To pay or not to pay: The debate over Lebanon's eurobond continues

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With the deadline approaching for Lebanon to make a $1.2 billion payment on its eurobond debt amid growing economic and currency crises, the debate over whether to pay has become increasingly heated.

The payment is due March 9, and officials have said they will announce a decision Friday or Saturday. As Al Arabiya English has previously reported, a number of financial experts have pushed for Lebanon not to default, saying that it would ruin the country’s prospects of accessing needed international investment in the future. The country’s banking association initially urged for the bond to be repaid, but they revised their stance and asked for a bond swap, rather than default.


On the other side, a number of economists and activists have argued that to make the payment now – particularly if a future debt restructuring is likely – would divert scarce dollars from meeting the population’s most basic needs.

Importers, which have to pay their suppliers in foreign currency, have struggled to get access to dollars at the official rate of 1,500 Lebanese lira to the dollar or have been forced to buy them at the inflated black market rate, which is now around 2,500 lira to the dollar.

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"We know that there’s a very limited supply of dollars left [in Lebanon] and that has to be allocated first for imports,” Mohammad Akkaoui, an economist with the civic organization Kulluna Irada, told Al Arabiya English. “We need to import fuel, wheat, medicine... Around 67 percent of the goods we consumed in 2018 were imports."

Given the likelihood of a debt restructuring in the future, Akkaoui said, “If we chose to use the central bank’s reserves this time and do a bond swap, it’s kicking the can one more time…Even if the government decided to pay right now, unless there's a huge change of wind that yields a big fiscal surplus in dollars and a balance of payments surplus, we're going to restructure at some point."

Read more: Lebanon eurobond crisis: Default, haircut, restructuring, refinancing explained

He added, "What Lebanon needs right now is a multi-phased plan with multiple pillars within it. It needs to be fiscal, monetary, financial, and macroeconomic."

Others have argued that foreign creditors should not be the priority when Lebanese depositors are not allowed access to their own money. Former Labor Minister Camille Abousleiman, an attorney who worked on the legal framework for Lebanon’s bonds, is among them, and he has advocated for the country to restructure its bonds and seek an IMF bailout.

“It is not permissible to pay foreigners while you are forcing the Lebanese to wait in front of the banks to obtain a hundred or two hundred dollars,” Abousleiman has said.

Nothing to lose

Jad Chaaban, an associate professor of economics at the American University of Beirut agreed, saying it is “unethical” to use the country’s dollar reserves to pay foreign creditors under the present circumstances.

As to the counterarguments that defaulting would ruin Lebanon’s reputation, making future borrowing more difficult and expensive, and might embroil the country in costly lawsuits, Chaaban said, “Our reputation is already very bad and our debt is very expensive, so you don’t have anything to lose, basically.”

Some officials have floated the idea of asking Lebanese banks to buy back bonds that they had sold to foreign investors, which would ease the path to restructuring. Chaaban said he thought that could offer a viable option.

“I frankly think if some of the holders start accepting, the rest would accept, because it’s a small fraction of the funds they have – especially the foreign ones, and I don’t think, frankly, that they are willing to pay lawsuits on such small amounts compared to the other funds they have,” he said.

Another contentious issue that will need to be addressed, whether Lebanon makes the payment or not, is whether the country will seek an IMF bailout. While some have argued that there is no alternative, many are wary of the potential austerity measures that would be imposed, and Hezbollah, which is a key part of the coalition that appointed the current government, has opposed the idea.

No good options

Paul Sukkar, an economist and activist, said he opposes both the IMF bailout and any bond payment, particularly of interest, which he described as “depleting our reserves to pay a debt that we’re going to restructure at the end of the day.”

But he acknowledged that whatever path the government chooses will entail economic difficulties and more tough choices.

“The best of both options is bad,” he said. “Now we’re at a stage of total economic collapse, so we’re dealing with bad and worse.”

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