Lebanon - Politics, government, and taxation

The country's political system in 2001 is derived from the 1989 Ta'if Accords, which put an end to the 16-year civil war. Lebanon is now a parliamentary republic with a president and a unicameral (single chamber) National Assembly. The president of the republic is elected by the parliament for a 6-year term. The speaker of parliament is elected by parliament every 4 years, which is also the length of time between parliamentary elections. The president appoints the prime minister, who forms the Cabinet of Ministers. Under the new constitution drafted after the conclusion of the Ta'if Accords, Muslims now have an overall numerical advantage in the National Assembly, since representation is based along sectarian lines. Further, the power of the president has been somewhat diminished, although by custom, the president of the republic must still be Maronite Christian, while the prime minister must be a Sunni Muslim and the speaker of the parliament a Shi'ite Muslim.

The major political parties are arranged, although not explicitly, along religious lines. The Hizballah and Nabih Berri's Amal movement represents the Shi'ite Muslim community, while the Sunni Muslims are divided between pro-government parties and marginal leftist parties. The Druze, a community concentrated around Mount Lebanon, are represented by Walid Jumblatt's Progressive Socialist Party. The Christian-Maronite community controlled the country before the war. The Ta'if Accords attempted to correct this bias but left the Christian community feeling relatively powerless. This impression was especially intensified when the accords resulted in the expulsion of a generation of Maronite leaders, including former president Amin Gemayyel and former Christian warlords Michel Aoun and Samir Jaja.

Parliamentary elections were held in August 1992 for the first time in 20 years. Prime Minister Rafiq al-Hariri's coalition won the majority of seats in those elections and in subsequent parliamentary elections in 1996 and 1998. Turnout by Christians was very low, and there were charges of irregularities. Municipal elections were held for the first time in 35 years in May and June 1998.

As of 2001, at least 35,000 Syrian troops still remain in northern, central, and eastern Lebanon, where they have been stationed since October 1990. Syria's deployment into Lebanon was legitimized by the Arab League a few years after the civil war started and then reaffirmed in the Ta'if Accords. Only with Syrian military power could Maronite-Christian leader Gen. Michel Aoun, who rejected the Ta'if Accords and maintained that he was the legitimate head of the government, be expelled from the country in 1991 and Lebanon reunited under one government. While Syria remains the dominant player in Lebanon, it began to withdraw its troops from central Beirut in 2000 and abandoned many checkpoints. It is gradually ceding more control to Lebanese security forces, which now control most strategic points in Beirut as well as the main highway to the airport, but Syria still exercises de facto control over Lebanese politics. Syria continues to cast a shadow on Lebanese politics because of the Syrian-Israeli conflict in the area, which makes Lebanon strategically important to Syria.

Since the end of the civil war, Lebanon has been engaged in a massive reconstruction process to repair the damage inflicted during the war. In 1993, Hariri launched "Horizon 2000," an US$18 billion program to rebuild Lebanon and transform the country into a regional center of finance and services. Under this national reconstruction plan, a huge investment has been made in various sectors focused on rebuilding the country. Large infrastructure projects, including a coastal highway, a new airport, and a highway to the Syrian border are being built as part of "Horizon 2000." The program also seeks to rehabilitate Beirut's city center and the telecommunications network. The financing for the project has come from a growing budget deficit and foreign investors, particularly Saudi Arabia and Kuwait. The expansion was coupled with a fiscal policy that aimed to raise interest rates in order to curb inflation. Hariri's reconstruction program was hampered by increased government spending in the 1990s, mainly as a result of the government's hiring policies, which sought to expand the civil service by hiring employees of various religious backgrounds as a means to ease friction between the various religious groups. As a result, the Lebanese govern-ment's debt, considered one of the highest in the region, soared to 140 percent of the GDP by the end of 2000.

The budget deficit has also proven difficult to tackle for the administration of Salim al-Hoss, which came to power following Hariri's resignation in 1998. The Hoss government focused on restructuring the public-sector debt and other fiscal reforms. For instance, the government improved tax collection methods, increased income and corporate taxes, and increased customs duties . Customs duties and property transaction fees are the two most important sources of revenue for the government. Custom duties account for 40 percent of the government's revenue, mostly from Beirut port. The government's efforts were seen as half-hearted and ineffective, primarily due to its weakness in the face of opposition from the legislature and its inability to institute a value-added tax (VAT). Perceptions that the Hoss government had not followed through in its efforts to reform the economy led to the resignation of the prime minister in August 2000.

With the return of Prime Minister Hariri to office in August 2000, the government once more focused on resuming reconstruction efforts by securing foreign aid, mainly from European and Arab countries. In October 2000, the Kuwaiti government agreed to deposit US$100 million at the Lebanese Central Bank to help stabilize the Lebanese pound. Hariri is also expected to proceed with economic reforms, especially the privatization of state-owned enterprises. In mid-January 2001, the government announced plans to introduce a sales tax on consumer products rather than the VAT, previously planned by the government of Prime Minister Salim al-Hoss. The government, however, has no plans to slash the budget deficit and has argued that it can be maintained for years without affecting economic growth.