LEBANON: DECAYING INFRASTRUCTURE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84S00927R000200020004-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 16
• Document Creation Date: December 22, 2016
• Document Release Date: January 30, 2012
• Sequence Number: 4
• Publication Date: November 1, 1983
• Content Type: REPORT

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Directorate of Secret-
Intelligence
Lebanon:
Decaying Infrastructure
NESA 83-10306
November 1983
copy 381
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Directorate of Secret
Intelligence
Lebanon:
Decaying Infrastructure
This paper was prepared by ith a
contribution' from of the Office of Near
Eastern and South Asian Analysis. It was
coordinated with the Director of Operations.
Comments and queries are welcome and may be
directed to the Chief, Arab-Israeli Division, NESA,
Secret
NESA 83-10306
November 1983
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Lebanon:
Decaying Infrastructure
Key Judgments All sectors of Lebanon's economy need costly repairs and expansion.
Information available Because of fighting over the last eight years:
as of 4 November 1983 ? At least 280,000 new housing units are needed.
was used in this report.
? At least one-fourth of the country's industrial plant and equipment has
been destroyed.
? Over half of Lebanon's telecommunications lines need to be replaced.
Rebuilding a physical plant capable of sustaining long-term economic
growth will be expensive. The World Bank's $5.4 billion package of
reconstruction projects should be considered a minimum price tag. In our
view, the bill for a complete and comprehensive reconstruction plan could
go as high as $18 billion.
Bank have been reluctant to allocate much cash to the rebuilding effort.
we believe that Lebanon's wealthy private sector or the government in
Beirut would be willing or able to fund much of the reconstruction for the
foreseeable future. Foreign countries and aid institutions such as the World
Based on the likelihood for volatile political and security conditions in the
future, we believe that not even substantial outside help could arrest
further deterioration of large portions of Lebanon's capital stock. Nor do
areas than to assist the Christian-dominated central government.
aid Druze, Sunni, or Shia groups in repairing portions of their "home"
Local confessional organizations, however, such as the Druze Progressive
Socialist Party and the Christian Phalange Party, could undertake some
work-such as water, road, school, and housing repairs-in the areas that
they control. Potential Arab donors, moreover, would be more willing to
funding would be likely to be damaged again in new fighting.
telecommunications nets, utility grids, and road systems. In practice,
however, we believe that the elements that might be repaired with US
Beirut will probably urge the United States to direct its aid solely to the
central government. Another option available would be to channel funds to
private voluntary organizations operating in Lebanon. In theory, US aid
could most benefit the economy if it were used to repair and expand major
Those people most in need of housing, health facilities, and schools are the
Palestinians, Lebanese Shia Muslims, and other non-Christian minorities
in the south and in Beirut's southern suburbs. These areas are under
iii Secret
NESA 83-10306
November 1983
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nominal government or Israeli control. As long as Christians retain control
of the government, we judge that they will be reluctant to devote much
public money or foreign aid to areas outside Beirut and the Christian
heartland.
Continued economic stagnation and erosion of the country's infrastruc-
ture-which is the most likely outcome even if additional foreign aid is
obtained-will aggravate long-held Muslim and Druze grievances against
the central government and further diminish the chances that Lebanon's
confessional groups can coexist peacefully. These groups have been
deprived economically as in almost every other area of national life and de-
mand redress. In our view, continued economic deterioration is only likely
to reinforce the fortress mentality of the hardline Christians, however, and
strengthen their determination to hang on to their privileged economic and
political status.
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Lebanon:
Decaying Infrastructure
Lebanon has suffered staggering human and econom-
ic losses since the onset of civil war in 1975-76.' We
estimate that domestic output last year sank to half
the $18 billion achieved in 1974. As a result of the
war, more than 45,000 people have been killed and
250,000 wounded. If these figures were transposed to
a population the size of the United States, the casual-
ty figures would be 3.5 million dead and 18 million
wounded. As many as 1.5 million people-half of
Lebanon's population-may have been displaced from
their homes.
The protracted warfare has devastated Lebanon's
housing, industrial base, and infrastructure. Most of
the damage to Lebanon's physical plant occurred in
the civil war of 1975-76, with lesser amounts during
the Israeli invasions of 1978 and 1982 and far less
during the most recent round of fighting in September
1983. Every sector has suffered major damage from
direct shelling or fighting. Lack of basic maintenance
and replacement over the years has further eroded the
country's capital stock. All sectors of the economy
continue to function, but none are in good enough
shape to allow domestic commerce to come close to
prewar levels.
