Civil War and Partial Recovery, 1974-82

Lebanon traditionally has had a dynamic economy. In the years leading up to the Civil War, the country enjoyed high growth rates, an influx of foreign capital, and steadily rising per capita income. Although imports were often five or six times greater than exports, earnings from tourism, transit trade, services, and remittances from abroad counterbalanced the trade deficit.

In 1973 (the last prewar year for which detailed figures were available in late 1987), GDP at current prices totaled US$2.7 billion, compared with just US$1.24 billion in 1966. In 1974 GDP rose to around US$3.5 billion because of an increase in the value of the Lebanese pound. Per capita GDP rose from around US$560 in 1966 to US$1,023 in 1973 because productivity increased faster than population growth and because the Lebanese pound gained ground against the dollar.

The Lebanese economy was healthy in the years leading up to the Civil War. The service sector grew fastest during this period. Commerce grew at almost the same rate and by 1973 accounted for almost one-third of GDP. The growth of commerce had important implications because customs duties were a major part of government revenues, sometimes amounting to nearly half of the government's total income. The Lebanese pound was strong, credit was easy, and there was a balance of skilled and unskilled labor. Internal markets were protected, and Lebanese industry was finding increasingly useful outlets abroad, notably in the Persian Gulf countries.

The petrodollar boom that followed oil price increases by the Organization of Petroleum Exporting Countries after the ArabIsraeli October 1973 War led to a period of expansion for Lebanon. Lebanese banks became major channels for soaring Arab oil revenues. In addition, Arab, West European, and American bankers bought shares in Lebanese financial institutions to secure a share of the profits.

Economic development, however, was uneven. The government was so wedded to free enterprise that it essentially failed to reduce economic and social inequities in various communities. President Fuad Shihab (also cited as Chehab) made some effort to remedy these inequities by pursuing development projects in the traditionally neglected south and north. But the center of the country--Beirut and the central Biqa Valley--was riding a seemingly never-ending economic boom.

The impetus for socially oriented economic development declined under Shihab's successor, Charles Hilu (also cited as Helou), and disappeared entirely under President Sulayman Franjiyah (also cited as Franjieh). The consequences of economic neglect were felt in the late 1970s and the 1980s, as Shias, who had migrated from the south and the outlying reaches of the Biqa Valley, made their increasingly militant presence felt in Beirut, transforming the southern half of the city into a new, Shia canton, to rank alongside overwhelmingly Christian East Beirut and predominantly Muslim (i.e., Sunni and Druze) West Beirut.

The first nineteen months of the Lebanese Civil War (April 1975-November 1976) witnessed widespread destruction of infrastructure and services, mostly in Beirut. Industry sustained direct damage valued at between L£5 and L£7 billion. Indirect damage was valued at between L£972 million and L£2.23 billion. Some 250 industries, capitalized at L£1 billion, were destroyed, and as much as one-fifth of industry's fixed capital was lost. After the first nineteen months of fighting, losses amounted to L£7.5 billion (L£6.2 billion sustained by the private sector and L£1.3 billion by the public sector), according to the Beirut Chamber of Commerce and Industry.

Post-1976 recovery was limited, with industrial production approaching only two-thirds of prewar levels. Further clashes in l978 again hampered production. Although in 1980 industrial output in current financial terms appeared to exceed prewar levels, inflation had rendered such comparisons almost meaningless. In 1979 the newly established Council for Development and Reconstruction (CDR) unveiled a L£22 billion reconstruction program to span five years, backed by Arab aid. Only some of the proposed reconstruction work was initiated, however.

Instability ruined the tourist industry. The Civil War included the notorious battle of the hotels, in which the Phoenicia, St. Georges, and Holiday Inn--all major luxury hotels--became fiercely contested militia strongpoints. A score of smaller establishments suffered the same fate, as fighting ripped through the heart of the capital. Because the hotels were close to the Green Line, which divided the warring factions, they were forced to remain closed for business when the fighting stopped.

After the war, there were indications that a less centralized industrial economy might emerge. The cities of Zahlah, Sidon, and Tripoli, for example, enjoyed a boom. But growth in these cities reflected fragmentation of the country as much as economic revival.

Lebanon's ability to export industrial goods was damaged by internal unrest and external pressures. The good reputation once enjoyed by Lebanese clothing manufacturers was undermined by imports of cheaper garments that were relabeled and reexported as "Lebanese." By the end of 1981, Iraq had halted all imports of Lebanese garments, and Egypt had frozen preferential terms for Lebanese industrial exports because of false labeling. Although the Egyptian and Iraqi measures were rescinded in 1982, they were symptomatic of the pressures that Lebanon faced throughout the 1980s.

Events elsewhere in the region also had an impact on Lebanon. A tripling of world fuel prices between 1973 and 1981 reduced the country's competitive edge. When Syria imposed restrictions on transit trade, freight forwarders found it increasingly uneconomic to ship goods to Persian Gulf destinations via Beirut. The prices of imported raw materials were higher than ever, while export markets were increasingly restricted. Thus, even before the Israeli invasion of 1982, the Lebanese economy was in bad shape.

Invasion and Trauma, 1982-87

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Source: U.S. Library of Congress