Created: 11/1/1983

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Decaying Infrastructure

n Intelligence Assessment


Decaying Infrastructure "



Decaying Infrastructure


'rJturnuiiiM tnaitotie

I9SS wai used la ihti lepaii

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sectors or Lebanon's economy need costly repairs and expansion. Because of fighting over the last eight years:

Atew housing units arc needed.

At least one-fourth of the country's industrial plant and equipment has been dcslroycd.

Over half of Lebanon's telecommunications lines need to be replaced.^

hysical plant capable of sustaining long-term economic growth will be expensive. The World4 billion package of reconstruction projects should beinimum price tag. In our view, ihe billomplete and comprehensive reconstruction plan could go as highillion.Q

Based on the likelihood for volatile political and security conditions in the future, wc believe thai not even substantial outside help could arrest further deterioration of large portions of Lebanon's capital stuck. Nor do 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 Bank have been reluctant loallocatc much cash to the rebuilding effort

Local confessional organizations, however, such as therogressive Socialist Parly and the Christian Phalange Party, could undertake some work such as water, road, school, and housingthe areas that they conirol. Potential Arab donors, moreover, would be more willing to aid Druzc, Sunni, or Shia groups in repairing portions tif their "home" areas thanssist the Christian-dominated central government. Q

Beirut will probably urge the United Stales lo 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. L'S aid could most benefit the economy if it were used to repair and expand major lelecommunicalions nets, utility grids, and road systems. In practice, however, wc believe that the elements that might he repaired with US funding would be likely to be damaged again in new fighting.

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


nominal government or Israeli control. As long as Christians retain control of the government, wc judge that ihey will be reluctantevote much public money or foreign aid to areas outside Beirut and the Christian heartland.

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economic stagnation and erosion of (he country'sis the mml likely outcome even if additional foreign aid isaggravate long-held Muslim andrievances 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 even other area of national life andredress. In ourontinued economic deterioration is only likely to reinforce the fortrcvi mentality .if the hardline Christians, however, and strengthen their determination to hang on to their privileged economic and political

Decaying Infrastructure^

has suffered staggering human andlosses since the onsci of civil warthai domestic outpui last year sankillion achievedesult ofmore0 people have been killedwounded. If these figures were transposedpopulation ihc size of the Unitedhefigures wouldillion deads manyillion people halfpopulationhave been displaced from

their homcs.Q

The protracted warfare has devastated Ubanon's housing, industrial base, and infrastructure. Most of the damage lo Lebanon's physical plant occurred in the civil war. with lesser amounts during the Israeli invasions82 and far less during ihc most rcceni round of fighiing invery sector has suffered major damage from dircci shelling or fighting, lack of basic maintenance

.and replacement over the years has furiher eroded the

apital stock. All sectors of theto function, but none arc in good enough

shape to allow- domestic commerce tn come close to prewar levels.^

Most estimates or the COS! of reconstruction include both repair and expansion of facilities. No reliable estimate of war damage to physical assets is available. We agreeecent World Bank reporttudy of requirements to restore the country's capital

o4 lcvcl ha* lillle meaning inThe more relevant measure is the cost of

hysical plant capable of sustaining long-term growth.Q

In anyrogram for economic revival will noi be cheap. The World Bank hasackage of "high-prionty (capital) projectsairly advanced


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stage of preparation" that would cost4 billion2 prices The Lebanese Government's Council for Developmeni and Reconstruction iCDR) hasuch more ambitious proposal that wouldtriple Lebanon's annual gross naiional product^ |

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Lebanon's comparaiive advantages before the civil war and the sources of its affluence layew key areas: reliable transporiaiion nets that gaveole as an entrepot; excellenl tourist facilities relatively free of violence; cornmunicaiions nets thai madeogical location for regional service industries such as banks; agricultural exports to ihc Gulf states; and entrepreneurial and wcll-cducaicd citizens. Ifis to regain much of its lost prospcrily, wc believe it will have to rely on these key factors again.l




Although few specifics on damage in ihc north and ihc Bcka* Valley arc available, these areas haveffrrcd much lcss damaa* than the south and greater

Beirut, where meal of the fightiny. has occurred


Lebanon suffers an acute shortage of safe,housing Even before the civil war. aof rent controls and land speculation hadunmet demand forunits primarily in the Beirutto the World Bank. The Bark adds thaior damaged0 dwellingsringine tbe total units needed toThe flood of refugees into Beirut sinceinvasion2 and destruction in theof righting probably have raised the numberhousing units needed to atlhat ihc most immediaie serious housingthat may arise is finding shelter forand Palestinians squalling in BeirutIsuburbs ir President Gemayel or theForces Christian militia step up attcmpi* to

displace ihcm.Q

Despite the large-scale destruction thai hasLebanon over the pasi eight years.