Most estimates of the cost of reconstruction include
both repair and expansion of facilities. No reliable
estimate of war damage to physical assets is available.
We agree with a recent World Bank report that a
study of requirements to restore the country's capital
stock to its 1974 level has little meaning in Lebanon
today. The more relevant measure is the cost of
building a physical plant capable of sustaining long-
term growth.
In any event, a program for economic revival will not
be cheap. The World Bank has identified a package of
"high-priority (capital) projects at a fairly advanced
Secret
World Bank's Proposed 1983-85 Million US $
Reconstruction Program a
640
870
a Calculated using constant 1982 prices and 1982 average exchange
rate.
stage of preparation" that would cost about $5.4
billion in 1982 prices. The Lebanese Government's
Council for Development and Reconstruction (CDR)
has compiled a much more ambitious proposal that
would cost $18 billion-about triple Lebanon's annual
gross national product.
Lebanon's comparative advantages before the civil
war and the sources of its affluence lay in a few key
areas: reliable transportation nets that gave it a role
as an entrepot; excellent tourist facilities relatively
free of violence; communications nets that made it a 25X1
logical location for regional service industries such as
banks; agricultural exports to the Gulf states; and
entrepreneurial and well-educated citizens. If Leba- 25X1
non is to regain much of its lost prosperity, we believe
it will have to rely on these key factors again.
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Boundary representation Is
not necessarily aumorltafive.
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Although few specifics on damage in the north and
the Bekaa Valley are available, these areas have
suffered much less damage than the south and greater
Beirut, where most of the fighting has occurred.
September 1983. The Shia and Palestinian newcom-
ers to this area over the past eight years have built
most of their shelters themselves, with inadequate or
nonexistent sewage, water, and powerl.ines,F-
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Housing
Lebanon suffers an acute.shortage of safe, affordable,
legal housing. Even before the civil war, a combina-
tion of rent controls and land speculation had created
an unmet demand for roughly 150,000 additional
housing units-primarily in the Beirut area-accord-
ing to the World Bank. The Bank adds that fighting
destroyed or damaged another 92,000 dwellings as of
March 1983, bringing the total units needed to about
242,000.2 The flood of refugees into Beirut since the
Israeli invasion in 1982 and destruction in the recent
round of fighting probably have raised the number of
new housing units needed to at least 280,000. We
believe that the most immediate serious housing prob-
lem that may arise is finding shelter for Lebanese
Muslims and Palestinians squatting in Beirut and its
southern suburbs if President Gemayel or the Leba-
nese Forces Christian militia step up attempts to
displace them.
Despite the large-scale destruction that has occurred
in Lebanon over the past eight years,
most inhabitants, inclu ing
residents of the Palestinian refugee camps destroyed
by the Israelis have secured at least temporary
shelter. many dwell-
ings are badly overcrowded and structurally unsound.'
Lebanese whose homes were destroyed are theoreti-
cally entitled to low-interest government loans to help
in rebuilding. The disbursement of money, however, is
very slow, as the agency administering the program
does not have the cash to fund the flood of requests.
Since 1976 about 25,000 loan applications have
poured in, according to the World Bank, but by the
end of March 1983 the government had processed
only an estimated 10,000
the housing crunch
is particularly acute in Beirut's densely populated
southern suburbs, which were heavily damaged dur-
ing the fighting in 1982 and to a lesser extent in
I Rebuilding the 92,000 units would cost about $1.2 billion, accord-
ing to the Bank. About 20,000 of these had been repaired as of
February 1983.
Ithe two-
to three-room houses shelter an average of five people.
Because most of these people are not only squatters 25X1
but Shia and other "undesirables," the municipal
government has officially condemned, evacuated, and
bulldozed many of the homes and done little to find
alternative sites for the refugees.
As the population of the Palestinian refugee camps
grew over the years, camp buildings sprawled well
beyond the land legally controlled by the United
Nations Relief and Works Agency (UNRWA) onto
land owned by others, usually Lebanese. After much
bickering between the Israelis and the Beirut govern-
ment, residents of the flattened camps in southern 25X1
Lebanon were permitted to rebuild those homes that
had stood on land within the confines of the camps.
