Copyright
© 1995 International Monetary Fund
Library of Congress Cataloging-in-Publication Data
Economic dislocation and recovery in Lebanon / Sena Eken … [et al.].
p. cm. —(Occasional Papers, ISSN 0251–6365; 120)
Includes bibliographical references.
ISBN 1–55775-459–4: $15.00
I. Lebanon—Economic conditions. 2. Lebanon—Economic policy.
3. Lebanon—History—Civil War, 1975Economic aspects.
I. Eken, Sena II. Series: Occasional paper (International Monetary Fund); no. 120.
HC415.24.E26 1995
330,95692'044—dc20
95–3870
CIP
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Contents
Preface
I Introduction
II Some Economic Consequences of the Civil War
Consequences of the War for Output
How Fast Can Lebanon Recover?
Does It Matter for Growth What Type of Capital Was Lost?
III Impact of the War on Budgetary Performance, Structural Weaknesses of the Budget, and Reform Measures
Overview of Fiscal Performance During and After the War
Structural Weaknesses of the Budget
Measures to Address the Structural Weaknesses
IV Currency Substitution and Dollarization
Origins and Extent of Dollarization
Capital Flight and Repatriation
Advantages and Disadvantages of Dollarization
Policies to Achieve, and Consequences of, De-Dollarization
V Estimating Money Demand in Lebanon
Dollarization and the Definition of Money
Behavior of Velocity
Specifications of Money Demand
Unit Root Tests for Stationarity
Money Demand: Cointegration Results and Policy Implications
Conclusions
VI Exchange Rate Developments and Their Relationship to Inflation
Evolution of the Exchange Rate
Long-Term Relationship Between Exchange Rate Movements and Inflation
Short-Term Dynamics of Inflation and the Exchange Rate and the Two-Way Relationship Between Them
Text Tables
Section
II 1. Measures of GDP
2. Population and GDP
3. Convergence of Actual to Steady-State Real Per Capita Incomes
III 4. Summary of Public Sector Operations (In billions of Lebanese pounds)
5. Summary of Public Sector Operations (In percent of GDP)
6. Summary of Public Sector Operations (In percent of total)
7. Fiscal Indicators for Selected Middle Eastern Countries
IV 8. Currency Substitution
9. Average Inflation Tax
V 10. Phillips-Perron Tests for Stationarity, 1964–93
VI 11. Exchange Rate Indices and Inflation
12. Legal Minimum Wages
13. Regressions of the Differential Between Lebanese and U.S. Inflation Rates on Changes in the LL/USS Exchange Rate
14. Dickey-Fuller Unit Root Tests, 1951–93
15. Johansen Cointegration Test, 1975–93
16. Dickey-Fuller Unit Root Tests, 1989–92
17. Johansen Cointegration Test, 1989–92
Charts
Section
II 1. GDP and Population Indices
2. Per Capita Real GDP, 1964–2010
III 3. GDP and Fiscal Performance
IV 4. Currency Substitution and Dollarization
5. Dollarization and Exchange Rate Movements
6. Real and Nominal Cross-Border Deposits
7. Cross-Border Deposits (As percent of foreign exchange reserves minus gold)
8. Cross-Border Deposits (As percent of M2, including foreign currency deposits)
V 9. Velocity of Monetary Aggregates
10. Monetary Aggregates
11. Composition of Total Liquidity
VI 12. Volatility of the Lebanese Pound/U.S. Dollar Exchange Rate
13. Real and Nominal Effective Exchange Rates, 1964–93
14. Real and Nominal Effective Exchange Rates, 1989–93
15. Lebanon and Selected Other Countries: Nominal Effective Exchange Rates
16. Lebanon and Selected Other Countries: Real Effective Exchange Rates
17. Price Level and Exchange Rates, 1951–80
18. Price Level and Exchange Rates, 1975–93
19. Price Level and Exchange Rates, 1989–94
Appendices
I Exchange and Trade System
II Statistical Tables
A1. Selected Social, Economic, and Financial Indicators
A2. Selected Indicators of Sectoral Economic Activity
A3. Consumer Price Indices
A4. Summary of Central Government Operations
A5. Treasury Bills in Circulation
A6. Bank of Lebanon Balance Sheet
A7. Commercial Banks' Balance Sheet
A8. Monetary Survey
A9. Factors Affecting Lebanese Pound Component of Domestic Liquidity
A10. Distribution of Residents' Monetary Assets
A11. Commercial Banks' Claims on Private Sector Classified by Economic Activity
A12. Discounts and Yields on Three-Month Treasury Bills
A13. Commercial Bank Interest Rates on Lebanese Pound Transactions, 1989–94
A14. Summary of the Balance of Payments
A15. Composition of Industrial Exports
A16. Destination of Exports
A17. Source of Imports
A18. Exchange Rate of the Lebanese Pound
A19. Nominal and Real Effective Exchange Rates of the Lebanese Pound
Bibliography
The following symbols have been used throughout this paper:
… to indicate that data are not available;
— to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
- between years or months (e.g., 1991–92 or January-June) to indicate the years or months covered, including the beginning and ending years or months;
/ between years (e.g., 1991/92) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Preface
This Occasional Paper is based on studies that were prepared in connection with the 1994 Article IV consultation with Lebanon. The authors are grateful to the Lebanese authorities for their cooperation in this project. They would like to thank Said H. Hitti for his support and guidance in the production of the studies. They also thank Pierre-Richard Agenor, Toufic Gaspard, Nadeem Haque, Malcolm Knight, and John McDermott for their valuable comments, Use-Marie Fayad for assistance in preparing the charts, Susan E. Jones for secretarial assistance, and Elisa Diehl of the External Relations Department for editing the final paper and coordinating its production. The views expressed, as well as any errors, are solely the responsibility of the authors and do not necessarily reflect the opinions of the Lebanese authorities, the IMF, or its Executive Directors.