Lebanon announces first default in its history

Lebanese Prime Minister Hassan Diab during his statement at the government palace on March 7 in Beirut.
Lebanese Prime Minister Hassan Diab during his statement at the government palace on March 7 in Beirut. – / AFP

Lebanon is going through its first default in its history. Lebanese Prime Minister Hassan Diab announced on Saturday March 7 that the country would not be able to repay 1.2 billion of its debt which is due in two days.

A country crumbling under a debt of 92 billion dollars – about 170% of its GDP – Lebanon "Will restructure its debt in accordance with the national interest"added the head of government, appointed in late December, more than two months after the start of an unprecedented protest movement against the politicians, accused of corruption and incompetence.

"Our foreign exchange reserves have reached a worrying level (…), pushing the Lebanese government to suspend (payment of a debt arriving) due March 9 "Diab said in a speech broadcast live by local channels. "This is the only way to stop the bleeding (…) with the launch of a vast plan of necessary reforms ", one "Lower public spending"added the Prime Minister.

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This is the first major decision by the government, formed in January after weeks of protests demanding the departure of a political class unchanged for decades and structural reforms.

Banks take restrictive measures

Lebanon is facing its worst economic crisis since the end of the civil war (1975-1990), in a context of recession, shortage of liquidity but also of rising prices and persistent unemployment. On March 9, the state was supposed to repay 1.2 billion eurobonds – government-issued treasury bills, part of which is held by banks and the Central Bank. Two other repayment deadlines are scheduled in April and June, for a total amount of $ 1.3 billion.

Meeting at the presidential palace on Saturday, the council of ministers ruled in favor of non-payment of its debt after weeks of negotiations. Shortly before, the head of state, the prime minister, the head of parliament, the finance minister and the governor of the central bank had already hinted that the state would not reimburse.

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Lebanese banks, which hold a large part of the public debt – including almost half of the 30 billion eurobonds issued by Lebanon – had recently called on the state to avoid a default, which would deepen their liquidity shortage especially in dollars. Fearing a depletion of their foreign exchange reserves, banks have already imposed drastic restrictions in recent months, with several establishments capping withdrawals at $ 100 a week and banning money transfers abroad.

In Lebanon, the dollar is used every day in the same way as the Lebanese pound and the Lebanese fear the acceleration of the loss of value of their currency. The Lebanese pound, indexed to the greenback since 1997 at the fixed rate of 1,507 pounds for a dollar, recently came close to 2,700 pounds for a dollar on the parallel market, prompting the central bank to issue a circular Friday limiting the rate in exchange offices at 2,000 pounds for one dollar.

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New protests

The street blames the current situation for a combination of bad policies over the past three decades. The country began to go into massive debt at the end of the civil war to rebuild the country. But in the absence of reforms and good governance, the public deficit has widened, local banks have continued to buy treasury bills and public debt has jumped from a few billion dollars in the early 1990s to more than 90 billion of dollars.

Protesters marched on Saturday in several cities across the country, including Beirut and Tire (south). "We must not pay the price for the government's shortcomings"Nour, a 16-year-old protester outside the Lebanese Central Bank headquarters in Beirut, said. At the request of the state, an emergency mission from the International Monetary Fund was dispatched last month but no financial assistance from the institution has yet been announced.

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The World with AFP


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