To assist in the rebuilding, the Israeli Government
announced that it would give free cement and other
aid to those wishing to rebuild.
the homes that have been repaired are
extremely crwded, often accommodating not only the
original Palestinian inhabitants but their friends and
relatives who had lived outside the UNRWA camps.
the situation inside
Palestinian camps in the Beirut area is little better.
Many inhabited dwellings are heavily damaged and
structurally unsound. Residents claim that the Leba-
nese Government is strictly limiting the amount of
rebuilding in an attempt to push them out of the area.
While the homes are very crowded and have few or no
utility connections, they at least keep out the worst of
the weather, and few people are without a roof over
their heads.
Transport
Lebanon's roads-which carried a large share of the
reexport trade before the war-are in very poor shape
and could not carry the volume of cargo and passen-
ger traffic that would develop should the economy
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Economic Activity
Intensive agriculture
-'- Crude oil pipeline
Petroleum refining
Textiles
Other manufacturing
- Selected district
(gaga') boundary
- Road
Railroad
t Port
o Refugee camp
Israel ,
Boundary representation is
not necessarily authoritative.
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improve.) (road sur-
faces have deteriorated sharply since the onset of the
civil war in 1975 under the pressures of constant
civilian use and the wear and tear of heavy military
vehicles. US Government reporting indicates that the
Israelis and the Beirut government have repaired
enough of the shell craters and other direct damage
done by the fighting in 1982 to make the roads
passable. The fighting in September 1983 did relative-
Tripoli in the north is the other port of economic
importance. It is controlled by the PLO, and press
reporting suggests that it is congested. with ships
trying to evade Lebanese customs duties. It also needs
dredging. The World Bank estimates dredging and
some expansion costs at Tripoli port to be roughly
ly little new damage.
The World Bank has recommended a series of road
improvements over the next three years that would
cost roughly $620 million in 1982 prices. It believes a
highway bypass around Beirut is the highest priority,
and a new coastal road from Sidon to Tripoli is a
second key project. In one of its few major reconstruc-
tion initiatives to date, the Beirut government has
awarded a contract for a first segment of the bypass
the "Voie Littorale," to link east and west Beirut. 7
In southern Lebanon the Israelis have upgraded nu-
merous roads, though the only one that would be of
commercial importance is the coastal road, which is a
main artery. We believe that the improvements to this
road are primarily designed to speed military move-
ments from Israel northward, but they could also
facilitate much greater trade between Israel and
Lebanon as well as internal Lebanese trade. Frequent
traffic jams caused by Israeli checkpoints and the
generally depressed state of commerce prevent the
economy from benefiting from these improvements.
Much of the lucrative reexport and transit trade in
Lebanon in prewar days flowed through its principal
port in Beirut. Adequate harbor facilities will be
essential if Lebanon is to regain much of the transit
trade it lost during the civil war. The port's facilities
were almost entirely destroyed in 1975-76; the re-
placements provided by the United States and World
Bank in 1977 sustained some damage during the
fighting in 1982. The port currently is nearly empty,
and, according to US Embassy reporting, it could
easily accommodate a substantial increase in traffic in
its present state. For Lebanon once again to become a
major reexport center, extensive modernization of
Beirut port-costing about $110 million, according to
the World Bank-would be necessary. Sunken ships
in the harbor's "First Basin" would also need to be
cleared.
Beirut Airport is the country's key passenger outlet to
the rest of the world. It was extensively damaged in 25X1
1982. The Lebanese agency responsible for the airport
estimates repair costs at about $25 million. By July
1983 the repairs were virtually complete, although
some outbuildings still needed work. Runway damage
will, however, continue due to renewed shelling of the
airport. Such damage can usually be repaired speedily
if security conditions permit. We believe the airport
could accommodate a strong economic resurgence
without major expansion.
Lebanon's few kilometers of railroad track-never a
major means of transport-are almost all unusable.
several segments near the
Beirut Airport revealed rotting ties and rusty rails.
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Emir Abdullah Cheha , 25X1
chief of Lebanon's railroads, outlined ambitious plans
for speedily rebuilding the lines, but 25X1
the government has neither the
money nor the interest to restore the railroad system.
In such a small, unindustrialized country, we believe
there is little economic justification for doing so.
