After parliament vote, Lebanon’s new government faces financial credibility test
BEIRUT - The government of Lebanese Prime Minister Hassan Diab, which narrowly won a vote of confidence during a controversial parliament session, will soon face its first painful test with public debt maturities including a $1.2 billion Eurobond due in March, part of $2.5 billion owed this year.
The new cabinet secured 63 votes out of the 84 lawmakers in the 128-member chamber who attended the session February 11. The meeting convened under tight security while anti-government protesters threw stones and clashed with security forces outside fortified barriers surrounding the parliament building.
More than 40 lawmakers skipped the vote. Those who attended skirted the clashes, some reaching parliament on the back of motorcycles or in armoured police vehicles. Eggs and paint were hurled at the cars of MPs and ministers. One MP was hit by stones and needed stitches to close the wound.
“They are criminals hiding behind the army and police. The people reject them. They constitute the worst and most corrupt political class in the world sneaking into parliament like rodents,” said protester Ghada Hassaniyeh.
Lebanon has one of the highest debt ratios in the world, standing at more than 150% of GDP. Lack of economic growth and high unemployment rates sparked nationwide protests since October against the long-standing ruling class accused of corruption and graft.
Diab urged the international community and local opponents to give his Hezbollah-backed government a chance to rescue Lebanon’s economy from collapse. He vowed to fight corruption, while ushering in judicial, financial and administrative reforms, but offered few specifics in his 16-page policy statement.
Economic expert Kamal Hamdan advised defaulting on payments and called for rescheduling the debts, which he said would have less grave repercussions locally than paying them.
“Such a scenario has been applied in many countries that had similar crises in the past decade,” Hamdan said. “Priority should be given to securing depositors’ savings and the people’s means of living, medication and education of their children.”
“The government should alleviate the effect of such a decision on Lebanon’s reputation by designing an action plan and a clear road map within a fixed time schedule that would help regain gradual confidence in the economy, the banking sector and national currency,” Hamdan said.
“Holders of Eurobonds who have amassed fortunes from extremely high-interest rates over years should acknowledge that the other party is in an extremely difficult situation and that it cannot dispose of whatever scarce foreign currency reserves it has to repay debts, while the people are struggling to secure basic means of livelihood,” he added.
While Lebanon could ask the World Bank and the International Monetary Fund (IMF) for technical help to draw up an emergency plan, Hamdan advised against direct involvement of the international monetary groups.
“We have excellent Lebanese economic experts who can devise a programme and ask the World Bank and IMF to give their opinion. We should not have them involved directly because the nation could not bear their conditions,” Hamdan said.
“We need a timed implementable action plan. It should include revisions of the taxation system, streamlining public spending, recovering embezzled public funds and purging the judiciary from corruption and ensuring its full independence.”
International donors pledged some $11 billion in grants and loans for Lebanon in 2018, calling for major reforms to unleash the money. In recent weeks, friendly countries said they will not bail Lebanon out without major policy and regulatory changes.
“Unless the government shows that it has a clear vision and a strong will to implement needed reforms regardless of the sacrifices no one will assist us,” Hamdan said. “If we don’t help ourselves in the first place, no one will help us.”