The markets are unsure about Georges Corm, the new Finance Minister who has frequently warned that the Lebanese miracle was built on weak foundations and that the policies of the previous reconstruction government were unsustainable.
Despite his calls for fiscal discipline, Mr. Corm also wrote about the need for social justice and a more equitable distribution of the tax burden.
“We have a small amount of direct taxation but so much wealth in the country,” he told me this week, less than 48 hours before his appointment. “Social justice is a big issue in Lebanon. The poor cannot continue to support most of the burden of the tax system.”
He expected the Hoss government to reduce the cost of managing the public debt, knowing full well that control of interest rates ultimately lies in the hands of the Central Bank.
“There is really no compelling reason for the difference on the interest paid on domestic and foreign debt,” he said.
“The Lebanese have enough maturity and know the cost at which the debt has been financed are not reasonable.
Riad Salameh, governor of the Central Bank, has asserted his intention of continuing the appreciation policy for the national currency. He will only lower interest rates in line with rising market confidence.
Conflict between the new minister and the bank governor look inevitable unless Mr. Corm succeeds in reducing the deficit. Investors will keep buying Treasury-bills at lower rates only if they see the government lower the deficit, estimated to finish between 14-17 percent of GDP this year.
Mr. Corm realizes that his ideas and ideals have to be adapted to a harsher market reality. Nervous investors will not take too well to higher taxes or lower interest rates.
The new minister has to win their confidence first by adopting austere measures and a tough budget targets.
“There is a tendency in Lebanon to say do this and that. This is not good policy,” he said last week in a hint that as a powerful writer in the left-leaning Le Monde Diplomatique, he knows what it takes to be a successful minister.
His trust that “the Lebanese have enough maturity and know the costs at which the debt has been financed are not reasonable” can only go so far. Many agree with his criticism of Rafik Hariri, but investors will expect him to provide sound alternatives.
Trimming public services is a goal endorsed by him, but it has to be done rationally, he argues.
Mr. Corm envisages canceling the posts of old employees who retire and would like to devise formulas to convert younger redundant employees into small entrepreneurs.
“One cannot just fire. You have to look at each employee and redeploy the body of civil servants. We must help all people with low revenue to become self-sustaining.”
Privatization also receives a qualified endorsement.
“There should be a clear and transparent legal framework to prevent favoritism, he says. “We have to look at why public enterprises lose so much money and why the price of electricity is so high. If we privatize and prices go up then we’ve done nothing.