Telecommunications
One key reason that Beirut was a major center of
finance, commerce, tourism, and service industries
before the civil war was its superior telecommunica-
tions services. Damage to telephone facilities since the
civil war has been extensive, and service is now very
poor. As of December 1982 nearly one-fourth of
Lebanon's 300,000 telephone and telex lines-the
bulk of them in greater Beirut-were out of service,
according to the World Bank. At least another
100,000 must be replaced, according to the CDR.
Even if the current system were repaired, the Post and
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Telecommunications Ministry estimates that a mini-
mum of 300,000 additional lines is needed to provide
an acceptable level of service. Several of the exchange
and switching facilities and major electrical cables
have been destroyed, and those remaining in service
are antiquated and should be replaced.
The World Bank has estimated the cost of restoring,
rehabilitating, and expanding the telecommunications
net at roughly $870 million in 1982 prices, and an
additional several million will be required as a result
of the latest round of fighting. Under the best of
security conditions, the Bank estimates that the job
would require at least three years.
If Beirut is to lure back the service and finance
companies relocated to places such as Athens,
Amman, and Bahrain after 1974, reliable and accessi-
ble communications will be essential. If travel within
Lebanon remains restricted by factional fighting,
telephone service will also be one of the few ways for
people around the country to remain in contact with
one another.
The Post and Telecommunications Ministry has been
allocated very little government money for reconstruc-
tion. Several Western nations, however, are seeking to
promote exports of telecommunications equipment,
and we believe Beirut will receive some form of
Western aid tied to purchase of new equipment. In
contrast to other projects, such as modernizing the
underused'port, we believe business in Beirut would
benefit immediately from repair and expansion of its
overused, undermaintained telecommunications net.
Utilities
Electricity. Extensive damage to Lebanon's electric
transmission and distribution system causes frequent
power outages around the country. Recent heavy
shelling from the Shuf and Alayh districts has cut
powerlines and forced state-owned Electricite du
Liban (EDL) to ration supplies by imposing power
cuts of about 17 hours per week throughout greater
Beirut and in the Shuf and Upper Matn regions,
according to the US Embassy. To protect themselves
from outages, many private firms have bought their
own generators. EDL estimates that repairing trans-
mission and distribution equipment would cost about
Even if the transmission and distribution systems
were fixed, EDL believes that demand would far
outstrip generating capacity. It has, therefore, em-
barked on a $200 million expansion program, accord-
ing to the World Bank. Much of the funding is
scheduled to come from the government, as EDL has
long been a substantial money loser. At a disadvan-
tage in Lebanon without a private militia of its own,
EDL has been unable to get consumers to pay their
bills. Moreover, extensive illegal tapping of the power-
lines has meant that EDL could send out bills for only
half of the electricity it generated in 1981, according
to the World Bank.
We do not believe that the unreliability of electric
service presents a serious obstacle to the Lebanese
economy under present business conditions. Even if
security improved, the costs of emergency generators
for businesses that must have reliable power are
probably not prohibitive, since Lebanon has little
industry.
Water. In contrast to the other countries of the
Levant, Lebano.i has adequate water resources. As
with most of Lebanon's services, the problems lie in
the delivery systems. According to US AID officials,
most water facilities have not been expanded or
regularly maintained for years. Most of the damage
from direct hits either has been or is being repaired,
but the lack of maintenance has done greater damage
than any fighting. The aging water system is so leaky
that in the dry season-August to December-there
is rationing throughout the country. Periodic water
cutoffs were still occurring in Beirut as of late March
1983. The low pressure caused by leakage also sub-
stantially increases the risk of waterborne disease.
The sewer system-which has suffered relatively few
direct hits-suffers from many of the same problems.
While about half the populace's homes are connected
to the system-and nearly all in Beirut-the system is
overloaded and badly maintained, according to a US
AID official. Untreated wastes are routinely dis-
charged into Beirut harbor.
$70 million in 1982 prices.
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Lebanon's multiple and overlapping water authorities
have devised an eight-year water and sewer invest-
ment program that would cost roughly $1.25 billion in
1982 prices. This is unlikely ever to be implemented in
view of the costs involved. US AID consultants con-
cluded in December 1982 that, in view of the health
hazards posed by the presently inadequate system,
additional garbage trucks and a sewer upgrading
program-which would cost about $4.5 million-are
the top priority for this sector. US AID has already
provided some trucks.
