Expert View: A decade of rebuilding laid waste in four weeks

In trying to find a needle, Israel has burnt the haystack

A sultry morning in Beirut in the mid-1990s. For the group of London investors crowding round the scale model of the city, it was difficult to comprehend the extent of the destruction. More than a decade of foreign occupation and bloody civil war had pulverised almost everything. The reconstruction team told us that a poll of local people's memories had to be used to identify 10 landmark buildings. Only these would be rebuilt as copies. Everything else would be begun from scratch.

The next 10 years saw brave and enterprising people rebuild the "Paris of the East" brick by brick. Human effort on a colossal scale; the triumph of hope over experience. There was also $5bn (£2.6bn) of foreign investment. Lebanon once more became the R&R centre of the Middle East: Westerners weekended in Dubai, Arabs in Beirut.

Political healing accompanied the economic reconstruction. It is only last year that President Bush himself walked out on to the White House lawn with the Lebanese leader and hailed the "Cedar Revolution". Democracy revitalised.

Gone, all gone. In four weeks the full might of Israel has achieved a comprehensive destruction to rival that of 18 years of civil war. The Lebanese economy had been heading for a record year. Exports were up 100 per cent in the first five months of 2005, and GDP was growing at more than 5 per cent. Now, the economic infrastructure is in ruins. The government estimates that 95 per cent of all bridges in the country have been destroyed. The recently completed motorway network is mere rubble. In trying to find the needle, the Israelis have burnt the haystack.

Not surprisingly, the Association of Lebanese Industrialists is reporting a complete shutdown by manufacturing industry. At least 45 factories have been hit by Israeli air strikes, and many multinational businesses have been damaged, including the Danone plant and Procter & Gamble's warehouse in Beirut. The Minister for Industry estimates 65 per cent of productive capacity has been destroyed.

Other aspects of the economy are just as depressing. Tourism was 12 per cent of GDP, and growing fast. The 135-mile coastline had seen a string of new developments financed by foreign investment. Visitor numbers were up 53 per cent in the first five months. Last week, the pro-bombing Spectator published a cartoon of the Lebanese beaches and a tourist wearing a T-shirt: "Club Mad".

It is perhaps surprising, given the extent of what is going on, that the Lebanese banking system seems still to be functioning. True, it was sound to begin with, with $11bn in foreign exchange reserves, and 70 per cent of deposits in dollars. But not surprisingly, with one in four of the population without a home, there was a run on the banks, forcing the central bank to limit withdrawals to just $1,000. At present, Saudi and Kuwaiti charitable guarantees are holding the financial system together.

In the short term there is a real danger that basic systems simply will no longer hold, and hundreds of thousands more lives will be put at risk. The crucial element appears to be fuel. Gasoline on the black market in Beirut is selling at a 100 per cent mark-up on already inflated prices. In the south it can reach $100 a gallon. What's left of the hospital service is close to shutdown as the energy crisis bites.

All the Lebanese I have spoken to in recent weeks have been surprisingly optimistic. Provided the short-term humanitarian crisis is avoided, they were confident that they would simply rebuild their economy from scratch again. Their Blitz spirit is awe-inspiring.

The long-term effects outside of Lebanon are less inspiring. Remember the special place the country holds in the hearts of all those weekending Arabs. It is difficult to see what the Israeli offensive will achieve politically or militarily. For Condoleezza Rice to describe it as "the birth pangs of a new Middle East" seems risible. Unless, that is, she is referring to an economic effect - a Middle East in which the US will never do business again.

Christopher.walker@tiscali.co.uk