tavost inlubiuntv including

nruciurall> unsound whose homesdestroyeded to low-JBtcresi governmenl loam to help in rebuilding. The disbursement of money, however, it very slow, at the agency administering the program does not have ihe cash io fund the flood of requests60 loan applications have poured in, according to the World Bank, but by ihe end of3 ihe government had processed only anQ|

fOMcnts of the Palestinian refugee campsthe Israelis, have secureds-fj|*

_thc housing crunch particularly acute in Beirut's densely populated IWtbtra suburbs, which were heavily damaged dur ing the fighting2 andesser exient in



he Shia and PalcUinianio this area over the past eight years have buili most of their shelters ihemsclves. wiih inadequate or nonexistent sewage, water, and powcrlincs. I

HtbuMmtria mU cost aboutulic*.io IS* Baitf ibe* badvl





improve Numerous observers report that roadhave deteriorated sharply since the onset of tbe civil war5 under the pressures of consUDt civilian use and the wear arid tear of hear) military vehicles. US Government report inr indicates that the Israelis and tbe Beirut foveramcni have repaired enough of the shell craters and other direct damage done by the righting2 to make tbe roads passable. The fighting in3 didlittle new |


The WofM Bunk haicries of road improvement* over the next three years that would cost0 million2 prices. Itighway bypass around Beirut is the highest priority,ew coastal road from Sidon to Tripoliecond key project. In one of its few majorinitiatives lodale. the Beirut government hasontractirst segment of the bypass, the "Voteo link cast and west Beirut^]

In southern Lebanon tbe Israelis hare upgradedroads, though the only one that would beimportance is the coastal road, which isia artery. We believe that the improvements toare prunaril> designed to speed militaryfrom Israel northward, but Ihey couldmuch greater trade between Israelas well as internal Lebaneseri irafficcaused, by Israeli checkpoints anddepressed state of commerce prevent the

economy from benefiting from these improvements.

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Much of the lucrative reexport and transit trade in Lebanon in prewar day* flowed through its principal port in Beirut. Adequate harbor facilities will be essential if Ubanon is to regain much of the transit trade it lost during the civil war The port's facilities were almost entirely destroyed; theprovided by the Uniled States and World Bank7 sustained some damage during the fightinghe port currently is nearly empty.


easilyubstantial increase in traffic in its present state lor Lebanon once again toajor reexport center, extensive modernization of Beirut port- costing about SIillion, according to the World Bank- would be necessary. Sunken ships in tSe harbor's "first Basin" would also need to be cleared. Q


Tripoli in the north is the other port of economic importance.ontrolled by the PLO. and press reporting suggests thatongested with ships trying to evade Lebanese customs duties. It also needs dredging. The World Bank estimates dredging and some expansion costs at Tripoli porte roughly


key passenger outlet to


Bciiui Airport ii the country'! lhe rest of the world, ll was extensively damagedbancsc agency responsible for lhe airporl estimates repair costs alillion. By3 lhe repairs were virtually complete, although some outbuildings still needed work. Runway damage will, however, conlinuc due to renewed shelling of lhe airport. Such damage can usually be repaired speedily if security conditions permit. Wc believe the airport couMtrong economic

without major expansion.^

Lebanon's few kilometers of railroada maior means ofalmost all unusable. Firsthand inspectioo of seseral segment* near the Beirut Airport revealed roiling lies and rusty rails | 1

In suchnull. unindustria.il/cdc bciicM?

there is liltle economic iusiific.it ion for doing so.

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One key reason that Beirutajor ccnier of finance, commerce, tourism, and service industries before the civil war was its superiorservices. Damage to telephone facilities since ihe civil war has been extensive, and service is now very poor. As of2 nearly one-fourth ofelephone and telexbulk of them in greater Beirutout of service, according to the World Bank At least another lOO.OOO must be replaced, according to the CDR. Even if tbe current system were repaired, tbe Posi and

Tclccommunicanons Ministry estimates thatdditional lines is needed to provide , rV|ifl acceptable level of service. Several of thed swj,chjng facilities and major electrical cables

have been destroyed, and those remaining in service arc antiquated and should be replaced. | |

The World Bank has estimated the cost ofand expanding theat0 million2 prices, andseveral million will be required8 'alcsl round of fighting. Under the bestconditions, the Bank estimates that therequire at least three ycars.|

