HISTORY
Lebanon is the historical home of the Phoenicians, Semitic traders whose maritime culture flourished there for more than 2,000 years (c. 2700-450 B.C.). In later centuries, Lebanon's mountains were a refuge for Christians, and Crusaders established several strongholds there. Following the collapse of the Ottoman Empire after World War I, the five Ottoman provinces that had comprised present-day Lebanon were mandated to France by the League of Nations. The country gained independence in 1943, and French troops were withdrawn in 1946.

Lebanon's history from independence can be defined largely in terms of its presidents, each of whom shaped Lebanon by a personal brand of politics: Sheikh Bishara al-Khoury (1943-52), Camille Chamoun (1952-58), Fuad Shihab (1958-64), Charles Helou (1964-70), Suleiman
Franjiyah (1970-76), Elias Sarkis (1976-1982), and Amine Gemayel (1982-88). From the end of
the term of Amine Gemayel in September 1988 until the election of Rene Moawad in November
1989, Lebanon had no president.

The terms of the first two presidents ended in political turmoil. In 1958, during the last months of President Chamoun's term, an insurrection broke out, aggravated by external factors. In July 1958, in response to an appeal by the Lebanese Government, U.S. forces were sent to Lebanon. They were withdrawn in October 1958, after the inauguration of President Shihab and a general improvement in the internal and international aspects of the situation.

President Franjiyah's term saw the outbreak of full-scale civil conflict in 1975. Prior to 1975, difficulties had arisen over the large number of Palestinian refugees in Lebanon and the presence of Palestinian fedayeen (commandos). Frequent clashes involving Israeli forces and the fedayeen endangered civilians in south Lebanon and unsettled the country. Following minor skirmishes in the
late 1960s and early 1970s, serious clashes erupted between the fedayeen and Lebanese
Government forces in May 1973.

Coupled with the Palestinian problem, Muslim and Christian differences grew more intense, with occasional clashes between private sectarian militias. The Muslims were dissatisfied with what they considered an inequitable distribution of political power and social benefits. In April 1975, after shots were fired at a church, a busload of Palestinians was ambushed by gunmen in the Christian sector of Beirut, an incident widely regarded as the spark that touched off the civil war. Palestinian fedayeen forces joined the predominantly leftist-Muslim side as the fighting persisted, eventually spreading to most parts of the country.

Elias Sarkis was elected president in 1976. In October, Arab summits in Riyadh and Cairo set
forth a plan to end the war. The resulting Arab Deterrent Force (ADF), composed largely of
Syrian troops, moved in at the Lebanese Government's invitation to separate the combatants, and most fighting ended soon thereafter. As an uneasy quiet settled on Beirut and parts of Lebanon, security conditions in southern Lebanon began to deteriorate. A series of clashes occurred in the south in late 1977 and early 1978 between the Palestine Liberation Organization (PLO) and
Lebanese leftists on the one hand, and the pro-Israeli, southern Lebanese militia (eventually known as the "Army of South Lebanon," or SLA) on the other.

After a raid on a bus in Northern Israel left large numbers of Israeli and Palestinian guerrilla casualties, Israel invaded Lebanon in March 1978, occupying most of the area south of the Litani river. The UN Security Council passed Resolution 425 calling for withdrawal of Israeli forces from Lebanon and creating a UN Interim Force in Lebanon (UNIFIL), charged with maintaining peace. When the Israelis withdrew, they turned over positions inside Lebanon along the border to their Lebanese ally, the SLA, and formed a "security zone" which exists to this day under the effective control of Israel and the SLA.

In mid-1978, clashes between the ADF and the Christian militias erupted. Arab foreign ministers created the Arab Follow-Up Committee, composed of Lebanon, Syria, Saudi Arabia, and Kuwait, to end fighting between the Syrians and Christians. After the Saudi ambassador was wounded in December 1978, the committee did not meet again formally until June 1981, when it was convened to address security and national reconciliation. The committee was unsuccessful in making progress toward a political settlement and has been inactive since November 1981.

