Without IMF bailout, what does the future hold for Lebanon?

Lebanese anti-government protesters outside a police barracks in Beirut demanding sweeping economic reforms. (AFP)
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Updated 11 July 2020

Without IMF bailout, what does the future hold for Lebanon?

  • The government estimated losses at around 241 trillion Lebanese pounds, which amounts to about $69 billion at an exchange rate of 3,500 pounds to the greenback

BEIRUT: Talks between crisis-hit Lebanon and the International Monetary Fund are deadlocked, and leaders reluctant to enact reforms. Without a vital multibillion-dollar bailout, is Lebanon headed for “hell“?

For months, the Mediterranean country has grappled with its worst economic crisis since the 1975-1990 civil war.
Tens of thousands have lost their jobs or part of their salaries, while a crippling dollar shortage has sparked rapid inflation.
After the country for the first time defaulted on its sovereign debt in March, the government pledged reforms and in May started talks with the IMF toward unlocking billions of dollars in aid.
But 16 meetings later, the negotiations are stalling.
“The IMF has left the negotiating table and talks have stopped,” said a member of the Lebanese negotiating team speaking on condition of anonymity.
Another Lebanese source familiar with the negotiations said IMF representatives have “not sensed serious commitment from the Lebanese delegation” toward reform. “Every faction is vying for its own personal interests while the country burns,” they said.
Deadlock is common in multi-confessional Lebanon, where politicians have for decades been accused of cronyism, conflict of interest and corruption.
As Lebanon seeks help from the IMF, arguments are mounting over the scale of total financial losses for the state, central bank and commercial banks.
The government estimated losses at around 241 trillion Lebanese pounds, which amounts to about $69 billion at an exchange rate of 3,500 pounds to the greenback. But a parliamentary committee quoted much lower figures using the old currency peg of 1,507 pounds to the dollar.
The IMF considers the government’s figures to be more likely.
The discrepancy in the figures shows the great power and influence of a “lobby ready to see Lebanon burn rather than expose what they did to it,” the Lebanese negotiator said.
Since October, the deepening turmoil has sparked mass protests demanding the wholesale removal of a political class seen as incompetent and corrupt.
The crisis has shot poverty up to almost 50 percent, and unemployment to 35 percent.

FASTFACT

Lebanon’s government says it needs $20 billion in external funding, an estimate that includes an $11 billion aid package pledged by donors at a Paris conference in 2018.

In recent days, the Lebanese pound fetched more than 9,000 to the greenback on the black market.
With prices soaring, many can longer afford to fill their fridges, while others have started bartering clothes or household items online for baby milk and diapers. Four Lebanese killed themselves last week in suicides apparently linked to the economic downturn.
In March, the government pledged reforms long demanded by international donors, including budget cuts, tax hikes and electricity sector reform, but little has come through.
A Western source said that the last meeting “went very badly,” ending with IMF negotiators urging Lebanon’s representatives “to stop taking them for a ride.”
Two key members of Lebanon’s negotiating team who resigned last month have accused the government of showing no clear commitment to reform.
On Wednesday, French Foreign Minister Jean-Yves Le Drian said that he was “very worried.” “Help us help you, dammit,” he urged.
Analyst Nasser Yassin said the ruling class lacked political will.
“To guarantee they won’t lose everything, they would rather the country remain on the cusp of collapsing than initiate serious reforms,” he said. Such reforms, he said, “would strip them of essential tools they use to impose authority and control over the state, the economy, and society.”
Among the IMF’s demands are that Lebanon audit its central bank, and issue official capital controls to replace informal withdrawal and transfer caps imposed by the banks since the autumn.
It has also requested the country float its currency so Lebanese can follow a single exchange rate. To further complicate matters, the IMF talks come as tensions rise between the US and Hezbollah, the Iran-backed Shiite movement that is a key political player in Lebanon.
“Hezbollah is a terrorist organization and we are supportive of Lebanon as long as they get the reforms right and they are not a proxy state for Iran,” US Secretary of State Mike Pompeo has said.
The Western source said: “I don’t see any alternative to assistance from the IMF.” “The country is collapsing, and so is the Lebanese pound, while officials are in denial.”
Lebanon’s government says it needs $20 billion in external funding, an estimate that includes an $11 billion aid package pledged by donors in 2018. But without an IMF rescue, donors are unlikely to pump money into Lebanon, the Western source said.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.