Lebanon's balance of payments has plummeted to a deficit of $163 million over the first two months of 2007, according to figures from the Central Bank, as the ongoing political paralysis continues to erode the country's macroeconomic health.

Apr. 10, 2007- The negative balance of payments reflects the final tally of such key elements as foreign investment, tourist income, imports and exports, bank deposits and remittances from Lebanese abroad, although the Banque du Liban does not break down the overall balance into individual components.

During the first two months of 2006, the balance of payments boasted a surplus of $353 million, putting 2007 figures more than $500 million behind last year's pace. Before the summer 2006 war with Israel, Lebanon's economy was experiencing one of its best six-month performances in history.

The war and the ensuing political standoff have deterred most foreign tourists, eliminating one traditional source of capital inflow for the country. Tourism Ministry data recorded a 32 percent drop in the number of visitors in February 2007 compared to February 2006. Meanwhile, the Beirut Central District resembles a ghost town, and the country's hotels stand unoccupied as many employees have been laid off or fled to more stable work in the Gulf.

Another factor bringing down the balance is the evaporation of foreign investment. Arabs flush with oil income - and reluctant to invest in the West - are scouring Asia for investment opportunities, but Lebanon has lost its allure.

"There is no flow of direct investment," Marwan Iskandar, head of consulting firm MI Associates, told The Daily Star on Monday. "The climate of investment in Lebanon is not encouraging at all."

Another traditional source of capital has dried up as Lebanese entrepreneurs abroad are not investing their gains in the local economy.

"They prefer investing outside Lebanon," said economist Elie Yachoui, dating the trend to the February 2005 assassination of former Premier Rafik Hariri.

Money sent back by Lebanese living abroad is central to the economy, but forecasters bemoan the absence of reliable statistics on this or any other economic trend. A UN study estimated that the Lebanese Diaspora sent more than $5 billion back to the homeland in 2006, nearly one-quarter of the country's roughly $22 billion GDP.

Remittances - the money sent home by Lebanese living abroad - continue to be one of the largest figures on the credit side of the balance of payments, but non-residents' bank deposits are not providing the economic boost they once did, Yachoui said.

On the bright side, the balance of payments is not suffering from a large-scale withdrawal of assets comparable to the capital flight following Hariri's death.

"There is no outflow from the banking sector," said Joe Sarrouh, executive advisor to the chairman of Fransabank. Banque du Liban's data bear him out - commercial banks registered an increase in net foreign assets of about $715 million in February 2007. Banque du Liban saw its net foreign assets plunge by $568 million in the same month, but because of Monday's holiday no bank representatives could comment on the drop.

The outlook for the balance of payments remains bleak as long as the political impasse continues, economists said. The arrival of aid pledged at January's Paris III donor conference could lift the sagging flow of capital into Lebanon, but much of those monies remain conditional on Parliament approval.

"As our political institutions are paralyzed now, there is a small chance that Paris III monies will arrive soon," Yachoui said.