Confusion and fear hang over Lebanon as debt matures

The Lebanese pound has lost more than 30% of its value on the parallel market since September.
Sunday 08/03/2020
A man walks in front of a bank in Beirut, March 6. (AFP)
Financial woes. A man walks in front of a bank in Beirut, March 6. (AFP)

BEIRUT - Apprehension and confusion thickened as the clock run down on Lebanon’s looming debt maturities of a $1.2 billion Eurobond due March 9. Defaulting or paying the debt is expected to aggravate the acute economic crisis gripping the country.

The government has been studying, with the help of international finance experts, the options of orderly and unorderly default and their repercussions and a third option — partial payment and negotiating the remainder.

“Whether they pay or not, the people at large will suffer the most and will be totally helpless,” said Nada Sleiman, an artisan.

“Lebanon needs to have an economic salvation plan even if it defaults because, if we do pay, there will be no more money to buy fuel, wheat, medicines and other basic commodities. Also, the people’s savings will be put at risk. Definitely, the population will bear the brunt of any decision,” Sleiman said.

Some politicians turned their criticism to Lebanon’s banking sector, which survived unscathed from the country’s devastating civil strife (1975-90) and wars with Israel.

Lebanese parliament Speaker Nabih Berri, of the Shia Amal Movement, accused banks of diluting local holdings by selling their Eurobonds to foreign investors, thus weakening Lebanon’s position in talks with foreign bondholders.

The banks, which for years funnelled deposits to the state, own the bulk of the sovereign debt and have been in discord with political powers over the March repayment.

Bank of America Merrill Lynch, in November, estimated that around 50% of Eurobonds were held by local banks, while Lebanon’s central bank had around 11% and foreign investors owned the remainder. However, those figures may have changed after local banks reportedly sold part of their Eurobond holdings to foreign lenders.

Economists warned that paying the March 9 Eurobond debt on time would eat away at Lebanon’s plummeting foreign currency reserves, while bankers said default would damage the country’s reputation with lenders.

A decision by the financial prosecutor to freeze the assets of 20 Lebanese banks on March 5 was blocked almost immediately by the state prosecutor, who warned that “such a move would send the country, as well as its monetary, financial and economic sectors into chaos.”

The government separately approved a draft law on lifting bank secrecy, which is at the core of the Lebanese banking system. The move was described as “an important achievement” to hold accountable any corrupt person,” including ministers, MPs and public officials.

Public anger has boiled in recent months at the banks, which severely curbed people’s access to their savings and blocked transfers abroad. The Lebanese pound has lost more than 30% of its value on the parallel market since September, reaching a peak of 2,600 pounds to the US dollar.

Financial strains came to a head last year as capital inflows slowed and protests erupted against a political elite that has dominated Lebanon since the civil war and steered it into crisis.

The crisis is rooted in decades of waste and corruption that landed the country with one of the world’s biggest public debt burdens.