Fuel. The principal obstacle in the fuel import and
distribution system is not the state of the country's
physical plant but transportation problems caused by
road closings. Lebanon runs mainly on gasoline,
which it obtains by offloading crude at the ports of
Sidon and Tripoli and processing it in refineries near
each port. Fuel is delivered to the rest of the country
by truck. Two crude oil pipelines exist, but each has
suffered damage. While both can still operate, neither
does. Last year, Syria closed the Iraqi Petroleum
Company's pipeline to Tripoli for political reasons,
and the management of the Saudi pipeline in the
south has abandoned its unprofitable operations there.
Although the Tripoli refinery appears to be un-
damaged, the US-owned Medreco refinery in the
south suffered about $4 million in damages in the
fighting in 1982,
should the refinery suffer addi-
tions damage, a reco will stop operations and turn
over the plant to the Lebanese Government. If the
refineries cease, the ports at Sidon, Tyre, and Beirut
could unload all the refined products needed,
Industry and Agriculture
The Beirut Chamber of Commerce estimates that,
between 1974 and 1983, one-fourth of the country's
industrial plant and equipment was destroyed-150
factories were destroyed, and 331 more were
damaged. Numerous others in the Beirut area were
destroyed in the shelling in September 1983. In the
textile sector, one of the largest local manufacturing
industries before 1974, the wars' disruptions have
forced 800 of 1,200 factories to close. According to
the Chamber, 350 of 500 furniture manufacturers
have also shut down; many now import the goods they
used to manufacture. In 1974 industrial production
was at its peak and accounted for perhaps 18 percent
of domestic output; by 1980 its share had shrunk to
about 10 percent and is probably smaller today. The
bulk of Lebanon's remaining industrial plants are
located in the Christian heartland and are owned by
Christians.
We believe Lebanon's resourceful and entrepreneurial
private sector will be able to rebuild Lebanon's small
industrial sector without major outside assistance
when relative peace and stability are restored. One
Lebanese banker recently proposed a scheme whereby
the government and commercial banks would provide
equal shares of a long-term, low-interest fund for
industrial reinvestment. Such a project., in our view, is
unlikely to have much impact. Lebanese banks are
brimming with money, and the supply of capital is not
a constraint. The real problem, in our view, is that
very few Lebanese expect political and economic
conditions to be stable enough to enable them to pay
off new loans.
Tourism was once a flourishing sector of Beirut's
economy, but today the flow of foreign tourists into
West Beirut has dried up. The industry is nearly as
depressed in East Beirut and the Christian resort
areas along the northern coast. Many of the best
hotels have long since been devastated by shelling,
and in any event the country's poor internal security
discourages tourists.
The primary difficulties facing farmers throughout
Lebanon are transportation restrictions, competition
from Israeli produce, and the presence of Israeli and
Syrian occupation armies in the fields. Another key
factor is the reluctance of the Arab Gulf states-
formerly a major market-to buy Lebanese produce
because some has proven to be falsely labeled Israeli
goods. The Beirut government, according to US
Embassy reporting, is making some loans to tide
farmers over, but their income remains depressed.
Little damage has been reported to agricultural equip-
ment and other capital.
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Social Services
Education. Although Lebanon's wealthier classes tra-
ditionally send their children to private schools, the
poorer segments of the population-primarily Shia-
rely mainly on the public school system, which has
taken a heavy beating. The dangers of travel and
destruction of school buildings helped to cut the
number of children attending public schools by about
12 percent between 1973 and 1981-the most recent
year for which figures are available. Thirty-nine
public schools have been destroyed, according to a
UNICEF study done in late 1982, and more than 400
require some repair. UNICEF is rehabilitating some
130 schools, but for most-including 85 schools in
Beirut's suburbs-financing is unavailable. In
Beirut's largely Shia southern suburbs, the need for
additional schools is acute. The US Embassy reports
that there are only five public secondary schools and
27 primary schools to serve a population of about
800,000.
We doubt that the government will move rapidly to
complete the roughly $60 million worth of work. At a
recent World Bank-sponsored meeting, only the
Italian Government offered to advance money for
schools. It did not indicate how much or when funds
would be provided.
Health. Hospitals and medical facilities run by the
Palestinian Red Crescent Society in West Beirut and
the south, which used to provide free treatment to
Palestinians before the Israeli invasion, are now
closed. As a result, Palestinians are the group with the
greatest need for improved health care. The Lebanese
Government picks up the bill for Lebanese citizens'
treatment, but the non-UNRWA-registered Palestin-
ians must finance their own.
