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.


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.

HSBC reports lighter-than-expected third-quarter profit fall

Updated 27 October 2020

HSBC reports lighter-than-expected third-quarter profit fall

  • HSBC has a further headache – geopolitical tensions via its status as a major business conduit between China and the West

HONG KONG: HSBC said Tuesday its third-quarter post-tax profits fell 46 percent on-year as the Asia-focused banking giant continued to take a hammering from the coronavirus pandemic and spiraling China-US tensions.
However, the profit falls were not as bad as some analysts had predicted and HSBC said it expected credit losses to be at the lower end of a previously announced $8 billion to $13 billion range.
The global economic slowdown caused by the virus has hit financial giants hard and there is limited optimism on the horizon as Europe and the United States head into the winter with infections soaring once more.
HSBC has a further headache — geopolitical tensions via its status as a major business conduit between China and the West.
As a result, the lender is in the midst of a worldwide overhaul, aiming to slash some 35,000 jobs by 2022, primarily in its less profitable European and American divisions.
“We are accelerating the transformation of the Group, moving our focus from interest-rate sensitive business lines toward fee-generating businesses, and further reducing our operating costs,” chief executive Noel Quinn said in a statement accompanying the results.
Reported post-tax profit for the third quarter came in at $2 billion with revenue down 11 percent at $11.9 billion, the statement said.
Adjusted pre-tax profit slid 21 percent to $4.3 billion in the period, beating a $2.8 billion estimate by Bloomberg analysts.
Quinn described the latest figures as “promising results against a backdrop of the continuing impacts of Covid-19 on the global economy” as well as low interest rates.
In the first six months of 2020, HSBC’s post-tax profits were down 69 percent, meaning the third-quarter results were something of an improvement as some major economies relaxed some of their coronavirus restrictions.
The bank said its board would consider whether to pay “a conservative dividend” for 2020 based on final end of year results and how the global economy looks in early 2021.
Earlier this year, UK regulators called on British banks to scrap dividends for the year to preserve capital during the pandemic crisis.
HSBC makes 90 percent of its profit in Asia, with China and Hong Kong being the major drivers of growth.
As a result, it has found itself more vulnerable than most to the crossfire caused by the increasingly bellicose relationship between Beijing and Washington.
The bank has tried to stay in Beijing’s good graces.
It vocally backed a tough national security law that Beijing imposed on Hong Kong in June to end a year of unrest and pro-democracy protests.
The move sparked criticism in Washington and London but analysts saw it as an attempt to protect its access to China, which has a track record of punishing businesses that do not toe Beijing’s line.
“Geopolitical risk, particularly relating to trade and other tensions between the US and China, remains heightened,” HSBC said in Tuesday’s profit statement.
The US has sanctioned nearly a dozen key Hong Kong and Chinese officials over the national security law, telling international banks to stop doing business with them.
China’s national security law, however, forbids businesses in Hong Kong from adhering to foreign sanctions regimes, leaving many in an unclear regulatory tight spot.
“Investor and business sentiment in some sectors in Hong Kong remains dampened and ongoing tensions could result in an increasingly fragmented trade and regulatory environment,” HSBC said in its statement.
The bank also highlighted the uncertainty over Britain’s withdrawal from the European Union as another potential headwind.
Talks for a post-Brexit trade deal have made little headway with a 31 December deadline fast approaching.
“There is a risk of additional ECL (expected credit losses) charges, particularly in the UK in 4Q20, if the UK and the EU fail to reach a trade agreement,” the bank said.