Facxtbox: Political risks to watch in Lebanon

BEIRUT (Reuters) - The killing of a top intelligence officer in a Beirut car bomb has thrown Lebanon into fresh crisis, exposing political and sectarian rifts, highlighting its vulnerability to conflict in neighboring Syria and raising fear of more assassinations.

In addition to the political standoff between Prime Minister Najib Mikati's Hezbollah-backed government and its opponents, Lebanon has seen sporadic violence - particularly in the northern city of Tripoli - linked to the conflict in Syria.

Cross-border shelling and incursions by Syrian forces increased over the summer, while support for the mainly Sunni Muslim rebels among their fellow Sunnis in Lebanon has led to a steady flow of arms and rebels into Syria.

The deteriorating political and security environment has hurt the economy. After growing at 7-8 percent for four years, it slowed sharply last year to around 3 percent and is likely to grow by less than 3 percent this year, the Central Bank says.

Here are some of the main risks to watch in Lebanon:

POLITICAL SHOWDOWN

The opposition blamed Syria for the assassination of Brigadier-General Wissam al-Hassan and called on Mikati to resign, saying he was too close to Damascus and its ally Hezbollah - which is part of Mikati's government.

Mourners tried to storm government offices after Hassan's funeral, protesters blocked roads across the country and a prominent opposition politician said there could be no dialogue to resolve the political crisis before Mikati stepped down.

Mikati himself has said he wants to stand aside for a "consensus government" to be formed, but that President Michel Suleiman asked him to remain in office to allow time for consultation and prevent the country sliding into chaos.

What to watch:

- Mikati's coalition government relies on support from Druze leader Walid Jumblatt, who has condemned Assad's crackdown in Syria. If he pulled out of the government in protest, he would bring it down.

- Widening differences over Syria between Mikati and the president, who has taken a gradually tougher stance towards Lebanon's powerful neighbor.

SPILLOVER FROM SYRIA

Officials fear further assassinations after Hassan's killing, which they linked to his investigation into a bomb plot allegedly hatched in Damascus to stoke violence in Lebanon.

More direct spillover from the conflict in neighboring Syria, where activists say 30,000 people have been killed in the 19-month-old uprising against President Bashar al-Assad, has taken place for months on Lebanon's borders.

Syrian forces have fired shells or crossed into Lebanon dozens of times, residents near the poorly defined frontier say, prompting Lebanon's government to protest formally to Damascus for the first time in July.

The Syrian crisis, which pits mainly Sunni rebels against a president from the Alawite faith linked to Shi'ite Islam, has exacerbated sectarian tensions in Lebanon and fears of a fresh conflict in a country that suffered a 1975-1990 civil war.

In the northern city of Tripoli, deadly clashes have broken out between Sunni Muslims and Alawites - as well as between pro-Assad and anti-Assad Sunnis.

Shi'ite Hezbollah, which is allied to Assad, has strongly supported the Syrian president. It denies sending fighters to join his forces, but has held high-profile funerals for members killed inside Syria, according to security sources. Hezbollah's opponents say it is dragging Lebanon into the conflict.

What to watch:

- Growing tension and instability in Tripoli or Beirut

- Increasingly visible Hezbollah role in Syria

CONFRONTATION WITH ISRAEL

Iranian-backed Hezbollah has warned that any Israeli strike on its patron Iran over Tehran's nuclear program would inflame the Middle East. Many believe that Hezbollah, which fought a 34-day war with Israel in 2006, would once again go to war.

The group said in October it launched a drone which flew over Israel before being shot down by a missile.

What to watch:

- Prospects for Israeli strike on Iran

- Border clashes

ECONOMY

The civil war in Syria and Lebanon's own instability have cut economic growth. Tourism, a main source of revenue, has been hit hard with two consecutive summer seasons disrupted and the financial sector - a pillar of the economy - has also slowed.

Political deadlock means no government has managed to get a budget passed in parliament since 2005, one of the reasons behind the lack of long-term economic planning for desperately needed investment in infrastructure and power generation.

Finance Minister Mohammad Safadi's draft budget for 2013 projects the deficit will narrow to $3.11 billion from a predicted $3.69 billion this year.

But that is based on an optimistic forecast that the cabinet - if it remains in office - will approve higher taxes including a VAT rise and levies on profit from real estate sales.

If those revenues do not materialize, the projected increase in expenditure will push the country further into debt and could halt the gradual fall in debt as a proportion of GDP from an eye-watering high of nearly 170 percent in 2007.

What to watch:

- Slowing economic growth and continued budget deficits could start pushing up debt

(by Dominic Evans)

Source: http://news.yahoo.com/facxtbox-political-risks-watch-lebanon-161126232.html

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