How can Lebanon get out of the economic and financial crisis? (analysis)*

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AA / Mohamed Badine El Yattioui **

Lebanon has faced the most serious economic crisis since the end of the civil war (1975-1990), leading to an unprecedented financial crisis. “The state and Banque du Liban (BDL) are in bankruptcy,” said Deputy Prime Minister Saadé Chami. He used the term “bankruptcy” to say that the estimated $ 72 billion loss should be distributed to “stakeholders” (state, BDL, banking sector, depositors) without going back to details. Because I felt it. distribution.

Economist Mathieu Plane said: This default occurs when a country is partially or completely unable to repay its debt. When a country’s debt becomes unsustainable, as in Lebanon, it is because growth is insufficient to pay interest on the debt. Thresholds vary from country to country and often depend on how debt is structured. The consequences are serious, as a country’s bankruptcy most often leads to a malfunction of the national banking system, devaluation of currencies, and non-payment of civil servants’ salaries.

The Lebanese state faces internal challenges and requires the intervention of outside parties. Which one? How?

Anton Brender, director of economic research at the Candriam Investors Group, said, “We’re talking about debt repayment, but there may be no country anymore, so defaulted countries are managed on a case-by-case basis.” increase. There is no money in their vaults, even to buy medicine and food. ”

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-Generalized poverty

Since 2019, Lebanon’s population has been in widespread poverty. Adib Nehmé, a consultant on development issues at the Beirut-based United Nations Economic and Social Commission for West Asia (Escwa), believes that the current crisis is at risk of structuring without serious political reforms. According to the UN agency, 82% of Lebanese live below the poverty line. In 1998, the United Nations Development Program (UNDP) accounted for 32%, and in 2005 it accounted for more than 25%.

According to the World Bank, the reduction in GDP per capita in 2020 will be 40% and 20.3% of GDP, with the unemployment rate reaching over 40%. As part of this, public debt exceeded 400% of GDP, so payment of public debt became the default in March 2020. Since then, Lebanese have not seen the end of the tunnel with inflation, devaluation and the banking crisis. For almost two years, banks have imposed caps and restrictions on depositors’ withdrawals in foreign currencies, especially dollars.

The crisis stems from the model chosen in the 1990s / 2000s with extreme fiscalization. Financing the real economy was based on rising public debt. The latter is held by a private bank. With 80% of food imported, the agricultural sector is left behind, resulting in great dependence. Lebanon’s “banking” has strengthened the connection between the great family of political life and the financial elite.

-IMF aid plan

The IMF announced last week that it had reached an agreement with the Lebanese government on $ 3 billion in aid over four years. Leaders agreed that the aid plan would be submitted for approval “to undertake some essential reforms prior to the IMF’s board meeting.” According to the IMF, the government, in particular, needs to have Congress adopt a text aimed at restructuring the banking sector and “resuming the financial sector recovery process, which is the basis for sustaining growth.” Bank secrets are on fire to fight corruption. Former Lieutenant Governor of the Central Bank of Lebanon, Nacelle Saidy, was skeptical on Twitter: “Good news if financial and fiscal structure and governance reforms are implemented. It’s unlikely!”

In May 2020, the Lebanese Banking Association (ABL) called for the creation of a “Debt Reduction Fund” with an estimated $ 40 billion in national assets to resolve losses in the banking system. At the meeting with the IMF, requests from former Minister Mohammad Schucare, who is now the representative of the employer, were repeated.

Albert Costanian, a researcher at the Issam Fares Institute for Public Policy at the University of Beirut, believes this is not enough, as privatization of public assets produces only $ 5 to $ 13 billion. .. We are far from the banks’ estimate of 40 billion. There is also gold. The central bank has an estimated $ 17 billion in reserves, but they cannot be disposed of without parliamentary approval. Finally, the credibility of the Lebanese state depends on it, so capital management projects will have to show its effectiveness.

-Debt restructuring

Debt restructuring is necessary, but complicated. Refunds will be rescheduled and some debt may be cleared. Anton Brader explains very well, “It’s in the interests of the lender, because nothing is worse for him than a country that makes him completely fail.”

Of course, the elections scheduled for May 15 could affect the reforms and crisis exit strategies that will be implemented. But without deep political reforms and system reviews, it seems difficult to believe in economic improvements. Financial reforms run the risk of being blocked upstream or downstream by political parties who want to protect certain interests in order to undermine national interests.

* The opinions expressed in this analysis are for the author only and do not necessarily reflect the Anadolu Agency editorial.

** Dr. Mohammed Badine El Yattiowi, Professor of International Relations at the American University of Puebla (Mexico).

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