contents
    Summer 2002,
vol. 44, No. 1/2
 
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A view from the seminar
  Comparative Analysis of Turkish and Lebanese Economic Crises    
  -     On June 6, 2002 the Institute of Financial Economics and the Department of Economics held a major seminar on "Macro-Economic and Exchange Rate Management in Developing Economics: A Comparative Analysis of Turkey and Lebanon".      Participants included two senior economists from Turkey, (the Dean of the School of Economics at Bilkent University in Ankara, and a member of the Board of the Monetary Policy Committee of the Central Bank) who presented the Lebanese case), experts from ESCWA and a good number of Lebanese experts from both the private, mainly the banking sector, the Bank of Lebanon and the Ministry of Finance.
      A major objective of the seminar was to compare the Turkish and Lebanese experiences during the past ten years as both countries have suffered from the rapid accumulation of public debt and consequently high levels of debt measured as a ratio of GDP. Turkey experienced a banking crisis in November 2000 followed by a monetary crisis in February 2001 that led to the devaluation of the Turkish Lira. In coping with both crises, the Turkish government received strong IMF support based on a financial recovery program agreed with the IMF.
      In the case of Lebanon, where the public debt reached 170% of GDP at the end of 2001, the Government has been attempting to cope with the rising debt burden (annual interest payments presently equal tax revenue) by resorting to various fiscal and other measures (e.g. introducing VAT, introducing a 15% reserve requirement on foreign exchange deposits, attempting to reduce public sector expenditure, securing dollar financing via the issuance of Euro bonds and renewal of maturing debt). Unlike Turkey, Lebanon is still searching for the overall policy program that will enable it to cope with the debt problem which threatens its monetary stability.
      There was general agreement that in both the Turkish and Lebanese cases, macro-economic policy suffered from basic defects: e.g. persisting high levels of budgetary deficits, and in turn a rapidly rising public debt, high real interest rates, and an appreciating 		real exchange rate, all of which led to pressures on the national currency and the depletion of Central Bank's foreign exchange reserves. However, while the Turkish banking system, by comparison, is in a relatively stronger position, nonetheless, a generally weak macro economic performance affects adversely the various economic sectors including the banking sector. In both cases, the banks have come to carry in their portfolios an unduly high ratio of governmental papers. The Lebanese banks have become extremely reluctant to hold additional governmental securities.
      A number of issues relating to the Lebanese case were raised. The Lebanese authorities have so far failed to cope with budgetary deficits. Will the proposed measures be adequate for this purpose and who will bear the burden of fiscal adjustment? Will the intended measures of privatization significantly help in this regard and equally important will the government be able to achieve in the coming years, the required levels of primary surplus in the budget?
      As the Lebanese banks have become increasingly reluctant to finance the government, does this imply total reliance on Central accommodation or are other sources of financing still available? Are there ways to reduce the prevailing high levels of real interest? In the absence of a credible fiscal adjustment, is the policy of anchoring the Lebanese pound to the US dollar sustainable? Should the government consider a policy reform package that will include an exchange rate adjustment? Or is the latter measure not desirable, at least at this stage?
      An intense debate took place on these and other relevant issues. In attempting to cope with the debt problem at hand, the authorities are called upon to consider various short and medium term policy alternatives for the purpose of deciding on the most appropriate policy package. Equally the success of the government in this regard, is predicated on the credibility and transparency of its economic/financial policies as well as high level of institutional performance.

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