If Beirut is to lure back the service andrelocated to places such asand Bahraineliable andcommunications will be essential. If travel Lebanon remains restricted by factionalS*|Vice will also be one of the few waysaround the country to remain in contact wiih

one another.^

The Post and Telecommunications Ministry has been allocated very litlle government money forSeveral Western nations, however, arc seeking io promote exports of telecommunications equipment, and we believe Beirut will receive some form of Western aid lied to purchase of new equipment. In contrast to oihcr projects, such as modernizing the underused port, we believe business in Beirut benefit immediately from repair and expansion of2 5YiyCf used, under maintained telecommunications




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Electricity. Extensive damage to Lebanon's electric transmission and distribution system causes frequent power outages around (he country. Recentelling from the Shsf and Alayfa districts hat cut powcrlincs and forced stale-owned Flcctricitc da Liban iGDLl lo niton supplies by impovne power cuts of aboutours per week throughout greaterhe Shuf and Upper Main regions,

protect themselves outages, many private firms have bought their

Even if the transmission and distribution systems were fixed. EDI believes thai demand would far outstrip ecrer-Hin* capacity- It hav therefore, em barked0 million expansion program,lo the World Bank. Much of the funding is scheduled to come from ihe government, as EDI has longubstantia! money loser. Ai ain Lebanonrivate militia of its own. EDL has been unable to get consumers lo pay their bills. Moreover, extensive illegal tapping of the power-lines has meant ihnt EDL could send out bills for only half of the electricity il generatedccording

to the World

Wc do not believe that tbe unreliability of ckciric serviceerious obstacle to ihe Lebanese etortom) under present business condition* Even if security improved, the costs of emergency generators for businesses that muu have reliable power are


Water. In conirani tu the other countriesas adequate water resources,most of Lebanon's services, the problems liedelivery

most water facilities nave not been expanded or |Jt>il'?5Yrs regularly maintained for years. Most of ihe damage ICI from direct hits either has been or is bcim repaired, bul the lack of maintenance has done greater damage lhan any fighting Ihe aging water system is so leaky thai in ihc drytois rationing throughout the country. Periodic water cutoffs were still occurring in Beirut as of laiche low pressure caused by leakage alsoincreases ihe risk of waterborne

The sewer syvtcm which has suffered relativelyhits- suffers from many of the sameabout half the populace's tomes areIhc system -and nearly all in Beirut ibc systemand badly

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generators. EDL estimates lhat repairingand distribution equipmenl would costillion2

consultants con-


Lebanon's mulliplc and overlapping waterdevised an eight-year water and sewerprogram lhat would costis unlikely ever to be implemented In

view of the costs involved

cluded in2 that, in view of the health hazards posed by the presently inadequate system, additional garbage trucksewer upgradingwould costhc lop priority for this sector. US AID has already provided some trucks.|

should ihe refinery suffer addi-^

lions damage, Medreco will siop operations and turn

Fuel. The principal obstacle in the fuel importsystem is not the stale of Ihcplant but transportation problems causedclosings. Lebanon runs mainly onit obtains by offloading crude at the portsand Tripoli and processing it in refineriesport. Fuel is delivered to the rest of thetruck. Two crude oil pipelines exist, but eachdamage. While both can still operate,Last year, Syria closed the Iraqipipeline to Tripoli for politicalthe managemeni of the Saudi pipeline inhas abandoned its unprofitable Operationsthe Tripoli refinery appears to bethe US-owned Mcdrcco refinery insuffered aboutillion in damages infighting in "

d Beirut

over the plant to Ihe Lebanese Government. If the refineries cease, the ports at Sidon, Tyre, and could unload all ihe refined products needed

Industry and Agriculture

The Beirut Chamber of Commerce estimates that,4ne-fourth of the country's industrial plam and equipment wasfactories were destroyed,ore were damaged. Numerous olhers in Ihe Beirut area were destroyed in Ihe shelling inn ihe textile secior. one Of the largest local manufacturing industrieshe wars' disruptions haveactories io close. According lo theurniture manufacturers have also shut down; many now import Ihe goods they used to manufacture.4 industrial production

was al its peak and accounted foromestic output;0 its share hadercent and is probably smaller today.of Lebanon's remaining industrial plantsin the Christian heartland and arcrs

We believe Lebanon's resourceful and entrepreneurial private sector will be able lo rebuild Lebanon's small industrial sector without major outside assistance when relative peace and stability are restored. One Lebanese banker recentlycheme whereby the government and commercial banks would provide equal sharesong-term, low-interest fund for industrial reinvestment.roject, in our view, is unlikelyave much impact. Lebanese banks are brimming with money, and the supply of capital isonstraint. The real problem, in our view, is that very few Lebanese expect political and economic conditions to besjablc enoughil new loans!

