The Lebanese, like everyone else, have been watching the international financial crisis with a mixture of excitement and apprehension. A crisis of a different sort has already hit Lebanon earlier with the inflation in the prices of primary materials. It hit Lebanon even harder because of a system of monopolies and cartels over gaz, petroleum, pharmaceuticals, and wheat. The inflation rate over the past year was 12%, three times the average of countries exporting to Lebanon (Arabic link).

But with the current global crisis, prices of primary materials are going down. The Lebanese Lira is also rising with the dollar (from 1EURO=2201 to 2051.26 LL). In addition, ironically, the fall in share prices on the international scene has invigorated the Beirut stock exchange. Investors who are losing money abroad are selling shares on the BSE to acquire liquidity, which has stirred up a buying movement (Arabic link). In addition, expats and Arabs have been transferring assets to Lebanese banks, which are regarded as safe by many (English link).

The reason Lebanon has been spared the repercussions of the crisis so far has less to do with its being a developing country and more to do with the Central Bank carrot-and-stick policy: high-interest government bonds and stringent rules on risky investments. The confidence inspired by the Lebanese banking system is the result of reputation as well as reforms undertaken over the past twelve years — a confidence recently reinforced by the positive assessment of a World Bank delegation (Arabic link).

All is not rosy, however. The director of the World Bank in Lebanon, Edward Gardner, believes the crisis might still hit Lebanon from the back door: the Gulf. Direct investments aside, a crisis in the Gulf could affect Lebanon in two ways: decreasing migrant remittances and increasing unemployment (Arabic link).

It is too soon to say whether this long-term scenario will materialize or not, and obviously it depends on how long the crisis will last and how severe its impact will be. But the short-term view is working to the country’s advantage for a change. With its characteristic blend of parochialism and internationalism — a finance economy revolving around local banks and an investor/depositor body in Diaspora — this particular cup might actually pass.