Israeli-Palestinian fighting in July 1981 was ended by a cease-fire arranged by U.S. President Ronald Reagan's special envoy, Philip C. Habib, and announced on July 24, 1981. The cease-fire was respected during the next 10 months, but a string of incidents, including PLO rocket attacks on northern Israel, led to the June 6, 1982, Israeli ground attack into Lebanon to remove PLO forces. Israeli forces moved quickly through south Lebanon, encircling west Beirut by mid-June and beginning a three-month siege of Palestinian and Syrian forces in the city.

Throughout this period, which saw heavy Israeli air, naval, and artillery bombardments of west Beirut, Ambassador Habib worked to arrange a settlement. In August, he was successful in bringing about an agreement for the evacuation of Syrian troops and PLO fighters from Beirut. The agreement also
provided for the deployment of a three-nation Multinational Force (MNF) during the period of the evacuation, and by late August, U.S. Marines, as well as French and Italian units, had arrived in Beirut. When the evacuation ended, these units departed. The U.S. Marines left on September 10.

In spite of the invasion, the Lebanese political process continued to function, and Bashir Gemayel was elected President in August, succeeding Elias Sarkis. On September 14, however, Bashir Gemayel was assassinated. On September 15, Israeli troops entered west Beirut. During the next three days, Lebanese militiamen massacred hundreds of Palestinian civilians in the Sabra and Shatila refugee camps in west Beirut.

Bashir Gemayel's brother, Amine, was elected President by a unanimous vote of the parliament. He took office September 23, 1982. MNF forces returned to Beirut at the end of September as a symbol of support for the government.

In February 1983, a small British contingent joined the U.S., French, and Italian MNF troops in Beirut. President Gemayel and his government placed primary emphasis on the withdrawal of Israeli, Syrian, and Palestinian forces from Lebanon, and in late 1982, Lebanese-Israeli negotiations commenced with U.S. participation.

On May 17, 1983, an agreement was signed by the representatives of Lebanon, Israel, and the
United States that provided for Israeli withdrawal. Syria declined to discuss the withdrawal of its troops, effectively stalemating further progress. Opposition to the negotiations and to U.S. support for the Gemayel regime led to a series of terrorist attacks in 1983 and 1984 on U.S. interests,
including the bombing on April 18, 1983 of the U.S. embassy in west Beirut (63 dead), of the U.S. and French MNF headquarters in Beirut on October 23, 1983 (298 dead), and of the U.S.
embassy annex in east Beirut on September 20, 1984 (8 killed).

Although the general security situation in Beirut remained calm through late 1982 and the first half of 1983, a move by Christian militiamen into the Druze-controlled Shuf area southeast of Beirut following the Israeli invasion led to a series of Druze-Christian clashes of escalating intensity beginning in October 1982. When Israeli forces unilaterally withdrew from the Shuf at the beginning of September 1983, a full-scale battle erupted with the Druze, backed by Syria, pitted against
the Christian Lebanese Forces (LF) militia as well as the Lebanese army. U.S. and Saudi
efforts led to a cease-fire on September 26. This left the Druze in control of most of the
Shuf. Casualties were estimated to be in the thousands.

The virtual collapse of the Lebanese army in February 1984, following the defection of many of its Muslim and Druze units to opposition militias, was a major blow to the government. As it became clear that the departure of the U.S. Marines was imminent, the Gemayel Government came under increasing pressure from Syria and its Muslim Lebanese allies to abandon the May 17 accord. The Lebanese Government announced on March 5, 1984, that it was canceling its unimplemented agreement with Israel. The U.S. Marines left the same month.

Further national reconciliation talks at Lausanne under Syrian auspices failed. A new "government of national unity" under Prime Minister Rashid Karami was declared in April 1984 but made no significant progress toward solving Lebanon's internal political crises or its growing economic difficulties.

