Back then the country was in tatters. Not only was there an urgent need to rebuild, but the Lebanese pound, which by the fall of 1992 nearly hit LL3,000 to US dollar, also had to be saved. Rafik Hariri was quick to realize that the only way to obtain fast financing was to resort to debt via the issuance of domestic, Lebanese pound denominated Treasury bills. Loans from international banking institutions or supranational organizations such as the World Bank or the IMF would have been too slow to come in, too expensive and insufficient in terms of amount. On the other hand, Treasury bills in local currency, provided they carried a very attractive yield, would be easy to print, issue and place in a large domestic banking sector, which, although under-developed, lacking in significant human resources and strategic guidance, did have sufficient funding that needed optimization.

The banking sector at the time had succeeded in attracting around $6 billion in deposits from expatriate Lebanese but did not have the human resources or managerial quality to employ these new funds efficiently. Banks urgently needed to allocate their funds in such a manner as to boost their stagnating profitability and hence increase their capital base, which at the time was extremely insufficient and well below the international capital adequacy ratio of 8%. By subscribing to high yielding Treasury bills, the banks would not only help finance the government and the reconstruction program, but also buy themselves valuable time for the development of their own banking activities.

So, essenitally, the banking sector became Lebanon's government-supported industry. Which, in the end, seems to be working out about as well as such schemes do anywhere.

Elsewhere in the magazine, Photidiates argues that Lebanon should sell off its gold reserves to help pay off the debt; EXECUTIVE's mysteriously-named "Washington Correspondent" looks at the state of things in Kazakhstan; and Gareth Smythe talks about Iran's troubles with its far eastern partners.