Tourism waslourishing sector of Beirut's economy, but today the flow of foreign tourists into Wcsi Beirut has dried up. The industry is nearly as depressed in East Beirut and Ihe Christian resort areas along the northern coast. Many of the best hotels have long since been devastated by shelling, and in any eveni the country's poor internal security



The primary difficulties facing farmersare transportation restrictions,Israeli produce, and the presence of Israelioccupation armies in the fields. Anotheris the reluctance of the Arab Gulfa major market -to buy Lebanesesome has proven to be falsely labeledThe Beirut

is making some loans to lidc rmcrs over, but their income remains depressed. Link, damage has been reported to agricultural equip-mem and oiher capital. Q





Education* Although Lebanon's wealthier classessend their children to private schools, the poorer segments of therely mainly on the public school sysiem. which haseavy beating. The dangers of travel and destruction of school buildings helped to cut the number of children attending public schools by aboutercent3 andmost recent year for which figures arc available. Thirty-nine public schools have been destroyed, accordingMCEF study done innd moreequire some repair. UNICEF is rehabilitatingchools, butchools in Beirut's suburbs financing is unavailable. In Beirut's largely Shia southern suburbs, the need for additional schools is acute..

IfTnere" TTpriman

are only five public secondary schools and primary schools toopulation of.

Wc doubt that the government will move rapidlytheillion worth of work. At feccBt World Bank sponsored meeting,overnmento advance mone>ll did not indicate how much or when lands

would be |


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.esult. Palestinians arc the group with the greatest need for improved health caru. The Governmenl picks up the bill for Lebanese cifl/cns*llrMM, bui ihe non-UNegisteredmust finance their ownj

The CDR has estimated the cost of stopgap repairhealth facilities athas been secured by UNICEF and theestimates are available for the cost ofMost of tbe health facilities in Lebanonlhan three-quarters of its doctors arcin Beirut and the Christian heartland, thecounIr>c" *'tn comparatively htllc medical

rsC'r Bc"ul* Wfthern suburbs, for example,just one hospital, which is run bv the Higher Shine


Although the Israeli Government has invited Beirutin restoring social services inas so far refused in order tothe appearance of collaboration withsouth, however, is

receiving some help. Two medical units arc being built nearfinanced by Rafiqealthy Lebanese businessman and philanthropist, and lhe other by US AID. Construction of the Hariri hospital, however, was stalled by the theft ofand other heavy equipment from the site b> the Lebanese Forces Christian militia,f


The Israeli Factor

The Israeli Defense Force (IDF) is making some improvements and repairs to the infrastructure In southern Lebanon. We believe these arc 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 soulh of the Aw wall River to the Israelifjj^,



The IDF docs not appear lo be hampering the work of private relief organizations in Ihe south. Theprovincial governor, however, has told USthat ihe IDF requires that he coordinate his activities- including infrastructure repair -with Israeli officials. The Deed to collaborate with Israelensitive chord in the Lebanese and lend delay work the provincial gosernor would

We have little information on economic conditions in the Syrian-occupied portions of Lebanon. These areas have been spared much heavy fighting8 and have generally suffered much less damage To our knowledge.ot extending humanitarian or reconstruct ion aid lo northern residents The Syrians do not appear to be obstructing commerce, aparl from sporadic closures of the Beirut-highway



The overriding constraint on rebuilding ihe Lebanesethe Icasi susceptibleoreign help is the widespread breakdown in the enforcement ofcountry's law and order. If domestic confidencetable future could be assured, wc believe the Lebanese would begin lo use their ample financial resources, entrepreneurial ability, and private foreign investments to rebuild the private sectoreriod of eight toears without major foreign assistance. Wc believe the government is unlikelyuster the political strength to collect taxes and begin to rebuild in lhe country's non-Christian areas. Therefore, wc believe ihai 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 Dru?cSocialist Party or Christian Phalange Party undertake ihe work in ihe areas that they control. While these factional groups could finance some water, sewer, and road work, they probably could noi make significant improvements on suchand sophisticated equipment as thenci^

