IMF-Lebanon talks to continue amid dire crisis

“This situation is fast spiralling out of control”, said the UN Human Rights chief.

Saturday 11/07/2020
A file picture of Lebanon’s Finance Minister Ghazi Wazni. (Reuters)
A file picture of Lebanon’s Finance Minister Ghazi Wazni. (Reuters)

BEIRUT- Talks between the Lebanese government and a delegation representing the International Monetary Fund (IMF) started Friday and are expected to continue next week.

Lebanon had began talks with the IMF in May, hoping to secure aid to tackle a financial crisis considered the biggest threat to the country since its 1975-90 civil war.

The Friday meeting, which was attended by Energy Minister Raymond Ghajar, dealt with reforms in the state-owned electricity sector, which has bled state funds for decades and is seen as one of the major causes of the crisis.

The discussions will continue next week, the Lebanese finance ministry said in a statement.

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.

Finance Minister Ghazi Wazni said last week the talks were on hold pending the start of economic reforms and agreement on the losses.

Friday talks are said to have discussed reforms in the electricity sector, the finance ministry said, but not the financial aid which the country badly needs.

— “Out of control” —

Lebanon’s economic crisis is seen as getting out of hand, the UN rights chief warned Friday, calling for urgent internal reforms coupled with international support to prevent further mayhem.

“This situation is fast spiralling out of control, with many already destitute and facing starvation as a direct result of this crisis”, Michelle Bachelet, the United Nations High Commissioner for Human Rights, said in a statement.

lebanon debt

Two days earlier, French Foreign Minister Jean-Yves Le Drian said he was “very worried”.

“Help us help you, dammit”, he urged.

Analyst Nasser Yassin said the ruling class lacked political will.

“To guarantee, they won’t lose everything, they would rather the country remain on the cusp of collapsing than initiate serious reforms”, he said.

Such changes, he said, “would strip them of essential tools they use to impose authority and control over the state, the economy, and society”.

For months, Lebanon has grappled with its worst economic crisis since the civil war.

Tens of thousands have lost their jobs or part of their salaries, while a crippling dollar shortage has sparked rapid inflation.

After the country for the first time defaulted in March, the government pledged reforms and two months ago started talks with the IMF towards unlocking billions of dollars in aid.

But 17 meetings later, the negotiations were stalled.

— Deadlock–

A Lebanese source familiar with the negotiations said IMF representatives have “not sensed serious commitment from the Lebanese delegation” towards reform.

“Every faction is vying for its own personal interests while the country burns”, they said.

Deadlock is common in multi-confessional Lebanon, where politicians have for decades been accused of cronyism, conflict of interest and corruption.

As Lebanon seeks help from the IMF, arguments are mounting over the scale of total financial losses for the state, central bank and commercial banks.

Alain Bifani, a senior member of Lebanon’s negotiating team with the IMF, attends a news conference after his resignation from his post as finance ministry director general, in Beirut, June 29. (Reuters)
Alain Bifani, a senior member of Lebanon’s negotiating team with the IMF, attends a news conference after his resignation from his post as finance ministry director general, in Beirut, June 29. (Reuters)

The government estimated losses at around 241 trillion Lebanese pounds, which amounts to around $69 billion at an exchange rate of 3,500 pounds to the greenback. But a parliamentary committee quoted much lower figures using the old currency peg of 1,507 pounds to the dollar.

The IMF considers the government’s figures to be more likely.

The discrepancy in the figures shows the great power and influence of a “lobby ready to see Lebanon burn rather than expose what they did to it”, the Lebanese negotiator said.

Since October, the deepening turmoil has sparked mass protests demanding the wholesale removal of a political class seen as incompetent and corrupt.

The crisis has shot poverty up to almost 50 percent.

With price soaring, many can longer afford to buy diapers, or fill their fridge.

Four Lebanese killed themselves last week, apparently due to the economic downturn.

In March, the government pledged reforms long demanded by donors, including budget cuts, tax hikes and electricity sector reform, but little has come through.

Two key members of Lebanon’s team resigned last month, accusing the government of lacking commitment to reform.

Among the IMF’s demands are that Lebanon audit its central bank, and issue official capital controls to replace informal withdrawal and transfer caps imposed by the banks since the autumn.

It has also requested the country float its currency so Lebanese can follow a single exchange rate.

— Hezbollah factor —

To further complicate matters, the IMF talks come as tensions rise between the United States and Hezbollah, the Iran-backed Shia movement that is a key political player in Lebanon which Washington and a number of Western and Arab capitals have listed as a “terrorist” organisation.

Putting its ideology-driven agenda first, Iran-backed Hezbollah has acted as state-within-state and deprived Lebanon of good will in the West.

Hezbollah chief Hassan Nasrallah has been pushed in recent weeks to moderate his opposition to talks with the IMF. But he jockeyed to drag Lebanon in the “axis of resistance camp”, the regional radicals club.  He suggested that the Lebanese authorities shift their focus on alliances away from the West and negotiate an oil-for- Lebanese pounds deal with Tehran. Lebanese government sources have excluded such an option.

Despite all the politicking, Lebanon does not have many choices. A Western source said: “I don’t see any alternative to assistance from the IMF”.

“The country is collapsing, and so is the Lebanese pound, while officials are in denial”.

Lebanon’s government says it needs $20 billion in external funding, which includes $11 billion pledged by donors in 2018.

But without an IMF rescue, donors are unlikely to pump money into Lebanon, the Western source said.

“An IMF agreement will help correct Lebanon’s reputation”, he advised.

Lebanese pound banknotes at a currency exchange shop in Beirut. (Reuters)
Lebanese pound banknotes at a currency exchange shop in Beirut. (Reuters)

The Lebanese source agreed an IMF rescue would help Lebanon avoid the worst.

“With a skyrocketing exchange rate that could reach 25,000 to 50,000 Lebanese pounds to the dollar and inflation increasing by the day, Lebanon, without the IMF, will plunge into hell,” he said.