Lebanon, a land of bad jokes and hidden perils

Few countries in the Middle East have weathered the economic crisis quite as swimmingly as Lebanon. Much of the credit and praise must go to Riad Salame, the governor of the Banque du Liban, the central bank. He refused to allow the country's banks to invest in subprime assets, the "toxic debts" that turned big banks into little banks and forced them to seek government help. It is for good reason that Lebanon was once dubbed "the Switzerland of the Middle East", and given the parlous mess some of the Swiss financiers find themselves in, perhaps it should be the other way round in future.

For his good sense, Mr Salame was hailed as central bank governor of the year by The Banker magazine. Some of the credit should also go to the Lebanese people. No doubt hardened by years of economic uncertainty, they are used to assessing risk. When you ask them how long the war lasted, they reply: "Which war?" The risk of losing everything, and not just your shirt in a bad trade, no doubt helps when you are assessing an investment. Let the good times roll, but they may not last forever.

Moreover, a crisis is also an opportunity. It is journalistic legend that it was possible to get just about everything in Beirut, even during the height of the civil war. If it was available in Paris, London or New York it would be there, even if you had to brave the snipers to bring it home. Now the city is booming, full of tourists from the Gulf, with every second car seemingly bearing Kuwaiti or Dubai number plates. The ministry of tourism anticipates 2 million Arabs and others from around the world will visit Lebanon by the end of the year, a record figure.

"I can say Beirut is reclaiming its position as the Jewel of the Middle East for tourists from the Arab world and Europe," Nada Sardouk, the director general of the ministry of tourism, was quoted in Lebanon's The Daily Star as saying. "This will be a record." There is hardly a spare hotel room in the city, while trying to hire a car is a fruitless task. Restaurants, nightclubs and beaches are full. The economy is forecast to grow at 3 per cent this year and 4 per cent next year, according to the latest issue of the IMF's World Economic Outlook.

The Lebanese government is expecting an even bigger figure, possibly as high as 6 per cent. Moody's has upgraded the country's local and foreign currency bonds at a time when most countries are being downgraded. And Blakeney Investors, an investment firm based in London, described Lebanon as a "banking haven" because of abundant liquidity and unprecedented inflow of deposits. But not everything is as rosy as it looks from the beach bars. A World Bank estimate says Lebanon relies on foreign remittances for 20 per cent of its GDP. Remittances from the Gulf are likely to fall this year as unemployment bites.

And despite the country's peaceful elections and the appointment of Saad Hariri as the prime minister, forming an effective government is proving difficult. The administration's paralysis means that too much of the infrastructure is in state hands. Power cuts occur with frequent regularity, filling the air with the smoke of generators that toil throughout the night. Because of the boom in house building, particularly in the hills, there is insufficient water so tankers grind up and down the mountain roads. Phone charges are among the highest in the Middle East because the partly privatised mobile provider is a virtual monopoly, even though it has set up two operating companies.

The big concern is jobs. "We have also seen unemployment among the Lebanese worldwide and this crisis is going to negatively affect employment of newcomers to the market," Mr Salame told the Star. "Those who are freshly graduating will not find enough opportunities in Lebanon and will have more difficulty in finding jobs outside Lebanon due to the present crisis." The other problem is the high level of public debt. According to a quarterly Lebanon economic report issued by Bank Audi, gross public debt in Lebanon reached US$47.8 billion (Dh175.56bn) at the end of March this year, up by 1.8 per cent from the end of last year.

Lebanon will need more than one good summer to get back on track and its abundant charms should not overlook its geopolitical situation, surrounded by unfriendly neighbours. Not that the Lebanese are dwelling on such concerns. They are busy profiting from the upturn, breaking only to tell each other the latest joke. Doing the rounds while I was there last week was this one: A Lebanese, a Syrian and a Chinese man are all anxiously hanging around a hospital, waiting to hear of the successful births of their sons. They are called in to see a doctor, who explains that there has been a terrible mix-up and somehow the three babies have been jumbled up, and nobody knows which is which.

"We have decided to let you sort it out yourselves," said the doctor. The Lebanese man was invited to pick his son first, and he went up and took the Chinese baby in his arms. "This is mine," he said proudly. "Are you crazy?" said the doctor. "It's clearly Chinese." "Well," replied the Lebanese, "at least I can be sure that it's not Syrian." [e-mail]