THU 9 - 7 - 2020
Feb 19, 2020
The Daily Star
Lebanon: Cabinet racing against time over Eurobond payment
Lebanon to invite 8 firms to bid to be financial adviser
Hussein Dakroub| The Daily Star
BEIRUT: As a weakening Lebanese pound reflects uncertainty and confusion over proposed measures to deal with the worst economic crisis in decades, the government is racing against time to decide on whether to pay or default on the $1.2 billion Eurobond that is maturing next month.
This comes as a team of International Monetary Fund experts is due to visit Beirut Thursday for talks with government officials and the governor of the Central Bank on ways to ease the worsening economic and financial crisis, including on whether to pay the $1.2 billion Eurobonds that is maturing on March 9 or restructure the debt.
The IMF delegation is expected to give an assessment on what is needed to salvage the ailing economy that is saddled with a soaring national debt of over $88 billion, equivalent to 150 percent of gross domestic product, an endemic budget deficit and slow growth.
The government has formally requested IMF technical assistance. The IMF has said Lebanon is seeking advice to help with reforms to restore stability and growth and has not asked for any financial assistance.
Options to deal with the economic crisis, including the Eurobond issue, are likely to dominate discussions of a Cabinet session slated to be held at Baabda Palace Thursday.
“Government attention is focused on the Eurobond issue as being the most urgent topic that needs to be resolved before the end of the month,” an official source told The Daily Star.
The Cabinet last week formed a ministerial committee to draw up a comprehensive economic, monetary and financial plan to rescue the country from the crippling crisis. It also asked for technical assistance from IMF experts and other international economists and legal experts on dealing with the crisis, including the Eurobond issue.
Although the government has asked for technical help only, the IMF will consider financial assistance as well "if we are convinced that there is a seriousness in the approach the government is taking,” Managing Director Kristalina Georgieva said in an interview with Bloomberg TV.
Several Lebanese officials have said the country would not want a bailout package akin to what Argentina got from the IMF 2018, given that would come with tough conditions. While Georgieva did not specify what those might be, Lebanese politicians are concerned they would have to raise taxes and abandon the Lebanese pound’s peg to the dollar, which has been in place since the 1990s.
More than a week after it gained a vote of confidence from Parliament, Prime Minister Hassan Diab’s 20-member Cabinet of specialists is facing one of the biggest challenges on whether to pay or not to pay the $1.2 billion Eurobonds.
President Michel Aoun said Tuesday the IMF would give its “technical expertise” for the government’s rescue plan to deal with the economic and financial crisis.
“The economic and financial crisis from which Lebanon is currently suffering is being tackled in order to limit its repercussions,” Aoun said during a meeting with U.K.’s senior defense adviser for Middle Eastern affairs, Lt. Gen. Sir John Lorimer at Baabda Palace. “The IMF will present its technical expertise for the plan that will be adopted in this solution.”
During the meeting that was also attended by the British Ambassador to Lebanon Chris Rampling, Aoun stressed that the “turbulent conditions in a number of Middle East states, particularly in Syria, have negatively affected conditions in Lebanon.”
“We will work to limit the repercussions on the Lebanese situation,” Aoun said.
He thanked the British government for the equipment and training support it provides to the Lebanese Army and the Internal Security Forces, and the “participation of officers in courses in Britain, as well as the introduction of a new system of visual surveillance by cameras and the establishment of model investigation rooms,” the state-run National News Agency reported.
Lorimer assured Aoun of the U.K.’s continued support for Lebanon, particularly the Army and security forces, and hoped that Lebanon would be able to overcome the difficult economic conditions, the NNA said.
As part of his intensive meetings ahead of the decision on the Eurobond issue, Diab met Tuesday with a delegation from the International Finance Corporation, the World Bank's private lending arm, as the debt-ridden country seeks assistance to rescue its moribund economy.
The meeting, that was also attended by a number of ministers, discussed “setting up joint cooperation projects between the private and public sectors and developing the transport sector and the airport,” according to a statement issued by Diab’s media office.
The IMF team’s visit to Beirut comes as Lebanon is grappling with the worst economic and financial crisis since the end of the 1975-90 Civil War.
Amid a dollar liquidity crunch, Lebanese banks have imposed unprecedented capital controls on clients, raising fears about depositors’ savings in U.S. dollars. The Lebanese pound has lost over 40 percent of its value against the dollar on the street, inflation has soared and companies are shutting down as the economic crisis has been aggravated by the nationwide street protests that erupted against the entrenched political class on Oct. 17.
While Lebanese officials are debating whether to pay back the $1.2 billion Eurobond, the credit rating agency, Fitch Ratings, said Tuesday Lebanon's financial situation points to a likely restructuring of the country's massive debt and financial sector to preserve declining foreign currency reserves.
Lebanon has never defaulted before, and the decision is causing much anxiety in the protest-hit country. Many have argued that the priority should be to use shrinking foreign currency reserves to pay for imports of basic needs such as wheat, medicine and fuel.
Uncertainty over the $1.2 billion Eurobond payment, coupled with speculation on the black market, has weakened the Lebanese pound. The pound’s exchange rate fell slightly Tuesday after surging throughout last week.
Currency exchangers were selling the dollar for between LL2,440 and LL2,475, and buying the dollar for between LL2,400 and LL2,430.
The value of the pound Monday fell to its lowest point since November, with many exchange shops selling the pound for LL2,525 to the dollar. The pound is officially pegged at a rate of LL1,507.5 to the dollar.
Meanwhile, the Free Patriotic Movement’s parliamentary Strong Lebanon bloc said it was following up the “legislative path in Parliament relating to the return of looted public funds, the lifting of banking secrecy, disclosure of bank accounts and properties [of officials], and the creation of a special court to deal with financial crimes.”
“We appeal to all political blocs to put this file above any polarization,” said a statement issued after the bloc’s weekly meeting chaired by FPM leader and former Foreign Minister Gebran Bassil.
Lebanon to invite 8 firms to bid to be financial adviser: source
BEIRUT: Lebanon will invite eight firms to bid to be its financial adviser as it studies all options on its sovereign debt, a source familiar with the matter said Wednesday, as the heavily indebted state battles a financial crisis.
The invitation for bids does not mean the country has decided to restructure its debt "but it means Lebanon is studying all options and subsequent repercussions".
The source identified the firms as Moelis & Company, Rothschild & Co, Guggenheim Partners, Citibank, Lazard, JP Morgan, PJT Partners and Houlihan Lokey.
The government is under growing pressure to decide on how to deal with fast-approaching debt payments, including a $1.2 billion Eurobond due on March 9.
A team of IMF experts will visit Lebanon from Feb. 20-23 to meet with authorities on economic challenges and provide broad technical advice "on policies to deal with the macroeconomic challenges facing the economy", International Monetary Fund spokesman Gerry Rice said Tuesday.
He said Lebanon had not requested financial assistance from the IMF. He gave no further details about the trip.
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