Economy

Growing concern in Lebanon as IMF talks stall

By AFP

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In this file photo taken January 15th a woman photographs an ATM machine that was vandalised the previous night by protestors in Beirut, as Lebanon grapples with its worst economic crisis since the civil war. [Anwar Amro/AFP]

Talks between crisis-hit Lebanon and the International Monetary Fund (IMF) are deadlocked, and leaders reluctant to enact reforms. Without a vital multi-billion-dollar bailout, the situation is looking bleak.

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 on its sovereign debt in March, the government pledged reforms and in May started talks with the IMF towards unlocking billions of dollars in aid.

But 16 meetings later, the negotiations are stalling.

"The IMF has left the negotiating table and talks have stopped," said a member of the Lebanese negotiating team, speaking on condition of anonymity.

Another Lebanese source familiar with the talks 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.

Michelle Bachelet, the UN High Commissioner for Human Rights said Friday Lebanon's economic crisis is "fast spiralling out of control".

She called for urgent internal reforms coupled with international support to prevent further mayhem.

'Help us help you'

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%, and unemployment to 35%.

In recent days, the Lebanese pound fetched more than 9,000 to the dollar on the black market.

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

A Western source said the last meeting "went very badly", ending with IMF negotiators urging Lebanon's representatives "to stop taking them for a ride".

Two key members of Lebanon's negotiating team who resigned last month have accused the government of showing no clear commitment to reform.

On Wednesday, French Foreign Minister Jean-Yves Le Drian said he was "very worried".

"Help us help you," he urged.

Analyst Nasser Yassin said the ruling class lacked political will.

"To guarantee they will not lose everything, they would rather the country remain on the cusp of collapsing than initiate serious reforms," he said.

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

'Officials in denial'

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

To further complicate matters, the IMF talks come as tensions rise between the US and Hizbullah, which is a key political player in Lebanon.

"Hizbullah is a terrorist organisation and we are supportive of Lebanon as long as they get the reforms right and they are not a proxy state for Iran," US Secretary of State Mike Pompeo said this week.

"I do not see any alternative to assistance from the IMF," the Western source said. "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, an estimate that includes an $11 billion aid package pledged by donors at a Paris conference in 2018.

But without an IMF rescue, donors are unlikely to pump money into Lebanon, the Western source said, advising that "an IMF agreement will help correct Lebanon's reputation".

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.

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