Lebanon

Lebanon's creditors are wary of the risk of even steeper losses as a devastating blast in Beirut complicates an already stalled debt restructuring process, the International New York Times reported on a Reuters story. Even before Tuesday's explosion in Beirut's port that killed 154 people, progress had been slow on a turnaround from deep financial turmoil that culminated in a default on Lebanon's foreign currency debt in March.

As emergency services assess the toll from Tuesday’s deadly explosion in Beirut, one immediate consequence is becoming clear to analysts: it will ratchet up pressure on Prime Minister Hassan Diab to make meaningful progress in talks with international lenders and investors, Bloomberg News reported. For some observers, that means quickly addressing the internal divisions and foot-dragging that have stalled negotiations with the International Monetary Fund about a $10 billion loan program following the country’s March Eurobond default.

Lebanon is hurtling toward a tipping point at an alarming speed, driven by financial ruin, collapsing institutions, hyperinflation and rapidly rising poverty — with a pandemic on top of that, the International New York Times reported on an Associated Press story. On Monday, the country's foreign minister resigned, warning that a lack of vision and a will to implement structural reforms risked turning the country into a “failed state.” The collapse threatens to break a nation seen as a model of diversity and resilience in the Arab world and potentially open the door to chaos.

Lebanon may only count on the International Monetary Fund for as little as half the bailout it had originally sought to help unlock other assistance the country critically needs to bridge the crisis, according to a top official, Bloomberg News reported. With talks over a $10 billion loan program stalling for much of this month, the IMF could provide an amount in a range of $5 billion to $9 billion, Economy Minister Raoul Nehme said in an interview with Bloomberg Television. Although Lebanon’s economic collapse is accelerating, Nehme gave no time frame for when a deal might be reached.

Lebanon had its rating cut to the lowest grade by Moody’s Investors Service, which said that bond investors will likely suffer major losses on their holdings as the government struggles to secure aid to ease a crippling financial crisis, Bloomberg News reported. Moody’s lowered Lebanon’s credit score to C from Ca, the same level as crisis-ravaged Venezuela. It reflects Moody’s “assessment that the losses incurred by bondholders through Lebanon’s current default are likely to exceed 65%,” the agency said in a statement.

Hyperinflation has blighted Zimbabwe, Venezuela and the former Yugoslavia among others over the years, Reuters reported. Now, Lebanon has been gripped by the phenomenon, becoming the first country in the Middle East and North Africa to suffer from rapid, runaway price rises for goods and services. It joins Venezuela, which has been locked in hyperinflation since April, its second bout in recent years, according to Steve H. Hanke, Professor of Applied Economics at the Johns Hopkins University and an expert on the topic.

Lebanon’s central bank has set up a committee to restructure financially stricken commercial banks and study their performance, according to a memo by the bank seen by Reuters on Thursday, Reuters reported. The panel will also propose measures to preserve the soundness of the banking sector, the memo said. Lebanese banks are poised for a major shake-out after the country plunged into a financial crisis last October that has ballooned prices, slashed jobs, and brought on capital controls that have frozen people out of their dollar savings.

The International Monetary Fund urged Lebanese authorities on Monday to unite around a government rescue plan and warned that attempts to lower losses from the financial crisis could only delay recovery, Reuters reported. The government’s rescue plan has served as the cornerstone of talks with the IMF and maps out massive losses in the financial system. The talks have been bogged down by a row over the scale of financial losses that has embroiled the government, the central bank, commercial banks and lawmakers from Lebanon’s main political parties.

Lebanese lawmakers urged the government to avoid a default on its local-currency debt and asked it to reevaluate central bank liabilities to help secure a critical bailout from the International Monetary Fund, Bloomberg News reported. Member of parliament Ibrahim Kanaan said Wednesday that the IMF held a meeting with lawmakers earlier this month and told them Lebanon faces a choice of “no reform, no program” -- referring to the $10 billion loan the government is trying to negotiate with the Washington-based lender.

The IMF has warned Lebanon that its central bank has accumulated losses of as much as $49bn, as divisions between the government and the Banque du Liban threaten to derail vital bailout talks with the multilateral lender, the Financial Times reported. The BDL does not publish profit and loss accounts.