The situation was exacerbated by the deterioration of internal security. The opening rounds of the savage "camps war" in May 1985--a war that flared up twice in 1986--pitted the Palestinians living in refugee camps in Beirut, Tyre, and Sidon against the Shi'ite Amal militia, which was concerned with
resurgent Palestinian military strength in Lebanon. Eager for a solution in late 1985, Syria began to negotiate a "tripartite accord" on political reform among the leaders of various Lebanese factions, including the LF.

However, when the accord was opposed by Gemayel and the leader of the LF was overthrown by his
hardline anti-Syrian rival, Samir Jaja, in January 1986, Syria responded by inducing the Muslim government ministers to cease dealing with Gemayel in any capacity, effectively paralyzing the government. In 1987, the Lebanese economy worsened, and the pound began a precipitous slide. On June 1, Prime Minister Karami was assassinated, further compounding the political paralysis. Salim al-Huss was appointed acting prime minister.

As the end of President Gemayel's term of office neared, the different Lebanese factions could not agree on a successor. Consequently, when his term expired on September 23, 1988, he appointed Army Commander General Michel Aoun as interim Prime Minister. Gemayel's acting Prime
Minister, Salim al-Huss, also continued to act as de facto Prime Minister. Lebanon was thus
divided between an essentially Muslim government in west Beirut and an essentially Christian government in east Beirut. The working levels of many ministries, however, remained intact and were not immediately affected by the split at the ministerial level.

In February 1989, General Aoun attempted to close illegal ports run by the LF. This led to several days of intense fighting in east Beirut and an uneasy truce between Aoun's army units and the LF. In March, an attempt by Aoun to close illegal militia ports in predominantly Muslim parts of the country led to a 6-month period of shelling of east Beirut by Muslim and Syrian forces and shelling of west Beirut and the Shuf by the Christian units of the army and the LF. This shelling caused nearly 1,000
deaths, several thousand injuries, and further destruction to Lebanon's economic infrastructure.

In January 1989, the Arab League appointed a six-member committee on Lebanon, led by the
Kuwaiti foreign minister. At the Casablanca Arab summit in May, the Arab League empowered a
higher committee on Lebanon--composed of Saudi King Fahd, Algerian President Bendjedid, and
Moroccan King Hassan--to work toward a solution in Lebanon. The committee issued a report in
July 1989, stating that its efforts had reached a "dead end" and blamed Syrian intransigence
for the blockage. After further discussions, the committee arranged for a seven-point cease-
fire in September, followed by a meeting of Lebanese parliamentarians in Taif, Saudi Arabia.

After a month of intense discussions, the deputies informally agreed on a charter of national reconciliation, also known as the Taif agreement. The deputies returned to Lebanon in November, where they approved the Taif agreement on November 4, and elected Rene Moawad, a Maronite Christian deputy from Zghorta in north Lebanon, President on November 5. General Aoun, claiming powers as interim Prime Minister, issued a decree in early November dissolving the parliament and did not accept the ratification of the Taif agreement or the election of President Moawad.

President Moawad was assassinated on November 22, 1989, by a bomb that exploded as his
motorcade was returning from Lebanese independence day ceremonies. The parliament
met on November 24 in the Biqa' Valley and elected Elias Hraoui, a Maronite Christian deputy from Zahleh in the Biqa' Valley, to replace him. President Hraoui named a Prime Minister, Salim al-Huss, and a cabinet on November 25. Despite widespread international recognition of Hraoui and his government, General Aoun refused to recognize Hraoui's legitimacy, and Hraoui officially replaced Aoun as army commander in early December.

In late January 1990, General Aoun's forces attacked positions of the LF in east Beirut in an apparent attempt to remove the LF as a political force in the Christian enclave. In the heavy fighting that ensued in east Beirut and its environs, over 900 people died and over 3,000 were wounded.

In August 1990, the National Assembly approved, and President Hraoui signed into law,
constitutional amendments embodying the political reform aspects of the Taif agreement. These amendments gave some presidential powers to the council of ministers, expanded the National Assembly from 99 to 108 seats, and divided those seats equally between Christians and Muslims (see GOVERNMENT section below).

