TOPICS:Amid financial crisis, Lebanon stands fast

David Schenker

More than two weeks into the Israeli-Hamas war, the eyes of the world are narrowly

focused on the crisis in Gaza. In the Middle East, however, it is not just the Palestinians and

Israelis who are suffering, and it is not only Hamas which hopes to capitalise. Lost amid the ongoing hostilities is the profound impact of the global economic crisis on the Middle East. Like the rest of the world, Arabs have also found themselves victims of the downturn. Even the Gulf, still floating on a cash cushion from the recent oil boom, is tightening its belt.

Not surprisingly, the economy is providing plenty of fodder for Islamists. In Jordan — Washington’s closest Arab ally — the Islamist parliamentary bloc is demanding a loosening of regulations on Islamic banking and a shift to an “Islamic economy.” Meanwhile in Egypt, the Muslim Brotherhood is saying that “Islam is the solution,” and advocating rescue plans that include, among other things, “trust in Allah,” “exploiting the crisis to advance the plan for Islamic civilisation,” and “uniting the Arab and Islamic states with their insurmountable power in confronting the United States.”

Islamists are no doubt hoping to capitalise on the economic meltdown. Amid the adversity, however, one nation is thriving: Lebanon. It’s doing so not by turning to Islamist governance, but by focusing on disciplined and prudent economic policies. In fact, in its recent report on the country, the International Monetary Fund (IMF) noted that “so far there have been no spillovers to Lebanon from the global financial crisis.” My recent trip to Beirut seemed to confirm the IMF assessment: Bars and cafes were packed and hotels were brimming with

occupants. Like other Middle Eastern states, the local bourse has declined somewhat, but real estate markets hadn’t crashed, and banks were not failing. According to Central Bank Governor Riad Salameh, as of November, the Lebanese Banking sector was up an astounding 12 per cent for the year.

Lebanon’s economy is a remarkable story, particularly given the political upheaval the state has seen in recent years. The key to Lebanon’s success at insulating itself from the worst of the global financial meltdown has been sound fiscal policy from the Central Bank.

Years ago, Riad Salameh issued a bank circular prohibiting Lebanese banks from subscribing to subprime mortgage products. This rule complemented already extant regulations, limiting banks’ participation in other risky products like derivatives.

In any event, given the high rate of return on government products and other local and

regional investments, there was little need for Lebanese banks to gamble. Lebanon has to date skirted the worst of the crisis through prudent fiscal policies within the confines of the free market. Lebanon may eventually be affected by the spillover, but it will be better placed to endure the crisis and rebound quicker. The answer isn’t Islam or sharia banking; it’s

good policy.