Background:
Lebanon has made progress toward rebuilding its political institutions since 1991 and the end of the devastating 15-year civil war. Under the Ta'if Accord - the blueprint for national reconciliation - the Lebanese have established a more equitable political system, particularly by giving Muslims a greater say in the political process while institutionalizing sectarian divisions in the government. Since the end of the war, the Lebanese have conducted several successful elections, most of the militias have been weakened or disbanded, and the Lebanese Armed Forces (LAF) have extended central government authority over about two-thirds of the country. Hizballah, a radical Shia organization, retains its weapons. Syria maintains about 16,000 troops in Lebanon, based mainly east of Beirut and in the Bekaa Valley. Syria's troop deployment was legitimized by the Arab League during Lebanon's civil war and in the Ta'if Accord. Damascus justifies its continued military presence in Lebanon by citing Beirut's requests and the failure of the Lebanese Government to implement all of the constitutional reforms in the Ta'if Accord. Israel's withdrawal from southern Lebanon in May 2000, however, encouraged some Lebanese groups to demand that Syria withdraw its forces as well. The passage of UNSCR 1559 in early October 2004 - a resolution calling for Syria to withdraw from Lebanon and end its interference in Lebanese affairs - further emboldened Lebanese groups opposed to Syria's presence in Lebanon.

Economy - overview:
The 1975-91 civil war seriously damaged Lebanon's economic infrastructure, cut national output by half, and all but ended Lebanon's position as a Middle Eastern entrepot and banking hub. Peace enabled the central government to restore control in Beirut, begin collecting taxes, and regain access to key port and government facilities. Economic recovery was helped by a financially sound banking system and resilient small- and medium-scale manufacturers. Family remittances, banking services, manufactured and farm exports, and international aid provided the main sources of foreign exchange. Lebanon's economy made impressive gains since the launch in 1993 of "Horizon 2000," the government's $20 billion reconstruction program. Real GDP grew 8% in 1994, 7% in 1995, 4% in 1996 and in 1997, but slowed to 1.2% in 1998, -1.6% in 1999, -0.6% in 2000, 0.8% in 2001, 1.5% in 2002, and 3% in 2003. During the 1990s, annual inflation fell to almost 0% from more than 100%. Lebanon has rebuilt much of its war-torn physical and financial infrastructure. The government nonetheless faces serious challenges in the economic arena. It has funded reconstruction by borrowing heavily - mostly from domestic banks. In order to reduce the ballooning national debt, the re-installed HARIRI government began an economic austerity program to rein in government expenditures, increase revenue collection, and privatize state enterprises. The HARIRI government met with international donors at the Paris II conference in November 2002 to seek bilateral assistance restructuring its domestic debt at lower rates of interest. While privatization of state-owned enterprises had not occurred by the end of 2003, massive receipts from donor nations stabilized government finances in 2002-04.

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