Azour says public-sector programs are essenital to reform package

Feb. 04, 2007- Prime Minister Fouad Siniora's Cabinet defended its economic policies over the weekend against criticism leveled by the Free Patriotic Movement, (FPM), which welcomed financial aid from the Paris III donor conference but said the government would use the funds exclusively to pay down Lebanon's budget deficit, to the detriment of social programs.

The FPM said that Siniora was too politically weak to implement his proposed reform program, and that an earlier decree prevented the government from financing social welfare and investment programs with the $7.6 billion pledged in Paris.

In a statement released Saturday, Finance Minister Jihad Azour thanked the FPM for "enriching the dialogue" on the government's program with "constructive criticism," but said the party's analysis contained some inaccuracies that needed to be clarified.

The FPM incorrectly cited an earlier decree as evidence that all foreign aid raised in Paris would be used to service Lebanon's public debt, the finance minister said. Azour said the decree in question, which dates to 2000, mandates that all revenues from privatization - as opposed to grants - be used to decrease the budget deficit. Siniora told donors as much at the conference when he said "the turnover from privatization will be used to decrease deficit," Azour said.

While a portion of the pledges were earmarked for budget support in Paris, Azour said much of the money will fund social programs and public-sector and structural reforms.

"The government wants to service the debt so it can focus on more important things," Azour said.

"Paying down the budget deficit is the objective of any wise financial policy.

"We are surprised that the FPM did not realize [this] would benefit the economy."

Lessening Lebanon's $40.4 billion dollar public debt would lower interest rates, stimulate private-sector investment and create new employment opportunities, he said.

The minister criticized the FPM's acceptance of foreign aid on one hand and rejection of the reform program on the other.

"If the donations are not coupled with appropriate reforms, the funds will not achieve their objective," Azour said. "The grants would be like medicine that alleviates the pain but does not address the disease itself."

Central Bank Governor Riad Salameh also said Saturday that paying down the budget deficit has become a "necessity." Energy-sector reform and privatizing Lebanon's telecommunications network should be the first steps towards decreasing the public debt, he argued.

Salameh said $1.2 billion of the Paris III pledges will be allocated to the private sector, and that the success of the summit was evidence of the international community's support for the government's reform plan.

The emergency post-conflict assistance branch of the International Monetary Fund will be assisting the government with the reform program, but said ultimately Lebanon is responsible for implementing the plan "in a manner that preserves economic and social stability."

The foreign aid will be disbursed over five years as progress is made on Siniora's agenda, Salameh said. But as long as the political situation remains deadlocked, he said, implementing the reform program is impossible.