Page 8 - MEOG Week 25

MEOG F inan C e & in V estment MEOG

Lebanese talks with IMF close to impasse

LeBanon IN May, Lebanon began talks with the IMF for largely tied up in the Central Bank, as well as in
a bailout package to finance its direct needs; loans to the government and private sector that
the value of the package was said to be around have little hope of being repaid on time or in full.
$10bn. Commercial banks are so starved of US dol-
A month ago the talks were said to be “70% lars that they have imposed informal capital
done” but it appears that hurdles remain and the controls severely limiting the number of dollars
talks seem to be heading for the rocks as differing depositors can withdraw.
views appear to have taken root. To shore up the country’s finances and put
A 53 page rescue plan was agreed by the the economy on the path to recovery, Lebanon
government in April after months of haggling. began talks with the IMF in mid-May for a
Financial sector losses were assessed at 241 tril- bailout package worth approximately $10bn to
lion Lebanese pounds ($62bn). finance its direct needs over the next few years.
The blueprint offered a candid appraisal of Beirut is also looking to secure $11bn in grants
how deep a hole the country’s financial sector and favourable loans pledged by donor nations
had fallen into propping up an insolvent, corrupt to finance infrastructure projects and boost the
state that for decades spent beyond its means. economy.
In recent weeks, Lebanon’s parliamentary But a month on, talks with the IMF appear
finance and budget committee has been revising to be stalling.
the numbers and has come up with a much lower “We’re not yet at the stage to discuss specific
estimate of 70 trillion pounds, ($18bn). measures or a possible fund programme to sup-
That is 70 per cent lower than the previous port Lebanon. The discussions remain focused
figure. The committee chair, Ibrahim Kanaan, on the government’s plan,” Gerry Rice, spokes-
a prominent member of a large political bloc person for the IMF, said Thursday.
founded by President Michel Aoun, declared: “These are complex issues which require con-
“The financial truth won.” But others see mat- sensus on how to address the difficult challenge
ters differently. in an effective and equitable manner. Compre-
This week, the prospects for a bailout from hensive reforms in many areas are needed, and
the International Monetary Fund appeared to these require ownership and consensus from
dim, after one of the country’s key negotiators society at large,” Rice said.
with the IMF, henri Chaoul, resigned, saying the Not only is there a lack of consensus on the
Lebanese government had “no genuine will” to financial sector’s losses, with the central bank
undertake painful reforms necessary for unlock- and private banks represented by the Associa-
ing aid. tion of Banks in Lebanon (ABL) contesting the
he said that the country’s politicians and its original figure, there are also very different ideas
financial establishment “opted to dismiss the of how those losses should be covered.
magnitude of these losses that impose them- The government’s rescue plan envisions
selves as an uncontestable reality”. restructuring the state’s foreign and locally held
Economists also fear that the dramatically debt, and forcing bank shareholders and large
lowered estimate of financial-sector losses could depositors to absorb a lot of the losses incurred
scupper a bailout deal. by the financial sector. But the Central Bank and
“These numbers are not going to be accept- ABL are advocating to sell state assets to plug the
able to the IMF, who have said publicly that their holes.™
numbers are closer to the government’s,” Mike
Azar, a financial adviser and former lecturer at
Johns hopkins University told Al Jazeera.
For decades, Lebanon depended heavily on
cash flowing in from abroad from its vast and
successful diaspora.
But in recent years, as remittances dried up,
Lebanon’s central bank sought to bolster its for-
eign exchange reserves by indirectly offering
what many saw as exorbitantly high interest rates
on US dollar deposits by commercial banks.
This enabled the central bank to keep paying
for imports, service state debt and defend an
increasingly unrealistic official exchange rate for
the Lebanese pound, while commercial banks
saw their balance sheets swell, making them look
very profitable.
It is commercial bank depositors who have
been left picking up the tab. The dollars that
depositors now see on their bank statements are

P8 www. NEWSBASE .com Week 25 24•June•2020