An agenda for the Federal Reserve’s review of its monetary policy framework


An agenda for the Federal Reserve’s review of its monetary policy framework



In Lebanon, Even Peace Is a Battle

Carlos Pascual and
Carlos Pascual Former U.S. ambassador to Mexico, Senior Vice President for Global Energy - IHS Markit, Former Brookings expert
Martin S. Indyk
Martin S. Indyk
Martin S. Indyk Former Brookings Expert, Distinguished Fellow - The Council on Foreign Relations

August 22, 2006

Victory in the latest war in Lebanon will not be won on the battlefield, but in the race between Hezbollah and the Lebanese government to rebuild homes and lives. Despite President Bush’s pledge yesterday of an additional $230 million for reconstruction, Hezbollah is far out front. The international community will need to get $1 billion into Lebanon now, raise $2.5 billion more over three years, and stimulate $5 billion in private investment to enable the Lebanese government to demonstrate that it, not Hezbollah, can build a peaceful and prosperous society.

Six principles should guide this reconstruction effort.

The first is speed. An emergency donors’ conference should have already been convened. An international fund needs to be created with procedures for fast, audited disbursement. It is important that there be just one trust fund, with one set of rules for all donors, or more time will be spent on the bureaucracy of spending than on restoring economic activity.

The oil-rich Persian Gulf states should provide the bulk of the resources. They have a huge stake in ensuring that a ruined Lebanon does not now fall into the hands of Iran via its Hezbollah proxy. Iran is already financing Hezbollah’s offer of $10,000 grants to pay for housing, furniture and family needs. Recognizing the challenge, Saudi Arabia pledged $500 million in reconstruction assistance.

But the United States needs to do even more, more quickly. Recall that tiny Kosovo, with half the population Lebanon, absorbed more than $2 billion after the 1999 conflict. Congress should make an emergency appropriation of an additional $500 million. And Israel, although it has its own reconstruction needs, should request that Washington temporarily reallocate some of its annual $2.3 billion in American military assistance to help the Lebanese government.

The second principle is to put the Lebanese government out front. If the ”root cause” that President Bush has sought to address is the existence of Hezbollah’s ”state within a state,” then the cure is to replace the militant group’s efforts with government programs to meet the needs of the mainly Shiite population of southern Lebanon and the southern suburbs of Beirut.

Some in Washington may balk at allowing nongovernmental groups to work in municipalities that have elected officials from Hezbollah. But it is exactly Hezbollah’s political success in those areas that shows why the international community must present a visible and effective alternative in all parts of the south.

Doing so will require getting money and programs to the local level, where residents will know what is needed and possible. Aid groups like Mercy Corps, World Vision and Catholic Relief Services — groups whose approaches have been well tested in other war-torn areas — are ready to create family, business and community support programs to help rebuild local economies. But they will need some $100 million immediately from international donors to support these local efforts for the most affected 1.5 million people.

The third principle is to use local capacity. Iraq taught us how not to rebuild: using international contractors that take months to get in place and spend perhaps a third of their budgets protecting themselves. Lebanon has world-class engineers and experience from rebuilding the country after its civil war. Lebanese and Arab contractors who employ local workers should be given priority. Of course, international donors will need to help the Lebanese government design streamlined procurement rules with external auditors. Again, let’s learn from Iraq: payments should be based on results, not on level of effort.

The fourth principle is security. We concur with the urgent calls to deploy an international force in the south. But two other factors are key. One is to train and equip the Lebanese Army — starting with the 15,000 Lebanese troops that will deploy to the south with the international force. Based on experience elsewhere, supporting them will cost at least $20,000 per soldier, about $300 million — about seven times what Mr. Bush proposed. Fortunately, even before this conflict, the Pentagon had studied the modernization needs of the Lebanese military. This plan must be turned into action.

Another security requirement is to bolster the Lebanese civil police force so it can maintain order in areas now controlled by Hezbollah. The United States does not have much capacity in this area, but the European Union does — and Washington should help pay. The Bush administration should tap two separate special authorities Congress provided in the 2006 budget for up to $300 million in emergency security transfers from the Defense Department budget.

A fifth principle is to make maximum use of the private sector. As they showed in recovering from civil war, the Lebanese are among the most entrepreneurial people on earth. Rather than having the West send huge amounts of food aid that can depress local markets, families should be given cash grants that will allow them to buy food.

Thinking big, donors should tap insurance companies and private banks to help Lebanese businesses. Here there is a positive lesson from Afghanistan, where the United States Overseas Private Investment Corporation has insured businesses for more than $1 billion. Imagine the potential in Lebanon if the United States, the European Union, and the World Bank’s International Finance Corporation announced that they would insure $5 billion of new business activity.

And, finally, rescuing Lebanon will require patience and persistence. Among countries that managed to stop wars that were tearing them apart, some 40 percent were at it again within five years. A major reason is that international donors pull out too quickly, before reconstruction takes root.

Yet again, conflict between Israel and Lebanon has wrought immense destruction on both sides. A lasting peace will occur only if the Lebanese people come to see that their government is more capable than Hezbollah of providing them with security, dignity and hope for a normal life.