In October 1990, a joint Lebanese-Syrian military operation against General Aoun forced him to capitulate and take refuge in the French embassy. On December 24, 1990, Omar Karami was
appointed Lebanon's Prime Minister. General Aoun remained in the French embassy until
August 27, 1991 when a "special pardon" was issued, allowing him to leave Lebanon safely
and take up residence in exile in France. 1991 and 1992 saw considerable advancement in
efforts to reassert state control over Lebanese territory. Militias--with the important exception of Hizballah--were dissolved in May 1991, and the armed forces moved against armed Palestinian elements in Sidon in July 1991. In May 1992 the last of the western hostages taken during the mid-1980s by Islamic extremists was released.

In October 1991, under the sponsorship of the United States and the then-Soviet Union, the
Middle East peace talks were convened in Madrid, Spain. This was the first time that Israel and its Arab neighbors had direct bilateral negotiations to seek a just, lasting, and comprehensive peace in the Middle East. Lebanon, Jordan, Syria, and representatives of the Palestinians concluded round 11 of the negotiations in September 1993.

A social and political crisis, fueled by economic instability and the collapse of the Lebanese pound, led to Prime Minister Omar Karami's resignation May 6, 1992. He was replaced by former Prime Minister Rashid al Sulh, who was widely viewed as a caretaker to oversee Lebanon's first parliamentary elections in 20 years. The elections were not prepared and carried out in a manner to ensure the broadest national consensus.

The turnout of eligible voters in some Christian locales was extremely low, with many voters not participating in the elections because they objected to voting in the presence of non-Lebanese forces. There also were widespread reports of irregularities. The electoral rolls were themselves in many instances unreliable because of the destruction of records and the use of forged identification
papers. As a consequence, the results do not reflect the full spectrum of Lebanese politics.

Elements of the 1992 electoral law, which paved the way for elections, represented a departure
from stipulations of the Taif agreement, expanding the number of parliamentary seats from 108 to 128 and employing a temporary districting arrangement designed to favor certain sects and political interests. According to the Taif agreement, the Syrian and Lebanese Governments were to agree in September 1992 to the redeployment of Syrian troops from greater Beirut. That date passed without an agreement. In early November 1992, Prime Minister Rafiq al-Hariri formed a new cabinet,
retaining for himself the finance portfolio. The formation of the Hariri Government was widely seen as a sign that the Government of Lebanon would seriously grapple with reconstructing the Lebanese state and reviving the economy.

GOVERNMENT
Lebanon is a parliamentary democracy in which the people constitutionally have the right to
change their government. However, until the parliamentary elections in 1992, the people had not been able to exercise this right during 16 years of civil war. According to the constitution, direct elections must be held for the parliament every 4 years. Parliament, in turn, elects a president every 6 years. The last presidential election was in 1989. The president and parliament choose the cabinet. Political parties may be formed and some in fact flourish.

Since the emergence of the post-1943 state, national policy has been determined largely by
a relatively restricted group of traditional regional and sectarian leaders. The 1943 national pact allocated political power on an essentially confessional system, based on the 1932 census. Until 1990, seats in parliament were divided on a 6-to-5 ratio of Christians to Muslims. Positions in the government bureaucracy were allocated on a similar basis.

Efforts to alter or abolish the confessional system of allocating power have been at the center of Lebanese politics for more than 30 years. A series of amendments has substantially altered the constitution of 1926. Among the more significant is Article 95, which provides that the confessional communities of Lebanon shall be equitably represented in public employment and in the composition of the cabinet but that such a measure is not to impair the general welfare of the state. This article supplements the National Covenant of 1943, an unwritten agreement that established the political foundations of modern Lebanon. The covenant provides that public offices shall be distributed among the recognized religious groups and that the three top positions in the
governmental systems shall be distributed as follows:

  • The president is to be a Maronite Christian;
  • The prime minister, a Sunni Muslim, and
  • The president of the National Assembly, a Shi'a Muslim.

