Lebanon to renege on promises

International creditors are crying foul as Lebanon appears poised to adopt a 2004 budget that reneges on promises made to international creditors a year ago to reduce its huge national debt.

    Prime Minister Rafiq Hariri's plans were dealt a blow

    It took six tense cabinet sessions, but the country's reformist premier, billionaire businessman Rafiq Hariri lost his battle with President Emile Lahoud to maintain the promised programme of privatisation.

    A champion of the costly welfare spending that has kept the peace between Lebanon's rival communal factions, Lahoud managed not only to erase from the budget all references to privatisation, but also to extract yet more concessions from Finance Minister Fuad Siniora, a Hariri ally, on expenditure.

    Lahoud has also been opposed to the proposed sell-off of Beirut-owned Middle East Airlines, as it has recently started posting positive results.

    But following in the traditional Lebanese politics, it was Syria who had the final say when the draft budget was eventually adopted, officials openly acknowledged.

    "Syrian officials intervened to stop the differences (between the president and prime minister) from turning into open warfare," said Information Minister Michel Samaha.

    The draft foresees a 2004 budget deficit of 32.1%, higher than the 30.8% originally conceded by Siniora and far above this year's 26.1% or the 25% pledged to international creditors last November in return for a massive bailout.

    President Emile Lahoud is against
    the sell-off of government assets

    The additional $80 million in spending extracted by Lahoud took the total to $6.23 billion, with revenues projected at just $4.56 billion.

    'Cake sharing'

    "The rival factions in the government just shared out the cake between them, with no measures to reduce waste and corruption and cut back the debt," one Lebanese economist complained.

    At the end of August, the national debt stood at $32.2 billion. Servicing it accounted for 47% of government expenditure.

    Officials said they expected virtually no changes to be made to the bill when it is put to parliament this week, after Syria's decisive intervention to end the paralysing rift in the cabinet.

    "MPs can try all they want to win a bigger share of the cake for their constituents, but in the end they will have to approve the government bill with the minimum of changes, because that's the order of the day from Syria," one official told AFP, speaking on condition of anonymity.

    Beirut-based analysts said the government might be able to get away with the large deficit for another year, given its foreign currency reserves of $12.7 billion and a trade surplus of $3.2 billion for the first eight months of this year.

    "Sooner or later however, they are going to have to face the music," one Western economist said.



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