Half-hearted solutions have been the motto of successive governments in Lebanon since the country tapped the international markets to finance the reconstruction of its infrastructure. Former Prime Minister Rafik Hariri, who wanted to breathe life into the Lebanese economy after years of pain, hoped to rebuild Lebanon from the money pledged by donor states in 1992. But these pledges did not materialize.

After failing to secure $5 billion in aid packages from the United States, Europe and Arab states, Hariri was compelled to borrow from local banks and international financial agencies at a very high cost. The interest rates on government treasury bills at the time he took office exceeded 40%. This level was gradually reduced by pressure from the Finance Ministry and the Central Bank. Many economists questioned the wisdom of borrowing at such high rates and wondered why the government had not negotiated lower ones with the banks.

According to Hariri, the reconstruction drive of 1994-1998 accounted for only $5.5 billion out of a public debt of $18 billion in 1998. The remainder was due to accumulated interest and high spending on the military and the salaries of public officials. Now the country has a $35 billion public debt, representing more than 190% of its gross domestic product, one of the highest ratios in the world.

Since 1994, Lebanon has issued over $21 billion worth of eurobonds, compared to $1.5 billion in Egypt and $250 million in Bahrain. It has more bonds in the international bond markets than any other Arab state. Conducted transparently through regular market channels, the issue of Lebanese eurobonds is managed by the Finance Ministry in partnership with international and local investment banks and has attracted a large base of subscribers. Thus eurobonds issued by the government represent more than 50% of Lebanon's $35 billion public debt. The current government of Omar Karameh, who blasted the monetary policies of Hariri's government, was forced recently to tap the local and international markets again to check the rise of the public debt.

In November 2004, the Finance Ministry announced that the government had successfully raised $1.375 billion in dollar-denominated eurobonds in an effort to finance the public debt. "The transaction was co-managed for the first time by Lebanon's BLOM bank, in addition to two international investment banks, Deutsche Bank and Credit Suisse First Boston," Finance Minister Elias Saba said at the time.

The issue was divided into three tranches: $625 million of floating rate notes at six months U.S. Libor (London Inter-bank Offered Rates) plus 325 basis points expiring on November 30th 2009; $425 million of fixed-rate notes at a coupon of 7% due December 14th 2009; and finally a $325 million additional issue of 7.75% notes due in September 2012. This borrowing habit will continue in 2005 because the government does not seem to have the political will or vision to come up with an innovative solution to the "debt trap crisis."

Hariri warned a few months ago that the public debt may reach $45 billion during the next three years if the "political situation in the country remained the same," a clear reference to the extended term of President Emile Lahoud, which divided the country into two large camps for the first time in many years.

Hariri's supporters fear Lahoud may further damage Lebanon's credit ratings in 2005 if he insists in delaying badly needed reforms such as privatization. Theyadd that the International Monetary Fund (IMF) has commended the achievements of former Finance Minister Fouad Siniora, who managed to reduce the budget deficit in 2003 and the first eight months of 2004 by increasing the revenues of the state and reducing expenses.

The IMF projected a GDP growth of 5 percent in 2005 but expressed alarm at the government's inability to implement reforms to reduce the public debt. The Word Bank Vice President Francois Bourguignon, who visited Beirut in December 2004, warned that the public debt in Lebanon is no longer sustainable, urging the government to take immediate measures to reduce it.

Is it too late to implement reforms and cut spending in this tense political climate, or will the new government - to be formed after the parliamentary elections in five months' time - have enough courage to proceed with fiscal adjustment? And is privatization feasible these days or must we look for more logical solutions to reassure the local market?

Piecemeal solutions are no longer acceptable. Banks cannot finance the treasury with money through eurobonds or treasury bills forever. There are probably hundreds of ideas to get out of the crisis, but if the will is absent then we shall have to watch helplessly as our public debt hits record levels and the economy shrinks further.