Those religious groups most favored by the 1943 formula sought to preserve it, while those who
perceived themselves to be disadvantaged sought to revise it on the basis of updated demographic data or to abolish it entirely. The struggle gave a strongly sectarian coloration to Lebanese politics and to the continuing civil strife in the country.

Under the national reconciliation agreement reached in Taif, Saudi Arabia, in October 1989,
members of parliament agreed to alter the national pact to create a 50-50 Christian-Muslim balance in the parliament and reorder the powers of the different branches of government. The Taif agreement, the political reform aspects of which were signed into law in September 1990, further modified the constitution to permit greater power-sharing and put in writing many of the provisions of
the national pact.

Constitutional amendments embodying the political reforms stipulated in the Taif agreement became law in 1990. They included an expansion of the number of seats in parliament and the division of seats equally between Muslims and Christians and the transfer of some powers from the president to the prime minister and council of ministers.

Constitutionally, the president has a strong and influential position. The president appoints the council of ministers and designates one of them to be prime minister. The president also has the authority to promulgate laws passed by the National Assembly, to issue supplementary regulations to
ensure the execution of laws and to negotiate and ratify treaties.

The National Assembly, only sporadically active since 1975, is elected by adult suffrage based on a system of proportional representation for the confessional groups of the country. Most deputies do not represent political parties as they are known in the West, nor do they form Western-style groups in the assembly. Political blocs are usually based on confessional and local interests or on personal
allegiance rather than on political affinities.

The assembly traditionally has played a significant role in financial affairs, since it has the responsibility for levying taxes and passing the budget. It also exercises political control over the cabinet through formal questioning of ministers on policy issues and by requesting a confidence debate.

Lebanon's judicial system is based on the Napoleonic Code. Juries are not used in trials. The Lebanese court system has three levels--courts of first instance, courts of appeal, and the court of cassation. There also is a system of religious courts having jurisdiction on personal status matters within their own communities, i.e., rules on such matters as marriage, divorce and inheritance.

Principal Government Officials
President--Elias Hraoui
Prime Minister and Minister of Finance--Rafiq al-Hariri
Minister of Foreign Affairs--Fares Bouez
Deputy Prime Minister--Michel Murr
Ambassador to the U.S.--Riad Tabbarah
Ambassador to the UN--Khalil Makkoui

Lebanon maintains an embassy in the United States at 2560 28th Street, NW, Washington,
D.C. 20008, tel. (202) 939-6300. There also are three consulates general in the United
States: 1959 East Jefferson, Suite 4A, Detroit, MI 48207, tel. (313) 567-0233/0234;
7060 Hollywood Blvd., Suite 510, Los Angeles, CA 90028, tel. (213) 467-1253/1254; and 9 East
76th Street, New York, N.Y. l0021, tel. (212) 744-7905/7906 and 744-7985.

POLITICAL CONDITIONS
In addition to its indigenous political groupings, Lebanon contains branches of many other political parties of the Arab world. These cover the political spectrum from far left to far right, from totally secular to wholly religious and often are associated with a particular religion or geographic region.
Palestinian refugees, numbering about 400,000 and predominantly Muslim, constitute an important and sensitive minority.

Lebanese political parties are generally vehicles for powerful leaders whose followers are often of the same religious sect. The interplay for position and power among these leaders and groups produces a political tapestry of extraordinary complexity.

In the past, this system worked to produce a viable democracy. Recent events, however, have
upset the delicate Muslim-Christian balance and resulted in a tendency for Christians and
Muslims to group themselves for safety into distinct zones. All factions have called for a reform of the political system.

Some Christians favor political and administrative decentralization of the government, with separate Muslim and Christian sectors operating within the framework of a confederation. Muslims, for the most part, prefer a unified, central government with an enhanced share of power for themselves
commensurate with their percentage of the population. The reforms of the Taif agreement moved in this latter direction.