As neither the government nor the private sector is likely to resume investment over at least the next two years, only outsideprobably not evenarrest continued steady deterioration in living standards and capital stock. In our judgment,

innc Arab states nor Westerni arc likely to contribute much to Lebanon's

Government Paralysis

President Amin Gemayel's government,esult of continued civil unrest, is incapable of performing most of the normal functionstale, such as rebuilding publice expect that his situation

' gemayei hasott no attention toccoootnacn iitocs. in contrast lo hit predecessor eliu sarkls. who banked heavilyeneromeai-funded rcconii ruction prorram lo retiore liability and reunite ihe country aller ihe civilin ihe aftermath of thai flghtlnc. saikis collaboratedhia admen 10


eeonilrueiie* program thaie


system intended ta iranrccndnd eommu-iet andcute of nat lornill only worsen in Ihe coming months. In our opinion, there is little prospect over the next year lhat lhe central governmenl will regain authority beyond the Beirut area or that there willedistribution of political power so that ihe Shias, who suffer most from lhe war damage, could squeeze significant langi-blc benefits, such as housing assistance, from the


The desire of some Maronitc Christian extremiststhe rest of the country and create athe northern coastcomplicates the picture. We believe lhal someopposed to any government spending onareas on the grounds lhalshould be saved for the day when theis no longer responsible for those areas andcan then be speni on ihe Christians. Whilenoi believe that Gemayei shares these news. Christian opinion will limit how muchdo in rebuilding non-Christian

Even if Gemayei could muster the political strength io

rebuild, he will have little cash to devote lo the effort.

Government officials acknowledge thai customs fees.

the treasury's key source of domestic revenue, are

virtually impossible to collect except in Beirut. Even

there, evidence

lhat the Phalange Party has regained control of the

"Fifth Basin" of lhe Beirut port and is diverting ships

from government-he Id quays. Moreover,

Party money has recently been used io buy the r

corporation lhat operates Ihe port on behalf of lhe"*'

government, and we believe that the Phalange will

lake advantage of this position to divert even more

ships into the Fifth Basin as well as to skimhare

of what customs the governmenl can collect |

'lhe Central Bank's governor has staled to the author his reluctance to commit Ihe5 billion worth of gold and foreign exchange reserves to rebuilding on 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 lo husband its resources in the event il has to bail out Lebanon's banking indus-



Poor Pros pec Li for Qutsidr Help


The prospects for large-scale financial helpEurope or the Arab stales are also poor. AtBank- sponsored meeting for potentialJuly, only three European governments

SVcs; lie rmanyillion, mostly

in export credits and soft loans. Prance agreed toillion in mixed credits and commercialpart to help promote sale of its lelcphonc-


I.McMHHYrt*itching equipment to the Lebanese. Italy, thecountry to offer additionaldid not commit itself to any specific sumsto make some toft loans and assisteffort to rebuild schools. One reasongovern menu were reluctant to gellhat they fear

for the safety or 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 bombingi of the US and French barracks onctober will, in our view, reinforce this reluctance]

Tnc Ara') *'a,cs have made plain their reluctanceGemayel as long as Israel occupies LebaneseWorld Bank is also reluctant to commit much



cash in view of the unstable military situation and the fact that Gemayel controls so little territory.f

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to reinforce the fortress mentality of the hardline Christians and strengthen their determination lo hang on to their privileged economic and political status.[

Beirut will probably urge the United Slates to direct

its aid solely to the central government. Such n

request would be aimed a( controlling the use of the

funds for projects beneficial to tbe Christians We

believe non-Christian groups would view thr* asindication- in conjunction with the recent US shelling of Druzc and Shia military posit ion* lhat

the US Government favors the Christiansa portion of US aid to private organizations,Catholic Relief Services, operatingn option thai could help dispel B-Wrs


Implications for Ibe United States

Wc believe lhat little improvement in Lebanon's

infrastructure can be expected even if the United

Slates significantly increases ils economic assistance

lo Ihe Lebanese Government In theory, US aid could

most benefit ibe economy if it were used lo repair and expand mayor telecommunications acts, utility grids,

and road systems In practice, however, thoseof the capital slock lhat are repaired with US or otherwould be targets in new

fighting. President Gemayel, however, will continuergue that US economic aid shouldey clement of US support for the Lebanese Government The Lebanese will look not only for US cash but also for specific proposals for rebuilding projects-i


Semiti.itj of Aid

The continued economic stagnation in Lebanon will aggravate Shia and Drure grievances against the central government and farther diminish the chances lhat Lebanon's confessional groups can coexistA* in almost every other area of national life, ihe Shia and Druzc groups have long been given the slum end of the economic stick and demand redress Moreover, continued economic deterioration is likely


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