Lebanon’s plan to tackle a financial and economic crisis will meet IMF recommendations and will be ready in weeks, the finance minister said on Thursday, adding that any recourse to an IMF program must be politically agreed and its terms should not cause suffering.
Speaking days after the heavily indebted state declared it could not meet coming debt payments, Finance Minister Ghazi Wazni also told Reuters the official exchange rate of the Lebanese pound would be maintained for the “foreseeable future,” saying this helped control inflation among other factors.
The plan being drawn up by Prime Minister Hassan Diab’s government will form the cornerstone of efforts to pull Lebanon out of the worst financial crisis since independence in 1943. It will cover banking, financial and other economic reforms.
Lebanon has so far requested technical assistance from the IMF but not financial aid that would typically come as part of a program of reforms. A team of IMF experts visited Lebanon last month.
IMF spokesman Gerry Rice, speaking before Wazni’s remarks, underscored the need for Lebanon to draft a comprehensive plan.
“Given the severity of economic conditions in Lebanon, it’s important that the government designs and implements properly a comprehensive package of reforms to effectively address the economic challenges and improve Lebanon’s economic prospects,” he said.
Wazni said the IMF was ready to send experts back to Lebanon once the plan was ready. The government’s plan would meet “the recommendations of the IMF” and include a plan that Beirut is drawing up with the World Bank.
Wazni said Lebanon was in need of $25 billion to $30 billion of assistance over the next five years to get out of the crisis.
“Lebanon welcomes all international financial assistance without exceptions. But when it comes to the IMF, this depends on several matters: that the understanding with the IMF - if Lebanon resorts to it - ... does not negatively affect the political situation in Lebanon,” Wazni said.
The terms should also not affect “the social situation and livelihoods” and there should be “political understanding” on any program, he said. The Fund should not impose “traditional conditions” such as tax increases or privatization.
Many analysts believe an IMF program is the only way for Lebanon to secure financial support, but it has been opposed by the powerful Hezbollah group, which backs the government.
There has been no sign of a bailout for Lebanon from states that have provided support in the past. They say the government must reform before any assistance is forthcoming this time.
Keeping the Lebanese pound rate
Lebanon has suspended payment of a $1.2 billion Eurobond that was due on March 9, saying foreign currency reserves are critically low and needed to pay for essential imports, and called for debt restructuring talks with creditors.
Wazni said the government plan would also be presented to bond holders with whom preliminary contacts had started via its financial adviser, US investment bank Lazard.
“When you want to communicate on the issue of the public debt or its restructuring, you have to present the creditors a convincing, credible, comprehensive program,” he said.
“If the negotiations reach an orderly path ... and there is agreement with creditors, then we can avoid lawsuits,” Wazni said.
The long-brewing crisis came to a head last year as capital inflows slowed and protests erupted against the ruling elite over decades of state corruption and bad governance.
The Lebanese pound has lost around 40 percent of its value on a parallel market relative to the official exchange rate pegged at 1,507.5 pounds to the dollar, which is still used for the purchase of fuel, wheat and medicine.
“Currently, we will keep (the currency peg) in order not to increase inflation ... and we will consider a flexible policy later on,” Wazni said.
But it was “very difficult to determine the time frame” for when Lebanon would move away from the peg, he said.
“This depends on Lebanon’s ability to improve public finances, debt, the situation of the banking sector and the capital inflows that will come,” he said.
Wazni said the government took a step last week in the direction of reforming the electricity sector, a major drain on state coffers, by approving the construction of facilities that will switch power generation to natural gas from more expensive fuel oil.
Costs of servicing the debt in Lebanese pounds had also been reduced by 25 percent, he said.
Wazni also said central bank governor Riad Salameh, who has faced criticism from some politicians over central bank policies, would remain in his post. “He is staying,” he said.