ECONOMY
Lebanon's economy is liberal and open, and traditionally heavily oriented toward services. Lebanon served historically as a haven for Arab capital and as a Middle East transit point and
enjoyed a vibrant and largely unregulated private sector. Lebanon's banking and tourism sectors flourished between the Gulf oil boom of 1973 and the beginning of Lebanon's civil war in 1975 by serving regional needs. Real GDP growth was 6% per year from 1965 to 1975.

Despite the civil war and mounting government budget deficits resulting from an inability to
collect taxes, Lebanon kept its currency stable and inflation rate manageable until the early
1980s. Expatriate workers' remittances, the flow of capital from abroad to support various
militias, the PLO's economic activities, and the narcotics trade all contributed to a positive balance of payments.

Events in the early 1980s, including the Israeli invasion of 1982, conspired against the Lebanese economy, resulting in accumulated infrastructure damage, massive dislocations of the population, growing migration of people and capital, and the uprooting of the PLO bureaucracy.

Recession in the Gulf led to a sharp reduction in remittances. Beirut's prominence as a center for finance, commerce, and tourism faded away. A calmer security environment in 1986-87, combined with a sharp depreciation of the Lebanese pound and a decline in labor costs
resulting from inflation of 600%, produced a modest economic rebound. Growth was cut short
by the general chaos of 1988-90.

Hostilities in 1989-90 in industrial and prosperous areas of Lebanon had a dramatic and negative impact on production and exports, triggered massive outflows of capital and people, and created circumstances resulting in the "dollarization" of the economy.

The end of hostilities in 1990, the beginning of the process of national reconciliation, and the removal of internal barriers to the movements of goods and people produced a short-term economic boom in 1991. This high level of activity proved unsustainable, largely because of enormous state deficits, poor economic management by the government, public sector corruption, the unavailability of commercial credit, and the collapse of public confidence in the nation's leadership.

A large, retroactive public sector salary increase in late 1991, financed through the sale of Treasury bills, precipitated a crisis: From January 1, 1992, to early October, inflation galloped to about 130%, and currency lost 180% of its value. The high cost of living became, and has remained, an issue of acute concern to the Lebanese public.

A surge of optimism swept across Lebanon with the advent of the Hariri Government in October
1992, amidst expectations that the billionaire businessman and his team of advisors would
reform state finances and administration, embark on needed emergency infrastructure
reconstruction, and attract foreign aid. Demand for Lebanese pounds jumped immediately,
despite substantial intervention by the central bank to stabilize the exchange market (the
pound was valued at the end of May 1993 at 1,740 to a dollar, after an early October 1992
low of 2,400 to a dollar). There was also evidence of deflation.

The Ministry of Finance has achieved remarkable advances toward closing the budget deficit,
despite rigidities in debt servicing, the public sector payroll, and large subsidies to the electricity and telephone companies. The deficit in the first quarter of 1993 amounted to $104 million, compared to $550 million in the first quarter of 1992.

The absence of functioning services is a serious obstacle to growth. The Hariri Government has made infrastructure rehabilitation a centerpiece of its efforts, using the December 1991 emergency rehabilitation plan (ERP) as a blueprint. It calls for spending $2.3 billion in the next 2.5
years, primarily on rejuvenating the electricity, telecommunications, water supply, waste water, and solid waste management sectors.

The government has already begun pre-qualifying international firms for projects in those fields. The government has in hand commitments for over $900 million in allocated and non-allocated foreign assistance, almost entirely in the form of loans.

In February 1993, the World Bank signed an agreement to loan $175 million in support of ERP. Future aid, necessary for partial financing of an ambitious $13-billion, 10-year development plan revealed by the government in March 1993, will depend largely on the Hariri team's ability to point to a record of economic stabilization and well-managed use of current assistance flows for reconstruction.

Hariri's economic policy is firmly rooted in the principle that infrastructure spending and budget austerity will stimulate private-sector growth. The prime minister's advisers hope to develop more sophisticated capital markets to attract a portion of Lebanese capital held abroad, which amounts to tens of billions of dollars, institutionalize exchange rate stability, and help manage a debt burden which is bound to grow as ambitious rehabilitation plans proceed.

