Lebanon

A public fight between Lebanon’s new prime minister and its once untouchable central bank governor is jeopardising the state’s efforts to secure badly needed international financial support as it grapples with the worst economic crisis in decades, the Financial Times reported. The dispute came to a head this week after prime minister Hassan Diab, a former computer science professor, had lambasted governor Riad Salame’s handling of the country’s monetary crisis.

Lebanon’s government will seek a loan from the International Monetary Fund after signing off on a rescue plan to begin overhauling an economy facing its worst financial crisis in decades, Bloomberg News reported. “We will ask for a loan program from the International Monetary Fund and formalize our negotiations with Eurobond holders and move forward with that,” Prime Minister Hassan Diab said in a televised speech Thursday after his cabinet approved the plan.

Protests against growing economic hardship erupted in Tripoli and spread to other Lebanese cities on Tuesday, with banks set ablaze and violence boiling over into a second night. One demonstrator was killed in riots overnight Monday, according to security and medical sources, as a collapse in the currency, soaring inflation and spiralling unemployment convulse Lebanon, a country in deep financial crisis since October, Reuters reported. A shutdown to fight the new coronavirus has made matters worse for the economy.

Lebanon’s prime minister launched a scathing attack on central bank Governor Riad Salameh over the sharp depreciation of the pound on the unofficial market amid the country’s worst ever financial crisis, Bloomberg News reported. “There is a dilemma in the suspicious and mysterious way the central bank governor is dealing with the deterioration of the exchange rate of the Lebanese pound, and that’s causing the collapse,” Hassan Diab said in a televised address from the presidential palace.

Investors holding debt protection on Lebanon are in line to share compensation of $215 million after the government defaulted for the first time in its history, Bloomberg News reported. Firms holding credit swaps on the heavily-indebted nation will receive 86% of the amount covered by the instruments, according to the final results of an auction to settle the contracts on Thursday. Credit default swaps pay out when a borrower fails to pay its debt and are used by investors to make negative bets on borrowers or as hedges for bond investments.

Lebanon has reached out to the IMF to discuss its draft rescue plan in hopes of winning much-needed aid after defaulting on its debt, Prime Minister Hassan Diab said. “The finance ministry initiated contact with the International Monetary Fund, from which we have positive feedback on the financial plan, taking into consideration first and foremost the interest of the Lebanese,” he said in a televised speech, Bloomberg News reported. Lebanon’s government is discussing a program to revive its ailing economy and restructure its debt as well as its banks.

Lebanon’s bondholders will have at least 70 per cent wiped off the value of their holdings, according to an analysis of the government’s plan to restructure the country’s huge debts, the Financial Times reported. Lebanon, which defaulted on its $30bn of foreign-currency bonds in February, offered the first hints as to how it plans to return its debt to a sustainable level in a draft document circulated on Wednesday.

Defaulted Lebanon gave the first glimpse of its restructuring plans by setting a goal of halving one of the world’s biggest debt burdens as early as this year and moving to a more flexible exchange rate, according to a draft document seen by Bloomberg. The government is discussing a reform plan submitted by the Finance Ministry and drafted by a group of advisers including other ministries and Lazard Ltd, Bloomberg News reported.

Lebanon’s foreign-exchange crisis is intensifying, prompting another appeal by the government for financial aid after its debt default last month, Bloomberg News reported. Local banks have reduced the amount of dollars customers can withdraw from their accounts and even forced them to accept conversions into the local currency in some instances. Two of the largest have almost stopped dispensing foreign exchange entirely, while the central bank has greatly cut its supply, said senior bankers, who didn’t want to be named.

Lebanon said it will allow small depositors to withdraw funds from dollar accounts at a weaker rate than the decades-old fixed regime, the first official move away from the country’s currency peg amid a severe liquidity crisis, Bloomberg News reported. With hardly any dollars circulating in the banking system, lenders will pay out at a “market rate” in Lebanese pounds to clients with accounts of up to $3,000, according to a central bank circular issued Friday.