Thursday, January 25, 2007

Donors promise generosity in Paris despite turmoil in Beirut

Donors promise generosity in Paris despite turmoil in Beirut
'Not helping will be much more expensive than helping' - PM

By Lysandra Ohrstrom
Daily Star staff

BEIRUT: Undettered by escalating political tensions, international donors reiterated promises Wednesday to provide substantial financial support to Lebanon as Prime Minister Fouad Siniora arrived in Paris on the eve of the aid summit. France pledged a $500 million loan at "very advantageous terms," the European Commission pledged $522 million in new aid, and the US government promised a "considerable donation," lessening fears that Tuesday's opposition strike would discourage the 40 donors attending the conference from making sizable contributions. "Not helping Lebanon will be much more expensive than helping it," Siniora said after a lunch meeting with President Jacques Chirac. "Our problems can only be resolved through dialogue, not confrontation," he told a news conference. "I sensed that all countries that hope Lebanon will prosper would like to have seen another image of a unified Lebanon. Those same countries will be reluctant to help Lebanon if tensions persist," he said of whether Tuesday's strike would impact Paris III.

Though Lebanon has not released an official aid target, analysts expect Siniora to raise about $5 billion in soft loans and grants to service Lebanon's $41 billion public debt, and hopefully free up public funds to implement his controversial economic reform plan. If anything the opposition's calls for a unity government and early polls have strengthened the resolve of the 30 Western and Arab donor states and 10 international institutions expected to attend the meeting in Paris. "Tuesday increased the resolve of the international community to show their support for Lebanon," said the head of the Lebanese Center for Policy Studies, Oussama Safa. "The big question is not whether the government will get money, but whether they'll be able to spend it. Economic reform requires political consensus, and right now the government's reforms could get blocked."

The opposition has led protests for the past month against the reform plan. But they have repeatedly said they are not against an aid summit, only aid that is conditional. Various donors are expected to give Lebanon an upfront payment to finance the debt - currently 181 percent of GDP - and disperse the remainder of the pledges gradually as reforms are implemented. Siniora has said repeatedly no political conditions would be attached, but donors may not deliver promised aid if reforms stall.

US Assistant Secretary of State for Near Eastern Affairs David Welch said Wednesday Paris III aid will be tied to serious economic reforms. "This is not a blank check," he said. "These are serious economic proposals. We are not dealing with political handouts here. The reform proposals made by this government of Lebanon are very important." In addition to privatization, the plan also proposes measures to curb corruption, such as anti-trust laws, competition regulations and the creation of a privatization regulator - all of which must be approved by Cabinet. Critics have faulted the plan for failing to include adequate social welfare provisions along with economic reforms. The VAT, a non-progressive tax, has been a particular bone of contention. "It is unjust for the government to think it can resolve the problem of the public debt by increasing the VAT," said Zuheir Berro, president of Consumers Lebanon. "We need to adopt direct taxes on banks and all financial sectors and give support to specific industries." Increasing the value added tax in 2008 is an "optimistic deadline if things continue like this," Safa said.

Siniora assured donors that Lebanon would collaborate with "international and Arab donor organizations" to set up a plan to allocate the funds raised Thursday. "We should lead a duel effort to maintain Lebanese unity and implement economic reforms," he said. If the summit does not succeed Lebanon may default on a $7 billion interest payment at end of this financial quarter. Chirac urged all participants on Thursday to also make "significant" donations "to show their confidence in the Lebanese government's economic and social program." "The cost of inaction would be far greater that rallying to Lebanon's side," he added. - With agencies

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