Mikati: new government will restore trust in economy

BEIRUT: Prime Minister-designate Najib Mikati vowed Friday that the incoming government would comprise personalities who will restore investors’ trust in an economy grappling with political strife.

He said that priority has stood out as a major factor in government formation efforts – which many have criticized for being stalled and economically damaging.

Mikati added that a new government would also renew Central Bank governor Riad Salameh’s term, hailing his monetary expertise as “excellent.”

Lebanon has been without a fully functioning government since early January, when 11 Ministers opposed to then-Prime Minister Saad Hariri stepped down, toppling the Cabinet.

Mikati’s comments came during the 19th Arab Economic Forum, which ran for its second and final day Friday, and saw the attendance of several high-profile local politicians and bankers, such as former Prime Minister Fouad Siniora and Governor Salameh.

During a speech that opened the forum’s events Thursday, Salameh said he expected inflation to rise to 7 percent in 2011 up two percentage points from 2010, and that he would seek to combat climbing prices by restructuring liquidity, rather than raise interest rates.

The eight-term Central Bank chief also vowed to prevent any of Lebanon’s banks from going under, after a money laundering accusation by the U.S. Treasury Department forced the Lebanese Canadian Bank to be put up for sale, and led many in the Lebanese financial community to speculate that Washington was seeking to tarnish the reputation of the entire local banking sector.

Mikati urged Parliament Speaker Nabih Berri to enact parliamentary powers that would facilitate an extension of Salameh’s term – set to end next month – in case a government has not been pieced together by the time of the tenure’s expiry date.

“I would challenge anyone who says that investing in Lebanon is not feasible,” said Mikati, arguing that the economy has weathered many political crises in years past, but has prevailed, demonstrating that investment in Lebanon is indeed lucrative.

Addressing forum participants and members of the press for a second time Friday, Salameh enumerated a series of problems that have plagued the economy since political tumult took hold of the country this year, but maintained a tinge of optimism, and assured that the banking sector would not allow economic woes to spiral out of control.

He said that Lebanon’s economy is projected to grow at 2.5 percent this year, after enjoying a period of relative prosperity in 2010 and 2009, when GDP growth stood at around 7 percent and 9 percent respectively.

The banking sector has been seeking to cushion the economy’s fall, however, by boosting monetary injections into the economy, through the renewal loan packages, particularly in the areas of housing, IT, and energy, said Salameh.

But the banks’ efforts have been constrained by a widening deficit, exacerbated by reduced capital inflows which currently stand at $400 million.

The real estate sector, for many years championed as Lebanon’s veritable cash cow, has received some blows, with some reports contending that real estate prices have fallen by as much as 20 percent this year.

But Salameh maintained that the sector has withstood those blows, stating that real estate financing has only witnessed a 1 percent decrease in demand.

He observes new trends taking root in real estate sector, apparently in response to to dwindling disposable incomes. Apartments have been reduced in size so as to become more affordable to the general population, he said.

But banking liquidity still goes strong at more than $30 million in liquid assets, said Salameh, indicating that banks would be able to contain damages to various parts of the economy.

A version of this article appeared in the print edition of The Daily Star on May 28, 2011, on page 4.




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