International Bank for Reconstruction and Development                                 86330
                         International Development Association
                           Intemational Finance Corportation
                       Multilateral Investment Guarantee Agency

                                     FOR OFFICIAL USE ONLY

                                     CONFIDENTIAL
                                                                                                    EDS97-441
                                                                                               December 3, 1997

   Board Meeting of Thursday, December 4, 1997
   Statement by Joaquim Carvalho


                                 Lebanon: Country Assistance Strategy


            We find the proposed CAS candid and comprehensive. The staff deserve our
    commendation for a well prepared document. We would also like to congratulate the Lebanese
    authorities for the remarkable achievements they have made to bring life back to normalcy
    after a 15-year devastating war and civil strife. Economic recovery is strong, with the inflation
    rate at single digits, foreign exchange reserves at a comfortable high level and basic
                                                                                                services
    being restored. However, much remains to be done and the authorities are still confronted
    with a number of challenges and uncertainties. Lebanon, as is normally the case with
                                                                                                 similar
   post-conflict situations, is to grapple with high levels of fiscal deficit and public debt
                                                                                                  in the
   medium-term. The level of savings is still low as households are still trying to
                                                                                             raise their
   consumption to the pre-war level.
            It is clearly evident that the Lebanese authorities are cognizant of the challenges facing
   them. The actions taken recently or proposed in the 1998 budget to redress the complex
                                                                                                  issues
   of the fiscal deficit and public debt are steps in the right direction. Encouraging the private
   sector to take the lead in the reconstruction as well as the long-term development efforts
                                                                                                  is key
   for enabling Lebanon to regain its position as the main hub for trade and services in the Middle
   East. In this connection, it is gratifying to note in paragraph 4.8 that it is not the Government's
   intention to seek adjustment lending from the Bank and the Fund, but rather non-lending
                                                                                                     and
   investment support, particularly for infrastructure, as well as support for the social
                                                                                                     and
   environmental program. Such assistance is important for enabling Lebanon to exploit
                                                                                                      its
   comparative advantage which lies in financial services, tourism, manufacturing
                                                                                                     and
   agriculture. Achieving that would also require the authorities to continue their efforts
                                                                                                       in
   restoring macro-economic stability. Private investors' confidence will be enhanced further
                                                                                                    with
   the attainment of peace in the region, a goal that everybody hopes will be achieved soon.
            With respect to the proposed Bank's assistance scenarios, and the associated triggers in
   Box 1, we find them appropriate. We are also pleased with the IFCs assistance strategy,
   particularly its focus on areas of high priority to the private sector. As for MIGA, we
                                                                                                 would
   have expected a more pro-active role, particularly in an open economy such as Lebanon's
   where the private sector is the real driving force behind the development process.
                                                                                                    We,
   therefore, urge MIGA to be more involved in this critical reconstruction phase. We also
                                                                                                   hope
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that the synergy between the activities of the institutions of the Bank will be given special
attention to avoid duplication.    In particular, we would expect close co-ordination among
them in the areas of guarantees and securitization.
      One of the major legacies of the war is the dire state of the environment. The Bank
Group's response to address this problem proposed in paragraph 5.9 is appropriate.
        The human resource development needs special attention as no strategy exists thus far.
While reconstruction efforts are creating more jobs and helping in raising the per capita income
to the pre-war levels, it is disturbing to note that unemployment, particularly among the youth,
is high. We expect to see more involvement of the Bank in helping Lebanon to develop its
education and training facilities. The issues of poverty reduction and inequity in income
distribution are, in our view, adequately addressed in Box 3.
      In closing, we would like to wish the Lebanese authorities success in their endeavors to
make the country regain its pre-war position in the region.