Beirut, Lebanon- Lebanon will seek an International Monetary Fund aid package to help it recover from its worst-ever financial crisis, Prime Minister Hassan Diab announced on Thursday, after his government endorsed a financial rescue plan to pull the country out of its downward economic spiral.
In a televised address to the nation, Diab said Lebanon needs $10bn in international support. He will also try to secure $11bn in favourably-termed loans pledged by the international community two years ago, but which never materialised because the former government failed to implement reforms required to release the funds.
“Congratulations to the Lebanese people that we have a clear roadmap to deal with public finances. I can say we are on the right track to get Lebanon out of its deep crisis,” Diab said.
The prime minister made the announcement after his cabinet signed off on a financial reform plan that includes restructuring the central bank, commercial banks and the country’s roughly $90bn in public debt.
Renegotiating the terms of that debt with creditors would take six to nine months, Diab said, with the aim of lowering the total amount outstanding from more than 150 percent of the country’s total economic output to around 100 percent.
Lebanon defaulted on a $1.2bn Eurobond in March – the first default in the nation’s history – and subsequently announced it would postpone payment of all other debt.
Diab described Lebanon’s current economic situation as “near-total collapse”. The country’s crisis has been a long time in the making. Dizzying levels of corruption and mismanagement have emptied state coffers for decades, while leaving infrastructure and services to crumble.
For years, Lebanon depended on wealthy Gulf tourists and remittances from its successful diaspora abroad to finance the economy. But conflicts and soured relations stemmed the flow of tourists, while remittances have dried up.
Consequently, the Lebanese pound has lost more than half of its value on parallel markets since last summer. It currently trades 3800 Lebanese pounds to $1 on parallel exchanges – far less forgiving than the long-standing official rate of 1500 Lebanese pounds to one greenback.
Inflation is forecast to sail over 27 percent this year, heaping more pain on tens of thousands of people who have lost their jobs or had wages slashed as the economy has imploded.
The previous government had tried to implement austerity measures to deal with the burgeoning crisis, sparking unprecedented protests that swept the nation. A new government is in power, but since then living conditions have worsened after the government ordered lockdowns to stem the spread of COVID-19.
Proclaiming a “hunger revolution”, angry protesters have returned to the streets every day since the weekend, hurling rocks and petrol bombs at security forces, banks and branches of the central bank. The army has responded with tear gas, rubber bullets and even live fire, fatally wounding a protester in northern Tripoli.
Diab said riots risk plunging the country into chaos, but struck a hopeful tone in his address on Thursday, urging the Lebanese people to come together in support of the rescue plan.
“We can look forward to better days ahead of us if we all unite,” he said.
The draft rescue plan has reportedly remained mostly unchanged since a version was leaked early this month – exception for one controversial provision.
The former draft had proposed to shave off a portion of large bank deposits as part of the restructuring effort, due to the magnitude of impaired assets tied up in non-performing loans and government debt. The plan estimates losses of $81bn in the banking sector.
But the government has since watered down that proposal, with a new leaked draft dated April 28 saying law-abiding citizens should not lose deposits unless “all potential remedies are exhausted,” and authorities would “protect the vast majority of depositors, if not all of them, if possible”.
“We will seek to distribute losses fairly, that is, without any burdens on those who have not benefitted from past policy,” Diab said on Thursday.
As per the final version of the plan, the government hopes to claw back money that “unlawfully escaped the country,” as well as “Illegally obtained funds and assets, in all fields and particularly in PEPs (politically exposed persons)”.
Bank owners will be also “required” to inject an amount equivalent to dividends received between 2016 to 2020 “if they intend to play a role in the recapitalisation of their banks”.
“We want a contribution from the imaginary interests that were paid, and from those who reaped profits from [financial] engineering, and also from those who broke the laws and stole public funds,” Diab said.
At the same time, the government will aim to reform the dilapidated electricity sector that costs the state some $2bn each year and amend inflated public sector, end-of-service benefits.
While the IMF sees Lebanon’s economy shrinking 12 percent this year, Diab said the plan aims to achieve positive growth by 2022.
To do that, Diab said he needs the confidence and support of Lebanese at home and the large diaspora abroad. “Lebanon needs every effort today, every support, every bit of help,” he said.
“Today, we can together build a new Lebanon that matches your hopes and dreams. Lebanese across the world, don’t forget your nation.”