Lebanon

Lebanon's Spiralling Economic Crisis

Financial meltdown on a scale never seen before in Lebanon has raised fears for the stability of a country facing multiple crises. Political chaos, the COVID-19 pandemic and a huge explosion at Beirut’s port, which killed nearly 200 people and caused billions of dollars in damage, have all deepened Lebanon’s troubles, Reuters reported. After months of discord, politicians are set to nominate a prime minister on Thursday to form a new government that must launch a recovery and unlock foreign aid.

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The International Monetary Fund is willing to work with Lebanon to solve its financial problems and restructure its debt, but needs a partner in the Lebanese government, IMF Managing Director Kristalina Georgieva said on Wednesday, Reuters reported. Speaking with CNN during the annual meetings of the IMF and World Bank, Georgieva said ongoing fragmentation was holding Lebanon back and preventing progress on an economic plan to lift the country out of financial crisis. “It takes two to tango,” Georgieva said.

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Time and money are running out for Lebanon. Foreign reserves have dropped far below what the state already deemed “dangerous levels” when it defaulted on its huge debt in March, meaning it cannot afford to keep subsidies for long, Reuters reported. Leaders in power for decades have yet to enact a financial rescue plan, a year after huge protests against them swept the country, and they have failed to secure aid from foreign donors.

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In early September, six of Lebanon’s top bankers touched down in Paris. It was not a business visit — Lebanese lenders have been shunned by overseas counterparts since the state defaulted in March, the Financial Times reported in a commentary. Representing Lebanon’s powerful banking lobby, the financiers had gone to plead their case to some new sheriffs: French officials. French President Emmanuel Macron is corralling the international community’s efforts to help crisis-stricken Lebanon, while pressuring its unpopular leaders.

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A French official has said it might be difficult for Lebanon’s banks to prevent savers losing some of their deposits, according to the minutes of a meeting in which France outlined steps to help the crippled banking industry, Reuters reported. The comments were made during Sept. 10 talks in Paris between senior French officials and a delegation from the Association of Banks in Lebanon (ABL). Reuters reviewed a copy of the minutes, marked confidential.

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Lebanon has started a forensic audit of the central bank, the Finance Ministry said on Wednesday, one of the steps donors want to see to help the nation claw its way out of a crippling financial crisis, Reuters reported. The government agreed in July to hire turnaround specialist Alvarez & Marsal to conduct the forensic audit, which typically involves close examination of an institution’s financial records and can potentially identify any misuse of funds.

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Lebanon may write off two-thirds of its Eurobonds, and a fifth of the local debt, once it overcomes political differences hindering an economic overhaul, Citigroup Inc. says, Bloomberg News reported. The prediction comes as wrangling between government factions, banks and businesses, as well as the fallout from a deadly blast in Beirut, sidetrack the nation’s efforts to fix an economy already in disarray. So dire is the situation that Citigroup analyst Michel Nies says his projections are based on a favorable outcome and can hardly be called a base-case scenario.

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Lebanon’s lead negotiator for Eurobond restructuring and a key member of the government’s negotiating team with the International Monetary Fund has resigned, Bloomberg News reported. Talal F. Salman, a Harvard graduate who has been serving as an economic adviser to the Finance Ministry for the past six years, submitted his resignation -- effective Monday -- from his position at the United Nations Development Program and the ministry, according to a person familiar with the matter. He’s the third ministry official to quit over Lebanon’s response to its financial crises.

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Lebanon’s central bank has told domestic banks to recapitalize through new means, urge big depositors to move funds back to the country and provision for a 45% loss on their Eurobond holdings, according to several circulars published on Thursday, Reuters reported. Central Bank Governor Riad Salameh later told Reuters the measures aimed to strengthen the banking system, paralysed by the worst financial crisis in Lebanon’s history which has been compounded by this month’s Beirut port blast and COVID-19.

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Lebanon’s central bank will only subsidise fuel, wheat and medicine for three more months, an official source said on Thursday, as critically low foreign currency reserves dwindle, Reuters reported. A central bank official was not immediately available for comment, and the caretaker economy minister referred questions on the matter to the central bank. The source told Reuters the bank had informed the government it would end the subsidies then in order to prevent reserves from falling below $17.5 billion.

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