Lebanon's financial system, which has managed to hold together through years of civil war, is finally beginning to crack.
Merchants and bankers in this former center of trade and finance for the Arab world say that for the first time in a decade of sectarian strife, economic conditions in Lebanon have turned more menacing than the lawlessness and fighting in the streets.
Previously, Lebanon's vaunted economic resilience had kept alive hopes that the country could bounce back to general prosperity if a political settlement were ever reached among warring factions.
But confidence in the economy was shaken badly last week when the value of the Lebanese pound dropped by 11 percent in two days -- the most rapid fall on record. To stop the panic, which analysts said was encouraged by speculators, Lebanon's Central Bank swiftly tightened several banking measures.
Economists and bankers predict that if the political deadlock is not broken very soon and public confidence bolstered, the pound will plummet again and could bring down the economy with it.
"The rot, which set in a long time ago in the political and security situation, has finally hit the monetary system," said Elias Saba, a former finance minister and now chairman of the Allied Business Bank in Beirut. "It was incongruous to think that a government which is having difficulty just keeping open the road crossings between east and west Beirut could maintain a sound financial system."
Many Lebanese had expected that their legendary capitalistic skills and once thriving services sector would somehow cushion the country from the stresses of war. The signs suggesting that the foundations of the economy are now crumbling have shocked people long since numb to the catastrophes from bombs and gunfire.
"People here were used to a healthy economy, even in bad times," said Andre Chaib, chief economist at the Central Bank. "We went through this war for 10 years and the economy did pretty well. Now there is a big shock, call it a cultural and economic shock."
Signs that the nation's economic Lebanese long numb to catastrophes from bombs and gunfire have been shocked by signs of crumbling economy. supports are failing have been increasing for months. The balance of payments, which had shown a surplus nearly every year since the fighting began in 1975, dove deeply last year into a deficit of $839 million. An equally large payment deficit is expected for 1984.
The slide reflects a falloff in foreign investment and in remittances sent home by the hundreds of thouands of Lebanese working abroad. In the past, these payments had balanced the heavy expense of Lebanon's imports.
War has destroyed about half the country's productive physical stock. Work is hampered by incessant bouts of street fighting, by electricity cuts and by the difficulty of moving goods across a country with two-thirds of its territory still occupied by either the Syrian or Israeli armies. Much of the rest is controlled by opposing Christian and Moslem militias.
"Lebanon is becoming an economic impossibility, a disaster for everyone, with cantons here and there," said an executive representing a major investment group in Beirut.
Many companies have closed or laid off workers. About a third of the labor force has already moved broad, resulting in a substantial drain of skilled workers.
While the energy of the private sector has been sapped, government spending has expanded rapidly, much of it for imports of military weapons. Public debt grew from zero in 1975 to $900 million last year.
Gradually, the pound had declined in value on foreign exchange markets, though never as dramatically as last week. Confronted by the destruction in Lebanon, banks here have diversified throughout the Middle East. But economists say a large number are in serious trouble because of bad loans that are still being carried as assets on bank balance sheets.
"In the past people hoped things could be reversed," said an executive with an East Beirut trading firm that imports such luxury items as Remy Martin cognac, Cadbury chocolates and Chloe perfume. "Now, for the first time, they have come to feel the situation is irreversible."
Government officials contend that the problems of Lebanon's financial system have been exaggerated. They say the country's economic slump is, in part, a result of a general recession in the Arab world.
"This is not to minimize the crisis, but simply to define its scope better," said the Central Bank's Chaib. He also observed that over the past four years such major West European currencies as the French franc and British pound had, like the Lebanese pound, diminished to about half their value in relation to the U.S. dollar.
Lebanon's prime financial asset -- its gold holdings totaling 9.22 million ounces -- remain "untouched and untouchable," said Chaib, adding: "It's a strength people forget about."
But even those clever entrepreneurs who had managed to make money on the war now complain that the general deterioration of the economy is hurting them, too.
Sami Zod, who quit police work in 1977 and made a small fortune selling safes, alarm systems and other security equipment to a frightened Lebanese public, reported a slump in sales this year. Many firms are delaying buying decisions, Zod said.
Some others are still finding ways of cashing in on the crisis. Last week's run on the pound, which brought the currency down to 8.5 to the dollar, was widely blamed on speculators trying to make easy money.
A number of retailers immediately hiked the price of their imported goods when the pound fell, although they had bought the products at the old rate. A Beirut car dealer, raised the price of a Honda Accord by 26 percent.
Smuggling has thrived in the power vacuum, robbing the government of customs duties that would otherwise be a principal source of revenue. "Illegal" docks have sprouted along the Lebanese coast, each serving a particular area of the fragmented country. These are run by local militias, which levy taxes to finance arms purchases and other expenditures. The militias also collect sales taxes and protection money from private businesses in their areas.
Warned Lebanese economist Paul Klat: "At this stage, the situation is not yet completely hopeless. But the warlords should realize the gravity of the economic problems the nation is facing. Instead of discussing trifling matters like increasing the number of the members of parliament or whether the term of office of the speaker of parliament should be two years instead of one, the warlords should decide whether they want the currency and the system to survive or not."