by Associated Press — Beirut: Lebanon’s prime minister has said the government will suspend payment of $1.2 billion in loans, marking the crisis-hit country’s first-ever default on its sovereign debt amid ongoing popular unrest. Hassan Diab made the announcement in a televised address to the Lebanese people, saying the country will seek to restructure its massive debt. The $1.2 billion Eurobond matures on Monday. The default marks a new chapter in the crisis and could have severe repercussions on the tiny country, risking legal action by lenders that could further aggravate and push Lebanon’s economy toward financial collapse. The currency has already lost up to 60 per cent of its value on the dollar on the black market and banks have imposed crippling capital controls on cash withdrawals and transfers.

Diab said Lebanon’s debt reached $90 billion or 170 per cent of GDP, making it one of the highest in the world. He added that the total debt and interest Lebanon had to pay back in 2020 is at $4.6 billion “Lebanon’s debt is greater than the country can handle,” he said. By saying that Lebanon will suspend paying back the debt rather than directly saying it will not pay it, Diab’s government appeared to be keeping the door open for negotiations with creditors. Late last month, the government appointed Cleary Gottlieb Steen & Hamilton LLP as a legal adviser on the country’s Eurobond debt and financial advisory and asset management firm Lazard as a financial adviser. Diab said Lebanon’s foreign currency reserves “have reached a critical stage” leading the government to suspend its debt payment so that it can continue to provide basic commodities to the Lebanese people. “The decision to suspend payment is the only way to stop the attrition and protect our national interests, while at the same time launching a comprehensive reform program,” Diab said.

Diab’s six-week-old government is grappling with a severe financial and economic crisis that has led to months of protests and upended trust in the Lebanese banking system. The issue of whether to make the $1.2 billion Eurobond payment was among the first tough decisions his cabinet had to make. In a 20-minute speech, Diab repeatedly pledged various measures to combat corruption and restructure Lebanon’s banking sector. He referred to measures that would need to be taken, hinting at the possibility of raising taxes, but did not announce any immediate painful measures.

He sought to calm nerves, telling the Lebanese that their deposits will be safe. “We will work to protect deposits in the banking sector, especially those of small depositors, which make up more than 90 per cent of all bank accounts,” he said. “How could we pay creditors while the Lebanese people are unable to access their own money in their bank accounts?” asked Diab, referring to capital controls imposed by local banks that are limiting how much people can withdraw from their accounts. ‘This is a revolution’: Lebanon on the brink of ‘chaos and anarchy’ “How could we pay creditors while hospitals are subject to medical supplies shortages? While we cannot provide health care services to our citizens?” he added. Louis Hobeika, professor of economics and finance at Notre Dame University, said Lebanon “will enter crises in the near future that will not be easy to overcome because of accumulation of mismanagement and corruption over the past years”. “We are in impasse today as we cannot pay and we did not reach an agreement with the creditors,” Hobeika said. He said that after Lebanon’s default it will be difficult for the country to borrow money in the future.

Opinions in Lebanon were split on whether to pay or not. Local banks, who are a main lender to the state, say the bonds should be paid on time to protect the country’s reputation. Others say the central bank’s dwindling foreign currency reserves should be saved to import wheat, fuel and medicine in the coming months. Lebanon has been suffering in recent years from a lack of economic growth, high unemployment and a drop in hard currency inflows from abroad but the financial crisis erupted after nationwide protests over widespread corruption and decades of mismanagement by the ruling political class engulfed the country in October.

 

by reuters –– Lebanon announced it cannot meet its debt payments and halted a March 9 bond payment of 1.2 billion U.S. dollars on Saturday, setting the heavily indebted state on course for a sovereign default as it grapples with a major financial crisis. In a televised address to the nation, Prime Minister Hassan Diab said foreign currency reserves had hit a “critical and dangerous” level and were needed to meet basic needs. He called for “fair” negotiations with lenders to restructure the debt. The default will mark a new phase in a crisis that has hammered the economy since October, slicing around 40 percent off the value of the local currency, denying savers free access to their deposits and fueling unemployment and unrest. The crisis is seen as the biggest risk to Lebanon’s stability since the end of the 1975-90 civil war. “How can we pay creditors abroad when the Lebanese cannot get their money from their bank accounts?” Diab said. “Our debt has become greater than Lebanon can bear, and greater than the ability of the Lebanese to meet interest payments.”

The long-brewing crisis came to a head last year as capital inflows slowed and protests erupted over decades of state corruption and bad governance. The previous government had pushed for austerity measures so Lebanon could meet the requirement to unlock foreign loans, which was another reason that drove people who would be affected by the measures to take to the streets. “We are paying the price for the mistakes of the past years. Must we bequeath them to our children?” Diab said. The Lebanese had “lived a dream that was a delusion as though things were just fine, while Lebanon was drowning in more debt,” he said. There has been no sign of a bailout from foreign states that aided Lebanon in the past. Western governments insist Beirut first enact long-delayed reforms to fight waste and corruption. Diab was appointed in January with backing from the Iran-backed group Hezbollah and its allies. Former prime minister Saad al-Hariri, a traditional ally of the West and Gulf Arab states, stayed out of the government.

Not productive enough Diab, a little-known academic when he became prime minister, said corruption had drained the state while also criticizing economic policies adopted since the war. Lebanon was importing 80 percent of its needs and was not productive enough, he said. He took aim at a banking system that drew capital to the country with dollar interest rates five to 10 times greater than those offered abroad. “We do not need a banking sector four times the size of our economy. We will have to come up with a plan to restructure the banking sector,” he said. The gross public debt has reached around 170 percent of gross domestic product, meaning Lebanon is close to being the world’s most heavily indebted state, he added. Citing the World Bank, Diab said more than 40 percent of people could soon find themselves under the poverty line. Lebanon has a population of around six million, including about one million Syrian refugees. (Cover image: Lebanon’s Prime Minister Hassan Diab speaks during a televised address to the the nation at the governmental palace in Beirut, Lebanon March 7, 2020. /Reuters) Source(s): Reuters