The CDR has estimated the cost of stopgap repair for
Lebanon's health facilities at about $35 million.
Funding has been secured by UNICEF and the CDR.
No estimates are available for the cost of additional
facilities. Most of the health facilities in Lebanon and
more than three-quarters of its doctors are concen-
trated in Beirut and the Christian heartland; the rest
of the country is left with comparatively little medical
help. In Beirut's southern suburbs, for example, there
is just one hospital, which is run by the Higher Shiite
Although the Israeli Government has invited Beirut to
cooperate in restoring social services in the occupied
south, Gemayel has so far refused in order to avoid
giving the appearance of collaboration with Israel,
according to US officials. The south, however, is
receiving some help. Two medical units are being
built near Sidon-one financed by Rafiq Hariri, a
wealthy Lebanese businessman and philanthropist,
and the other by US AID. Construction of the Hariri
hospital, however, was stalled by the theft of bull-
dozers and other heavy equipment from the site by the
Lebanese Forces Christian militia, according to a US
diplomat.
The Israeli Defense Force (IDF) is making some
improvements and repairs to the infrastructure in
southern Lebanon. We believe these are intended to
enhance Israeli military capabilities rather than to
rebuild the local economy. The IDF is improving some
roads in the south and connecting some electric lines
south of the Awwali River to the Israeli power grid.
The IDF does not appear to be hampering the work of
private relief organizations in the south. The Leba-
nese provincial governor, however, has told US offi-
cials that the IDF requires that he coordinate his
activities-including infrastructure repair-with
Israeli officials. The need to collaborate with Israel
touches a sensitive chord in the Lebanese and tends to
delay work the provincial governor would otherwise
do.
We have little information on economic conditions in
the Syrian-occupied portions of Lebanon. These areas
have been spared much heavy fighting since 1978 and
have generally suffered much less damage. To our
knowledge, Damascus is not extending humanitarian
or reconstruction aid to northern residents. The
Syrians do not appear to be obstructing commerce,
apart from sporadic closures of the Beirut-Damascus
highway.
Islamic Council.
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The overriding constraint on rebuilding the Lebanese
economy-and the least susceptible to foreign help-
is the widespread breakdown in the enforcement of
the country's law and order. If domestic confidence in
a stable future could be assured, we believe the
Lebanese would begin to use their ample financial
resources, entrepreneurial ability, and private foreign
investments to rebuild the private sector over a period
of eight to 10 years without major foreign assistance.
We believe the government is unlikely to muster the
political strength to collect taxes and begin to rebuild
in the country's non-Christian areas. Therefore, we
believe that significant repair of public infrastructure
will occur only if either:
? Foreign countries or such institutions as the World
Bank inject funds.
? Confessional organizations such as the Druze Pro-
gressive Socialist Party or Christian Phalange Party
undertake the work in the areas that they control.
While these factional groups could finance some
water, sewer, and road work, they probably could
not make significant improvements on such expen-
sive and sophisticated equipment as the telecom-
munications net.
As neither the government nor the private sector is
likely to resume investment over at least the next two
years, only outside help-and probably not even
that-can arrest continued steady deterioration in
living standards and capital stock. In our judgment,.
however, neither the Arab states nor Western Europe
are likely to contribute much to Lebanon's reconstruc-
tion.
Government Paralysis
President Amin Gemayel's government, as a result of
continued civil unrest, is incapable of performing most
of the normal functions of a state, such as rebuilding
public infrastructure.' We expect that his situation
' Gemayel has devoted almost no attention to economic reconstruc-
tion issues, in contrast to his predecessor Elias Sarkis, who banked
heavily on a government-funded reconstruction program to restore
stability and reunite the country after the civil war. In the
aftermath of that fighting, Sarkis collaborated with his advisers to
produce a detailed reconstruction program that included a re-
vamped school system intended to transcend religious and commu-
will only worsen in the coming months. In our opinion,
there is little prospect over the next year that the
central government will regain authority beyond the
Beirut area or that there will be a redistribution of
political power so that the Shias, who suffer most
from the war damage, could squeeze significant tangi-
ble benefits, such as housing assistance, from the
state.