The formation of a private real estate company to rebuild the downtown commercial center of
Beirut is a centerpiece of the Hariri team's strategy for hooking economic recovery to the engine of private sector investment. The company will expropriate property in the area and compensate owners with shares in the company. The company is to obtain capitalization equal to half of the estimated property value in the development zone, estimated at $4 billion. Gulf Arab businessmen
have already committed about $500 million to the controversial project.

Lebanon may have experienced a modest balance of trade deficit in the first quarter of 1993,
estimated by a private bank at $1.8 million. A large trade deficit was virtually eliminated by
capital inflows. Gold reserves amounted to $3 billion, and foreign exchange reserves at $1.2
billion. Foreign debt may approach $700 million today, and domestic public debt exceeds $2.5 billion.

Another issue bringing increasing attention to Lebanon is its role as a major drug producing
and trafficking country. In addition to traditional hashish production, opium is cultivated and processed into heroin in Lebanon, and Lebanese traffickers have become increasingly involved in the cocaine trade.

The dramatic expansion of drug activities in Lebanon can be traced primarily to the breakdown of central government authority. Because of the potential for huge profits from the drug trade, many militias in Lebanon, including known terrorist elements, are thought to be engaged in one or more aspects of the drug trade to finance their operations.

Since 1976, Syrian troops have occupied Lebanon's prime drug-producing area, the Biqa' Valley. They constitute the only formal security authority in this area.

FOREIGN RELATIONS
Lebanon's foreign policy reflects its geographic location, the composition of its population, and its reliance on commerce and trade. Lebanon hopes to reestablish good ties with Western countries and in the Middle East. Lebanon remains friendly with Western countries and follows a generally cautious course in its relations with countries of the former Soviet bloc.

Lebanon's foreign policy is also heavily influenced by Syria, which maintains forces throughout parts of Lebanon. Lebanon did not participate in the 1967 or 1973 Arab-Israeli war or in the 1991 Gulf War. Lebanon and Israel are now conducting bilateral negotiations in the Arab-Israeli peace process.

U.S.-LEBANESE RELATIONS
The United States seeks to maintain its traditionally close ties with Lebanon, to help preserve its independence, sovereignty, national unity, and territorial integrity. The United States also supports the withdrawal of all non-Lebanese forces from Lebanon and the disarming and disbanding of all armed militias. The United States believes that a peaceful, prosperous, and stable Lebanon can make an important contribution to stability and peace in the Middle East.

The United States supports the programs of the central government to restore security and unity to Lebanon and to rebuild that country's national institutions. One measure of U.S. concern and involvement has been a program of relief and rehabilitation assistance which, since 1975, has totaled more than $250 million.

This support reflects not only humanitarian concerns and historical ties but the importance the United States attaches to the restoration of a sovereign, independent, unified Lebanon. Current funding is used to support the activities of U.S. and Lebanese private voluntary organizations engaged in humanitarian relief programs.

Over the years, the United States also has helped finance construction of the American University Hospital in Beirut and has assisted the American University of Beirut (AUB) by financing part of its operating budget and by providing scholarships to many of its students. When the AUB administration building was bombed in November 1991, the U.S. allocated an additional $3 million to help defray the costs of rebuilding this symbolic center of the university.

In September 1989, all American officials at the U.S. embassy in Beirut were withdrawn, when
safety and operation of the mission could not be guaranteed. A new U.S. ambassador returned
to Beirut in November 1990, and the embassy has been continuously open since March 1991.
However, due to the size of the staff and security concerns, normal consular and commercial services and other embassy functions are not available in Beirut.

Principal U.S. Embassy Officials
Ambassador--Mark G. Hambley
Deputy Chief of Mission--Vincent Battle
Political Officer--David Hale
Consular/Commercial Officer--Patrick Syring
Consul--Vacant
Administrative Officer--Louis Lemieux

The U.S. embassy operates in Awkar, Lebanon (tel. 402-200, 403-300).

[This is a mobile copy of Lebanon (01/94)]