Lebanon’s finance minister said Thursday the country’s new government is weighing whether to pay or default on its $1.2-billion Eurobond maturing next month, amid an economic crisis that has sparked months of unrest.
Lebanon is facing a deepening liquidity crunch and a soaring public debt. Lebanese banks raised interests rates in a bid to attract foreign investments – but now the influx of foreign currencies has dried up and the Central Bank’s foreign currency reserves are shrinking.
“It is not easy,” Ghazi Wazni told reporters before the new Cabinet’s first meeting. He was speaking after reviewing different options with the government’s financial team.
“This is an important decision for the country, depositors, banks, the economic sector and international institutions,” he said, adding that the search for the “right decision” was ongoing.
The new government, headed by Prime Minister Hassan Diab, was voted into office earlier this week by Parliament and is facing snowballing political and economic crises.
Anti-government protests have targeted the country’s entire ruling elite, faulting them for widespread corruption and the failing economy.
On Wednesday, the International Monetary Fund said Lebanese authorities had requested its technical advice on macroeconomic issues facing the country.
“IMF stands ready to assist Lebanon,” IMF spokesman Gerry Rice tweeted Wednesday. “Any decisions on debt are the authorities’, to be made in consultation with their own legal and financial advisers.”
The government is widely expected to form a new committee to deal with the vexing financial crisis, which is the worst since the end of the 1975-1990 Lebanese civil war.
But the most immediate question is what to do about a $1.2-billion Eurobond that matures on March 9: default or pay?
Lebanon has never defaulted on its debts. Defaulting could be very costly to the national economy and banking system, which until the recent financial crisis, was one of Lebanon’s most profitable and reputable sectors.
One option that has been floated in the local media is for the government to repay its foreign holders and swap holdings of local banks for longer terms bonds.
Banks have already imposed informal capital controls on depositors, limiting their withdrawals of foreign and local currencies as well as transfers abroad. The limits have prompted protests against the financial institutions – including violent attacks on ATM machines and some bank branches. Security has been beefed up around banks while some branches have shut down their offices.
On Thursday, Wazni said the government is working to streamline informal and irregular decisions by the banks regarding capital controls. “The banks can’t deal with the depositors in an illegal and unclear way,” he said without elaborating.
Lebanon’s international backers have called on the government to institute swift and comprehensive reforms.
Diab, who has vowed to devise an emergency plan to tackle the crisis, has urged the international community and local opponents to give his government a chance.
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