SAT 4 - 4 - 2020
Mar 6, 2020
The Daily Star
Lebanon: Cabinet set to announce Eurobond default Saturday
Hussein Dakroub| The Daily Star
BEIRUT: With time running out for Lebanon to act on the $1.2 billion Eurobond payment, the Cabinet will meet Saturday to make the “right decision” on the debt due next week, Information Minister Manal Abdel Samad said Thursday.
This comes amid reports that a consensus had been reached between President Michel Aoun, Parliament Speaker Nabih Berri and Prime Minister Hassan Diab for the government to default on the $1.2 billion Eurobonds that are maturing on March 9 and start negotiations with the foreign creditors on a debt restructuring.
The repercussions on the country’s crumbling economy and the shaken banking sector if the government decided to pay or default on the bond payment dominated a Cabinet session chaired by Aoun at Baabda Palace Thursday.
The Cabinet session coincided with an order by Financial State Prosecutor Ali Ibrahim to freeze the assets of 21 Lebanese banks, in the latest move targeting banks which have been attacked by anti-government protesters who blame them for the deteriorating economic and financial conditions. The unprecedented order in Lebanon’s history also prohibits the chairmen of the 21 banks, boards of directors and general managers from accessing assets.
Ibrahim told The Daily Star later that Lebanese banks committed serious violations in money and credit law and for this reason the judges decided to freeze the assets of the bankers.
Speaking to reporters after the Cabinet session, Abdel Samad said: “President Aoun said the Cabinet would hold a session Saturday to study the financial situation and the Eurobond issue to make the appropriate decision on it.”
She said the Cabinet listened to briefings by a number of foreign legal and financial advisers with whom the state had contracted on how to tackle the Eurobond payments.
“They [advisers] presented the options available to the government, in light of which a decision will be made next Saturday,” Abdel Samad said.
She quoted Aoun as saying that Lebanon was passing through “a difficult stage but work is continuing with determination” to resolve the crippling economic and financial crisis, the worst in decades.
Aoun stressed the need to “maintain stable security in the country and prevent attacks on public institutions, private properties and official headquarters.”
Government officials and bankers are split on whether to pay the bond or restructure the debt. Lebanon has one of the highest public debt burdens in the world, a soaring debt of over $91 billion, equivalent to more than 150 percent of GDP.
Some sources said the government was headed for a default in the Eurobond payment amid pressure from ministers and anti-government protesters to restructure the debt, and even apply haircut on big deposits at the banks.
Lebanon has never defaulted on its debt payments. Defaulting could be costly to the ailing economy and the banking system, which until the recent financial crisis was hailed as one of Lebanon’s most profitable and vibrant sectors.
In addition to discussing the impending Eurobond payment and other topics on the agenda, Abdel Samad said the Cabinet approved a draft law designed to lift banking secrecy from “anyone who serves in a public post, either by election or by appointment, and from anyone who assumes an executive or control responsibility in banks, [state-run] funds and councils, political and non-political organizations and audio-visual, written and digital media outlets.”
The lifting of banking secrecy appeared to be part of the government’s promised attempts to fight corruption rampant in the public administration and curb the waste of public funds, largely blamed for the deteriorating economic and financial conditions.
“Today, we began with the issue of lifting banking secrecy, which constitutes a wide door for reforms with the aim of achieving transparency and fighting corruption,” Abdel Samad said, adding that the Cabinet would study another draft law next week related to tax evasion.
Speaking at the session, Diab described the approval of a draft law to lift the banking secrecy as an “important achievement” for the government which, he said, would not back down on its decision to hold “any official responsible for the financial and economic collapse accountable.”
Diab said the government would forge ahead with its mission to rescue the country unruffled by “intimidation” by its political opponents.
“The country is going through very difficult days. We are doing what is possible to reduce the bitterness of this situation. We are working day and night and studying all possible options and all scenarios. What is important for us is to save the country,” Abdel Samad quoted Diab as saying.
“We are listening realistically to many proposals and pursuing every possibility and idea in order to reach a decision that satisfies our conscience, rescues the country, achieves the interests of the Lebanese and protects the people’s money and properties,” Diab added.
Declaring that the country was in “great danger,” Diab said: “We have chosen to carry the ball of fire and we cannot remain as spectators in front of what is happening. We are doing the impossible to tackle huge and many accumulations that led to the current situation.”
The prime minister accused “persons,” whom he did not name, of seeking to “suffocate the country and prevent the government from saving it.”
“We are continuing with our national mission to rescue the country and we will not be affected by all the intimidation they are exercising,” Diab said. He added that the value of the government stemmed from its “cohesion and from waging a battle to save Lebanon united.”
Meanwhile, Hezbollah called for the Lebanese people and politicians to support whatever decision the Cabinet makes regarding the $1.2 billion Eurobond payment.
“The bloc stresses that the Cabinet’s decision regarding the Eurobond maturity must enjoy the widest and broadest political, governmental and popular support to protect the interests of Lebanon and the Lebanese,” Hezbollah’s Loyalty to the Resistance bloc said in a statement after its weekly meeting.
Without mentioning the International Monetary Fund’s possible role in managing the economic crisis, the bloc reiterated Hezbollah’s “rejection of any ready conditions or recipe from any international organization that do not befit the conditions of our country or harm the rights of its people.”
The government has sought the technical advice of the IMF but fell short of asking for financial assistance.
However, Hezbollah was quite clear that it would oppose any conditional financial assistance from the IMF, claiming that the organization would demand unpopular conditions such as raising the value added tax, taxing gasoline, removing EDL subsidies and trimming the size of the public sector.
In sharp contrast, Walid Joumblatt, leader of the Progressive Socialist Party, said Lebanon must cooperate with the IMF to secure badly needed international aid, calling for a "joint program" with the fund.
Joumblatt also urged close cooperation with Hezbollah to assure the powerful group that IMF-backed reforms were no threat to Lebanon's sovereignty.
Speaking to Reuters, Joumblatt said an IMF-backed program was the only way for Lebanon to secure financial support. "I just don't see any other way. Neither the Arabs nor the Americans nor even the French are ready to help us without the coordination of the IMF. This is my impression," he said.
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