42 Middle East & Africa The EconomistOctober 5th 2019
2 dollars to cover Lebanon’s cavernous twin
deficits. Last year’s fiscal shortfall was 11%
and public debt is more than 150% of gdp,
among the highest in the world.
Like a pyramid scheme, however, this
works only with a constant supply of new
money. After a decade of steady growth, de-
posits in commercial banks have begun to
shrink (see chart on previous page). Inter-
est rates as high as 20% fail to attract dol-
lars. But banks keep pouring money into
the bdl. They had $147bn (in dollars and
pounds) deposited with the central bank at
the end of July, a 23% year-on-year jump.
About 57% of the banking sector’s total as-
sets are now at the bdl, up from 51% a year
ago and the highest level this decade.
The country needs economic growth
and a smaller deficit. Neither is likely to
happen. A 2019 budget approved in July is
meant to trim the deficit to 7.6%. Much of
this looks to be an accounting gimmick:
the Lebanese Centre for Policy Studies, a
think-tank, estimates that 46% of the sav-
ings comes from postponing payments to
contractors. The government has made lit-
tle progress trimming the bloated public
sector or reducing subsidies to the state
electric firm of $2bn a year (or 4% of gdp).
The spending plan is also based on pro-
jected 1.2% growth. That may be optimistic:
Last year gdprose by just 0.3%. The imfex-
pects a deficit above 9%. Few industries are
doing well. Retailing is grim. Construction,
which accounts for about 10% of jobs, has
stalled. The number of new building per-
mits issued in the first eight months of 2019
was down by 17% from last year. High inter-
est rates make loans unaffordable for many
businesses. (A rare bright spot is tourism,
which had its best summer since 2011.)
In years past wealthy Gulf states might
have offered a bail-out. They are less gener-
ous today, in part because of frustration
with a Lebanese government seen as too
tolerant of Hizbullah, the Iranian-backed
militia and political party. An international
aid package of $11bn (mostly in concession-
al loans) agreed to last year is frozen until
Lebanon implements promised reforms.
The government will find it increasingly
hard to raise capital abroad. Fitch, a ratings
agency, recently downgraded Lebanon’s
debt to ccc, deep into junk territory. On Oc-
tober 1st Moody’s put its junk status under
review for a possible downgrade.
As ever, the warlords and oligarchs who
run Lebanon are busy bickering. The cabi-
net did not even meet for six weeks this
summer after two ministerial aides were
killed in a shoot-out. And the prime minis-
ter, Saad Hariri, was embarrassed by a New
York Timesreport that he gave $16m to a
South African bikini model he met at a
party. Hundreds of employees of Mr Hari-
ri’s businesses have been laid off this year
or had their salaries delayed. Needless to
say, the model was paid in dollars. 7D
riverscalledit the“highway
through hell”. Attacks on the road
linking Baghdad to Amman occurred so
often in 2014 that truckers were paid
three times the normal rate to haul goods
along the artery. Gangs and militias were
a constant threat. The jihadists of Islamic
State set up roadblocks, charged drivers a
tax of around $300 and even handed out
receipts. The road, officially called High-
way 10, was recently secured by the Iraqi
army. But those who drive on it still face
the threat of extortion or attack.
America spent loads improving High-
way 10 after 2003, the year it toppled
Saddam Hussein, Iraq’s former dictator.
Over the next decade, as the war in Iraq
dragged on, America spent nearly $12bn
on infrastructure in the country. Presi-
dent George Bush touted the improved
roads, hoping they would boost the local
economy and lead to a reduction in
violence. But a working paper presented
at this year’s meeting of the European
Economics Association suggests that the
effort may have had the opposite effect.
The paper’s author, Tamar Gomez, a
doctoral student at Imperial College
London, had plenty of data with which to
work. Digitised maps showed where new
roads were built (the length of the road
network increased by 21% between 2002
and 2011). American agencies kept track
of spending on reconstruction. And a
research centre at the University of Mary-
land logged the location and timing of
attacks. Ms Gomez gathered the material
and used regression analysis, a statistical
technique, to look for relationships
between road-building, economic pro-gressandviolenceinIraq.
She found that, far from stabilising
Iraq, road-building led to more political
violence. Even as gdprose as a result of
reconstruction, so too did the number of
attacks. “In other words, the political and
military mechanisms linked to road-
building overpower the wished-for
economic effects,” writes Ms Gomez.
(Oddly, she did not find a correlation
between spending on roads and violence,
but this is probably because much of the
money was lost to corruption.)
Why did road-building in Iraq lead to
more attacks? One explanation is that
roads are important not just for com-
merce, but also for military operations.
American soldiers used the new roads to
mount missions and transport sup-
plies—becoming targets for insurgents’
ambushes and improvised explosive
devices. The insurgents, too, used the
roads to move around and launch at-
tacks. A study in 2010 of America’s war
logs from Afghanistan found that 86% of
insurgent violence took place near a
road. There is little reason to think that
the Iraq war was much different.
Ms Gomez also offers another expla-
nation, rooted in the politics of recon-
struction. “Roads are a politically
charged infrastructure,” she says. Those
funded by America were viewed by in-
surgents as the embodiment of an un-
welcome occupation and became “privi-
leged targets”. American officials have
admitted that they often failed to win
local support for their big projects. The
roads to hell were, as ever, paved with
good intentions.Roads to ruin
The war in IraqDid American road-building in Iraq lead to more violence?