The desire of some Maronite Christian extremists to
jettison the rest of the country and create a Christian
state-"Marounistan"-along the northern coast fur-
ther complicates the picture. We believe that some are
firmly opposed to any government spending on the
non-Christian areas on the grounds that Beirut's
treasury should be saved for the day when the govern-
ment is no longer responsible for those areas and the
money can then be spent on the Christians. While we
do not believe that Gemayel shares these views,
extremist Christian opinion will limit how much he
can do in rebuilding non-Christian areas.
Even if Gemayel could muster the political strength to
rebuild, he will have little cash to devote to the effort.
Government officials acknowledge that customs fees,
the treasury's key source of domestic revenue, are
virtually impossible to collect except in Beirut. Even
there, evidence from the US Embassy is mounting
that the Phalange Party has regained control of the
"Fifth Basin" of the Beirut port and is diverting ships
from government-held quays. Moreover, Phalange
Party money has recently been used to buy the
corporation that operates the port on behalf of the
government, and we believe that the Phalange will
take advantage of this position to divert even more
ships into the Fifth Basin as well as to skim off a share
of what customs the government can collect.
The Central Bank's governor has stated to the author
his reluctance to commit the bank's $2.5 billion worth
of gold and foreign exchange reserves to rebuilding on 25X1
the grounds that whatever is rebuilt could easily be
destroyed in another round of fighting. Instead of
using Lebanon's reserves for reconstruction, we expect
the Central Bank will try to husband its resources in
the event it has to bail out Lebanon's banking indus-
try.
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Poor Prospects for Outside Help
The prospects for large-scale financial help from
Western Europe or the Arab states are also poor. At a
World Bank-sponsored meeting for potential donors
in July, only three European governments offered
appreciable support, according to a US official who
attended. West Germany offered $39 million, mostly
in export credits and soft loans. France agreed to
another $39 million in mixed credits and commercial
loans-in part to help promote sale of its telephone-
switching equipment to the Lebanese. Italy, the only
European country to offer additional humanitarian
aid, did not commit itself to any specific sums but
agreed to make some soft loans and assist the
UNICEF effort to rebuild schools. One reason the
European governments were reluctant to get more
involved, according to the US official, is that they fear
for the safety of their personnel in the wake of the
bombing of the US Embassy in April and the deaths
of soldiers in the Multinational Force in August and
September. The bombings of the US and French
barracks on 23 October will, in our view, reinforce
this reluctance.
The Arab states have made plain their reluctance to
aid Gemayel as long as Israel occupies Lebanese soil.
The World Bank is also reluctant to commit much
cash in view of the unstable military situation and the
fact that Gemayel controls so little territory.
to reinforce the fortress mentality of the hardline
Christians and strengthen their determination to hang
on to their privileged economic and political status.
Beirut will probably urge the United States to direct
its aid solely to the central government. Such a
request would be aimed at controlling the use of the
funds for projects beneficial to the Christians. We
believe non-Christian groups would view this as an-
other indication-in conjunction with the recent US
shelling of Druze and Shia military positions-that
the US Government favors the Christians. Channel-
ing a portion of US aid to private organizations, such
as Catholic Relief Services, operating in non-Chris-
tian areas is an option that could help dispel this
perception.
Implications for the United States
We believe that little improvement in Lebanon's
infrastructure can be expected even if the United
States significantly increases its economic assistance
to the Lebanese Government. In theory, US aid could
most benefit the economy if it were used to repair and
expand major telecommunications nets, utility grids,
and road systems. In practice, however, those ele-
ments of the capital stock that are repaired-with US
or other funding-probably would be targets in new
fighting. President Gemayel, however, will continue to
argue that US economic aid should be a key element
of US support for the Lebanese Government. The
Lebanese will look not only for US cash but also for
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assistance to the local population, apart from donating
some construction supplies to families whose houses
were destroyed in the invasion. Eventually, however,
in an attempt to defuse local hatred and opposition to
its presence, we believe Israel may offer some recon-
struction funding via the "Village Militias" it is
organizing and equipping.
Political Sensitivity of Aid
The continued economic stagnation in Lebanon will
aggravate Shia and Druze grievances against the
central government and further diminish the chances
that Lebanon's confessional groups can coexist peace-
fully. As in almost every other area of national life,
the Shia and Druze groups have long been given the
short end of the economic stick and demand redress.
Moreover, continued economic deterioration is likely
specific proposals for rebuilding projects.
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