Lebanon braces for tough conditions in IMF talks


Lebanon braces for tough conditions in IMF talks

(The Daily Star)-11/05/2020

A team of the International Monetary Fund is set to arrive in Beirut next week to begin crucial negotiations with the Lebanese government on financial assistance to help the country out of its worst economic crisis in decades.

However, the visit comes amid growing fears that the IMF, known worldwide for imposing tough conditions and austerity measures on struggling nations as part of its financial aid program, might also do the same thing with Lebanon, one of the world’s indebted countries.

The IMF team’s visit also comes against the backdrop of President Michel Aoun’s warning that Lebanon would eventually have to accept “some severe conditions” from the fund in return for its financial assistance.

“Negotiations with the International Monetary Fund are essential to boost the chances of emerging from the tunnel of the crisis. Probably, we will have to accept some severe conditions that the fund might propose in return for its financial assistance. This is not because these conditions are proposed by the fund, but because [these conditions] will serve the Lebanese state’s interest and push us to take delayed decisions,” Aoun was quoted as saying by visitors to Baabda Palace this week. A Baabda Palace source Sunday confirmed that Aoun’s reported remarks were true.

Separately, former Prime Minister Saad Hariri met Sunday at his Downtown Beirut residence with Saudi Ambassador to Lebanon Walid Bukhari. They discussed latest political developments and bilateral relations between the two countries, a statement from Hariri’s media office said.

Although a harsh critic of the government’s performance, Hariri supported the Cabinet’s decision to negotiate with the IMF on financial assistance.

Aoun did not say what the “severe conditions” might be. But a parliamentary source told The Daily Star that these conditions include: Eliminating the state subsidy to the ailing electricity sector; raising the Value Added Tax from 11 percent to 20 percent; increasing taxes on gasoline; reducing the bloated public sector to half, in addition to the privatization of some of the state’s assets.

The economic and financial rescue plan, approved by the government on April 30, promises to reform the electricity sector, which costs the cash-strapped state around $2 billion in annual subsidies.

The majority of the Lebanese, including trade unions and some political parties, already reeling under the worst economic and living conditions since the end of the 1975-90 Civil War, fear that any possible financial IMF assistance to ease the crisis would lead to imposing tough taxes with the aim of generating funds to the state and reducing the budget deficit.

Aoun was also quoted by visitors as saying that Lebanon would raise with the IMF the huge costs, he estimated at $25 billion by 2018, incurred on the country due to the presence of about 1 million Syrian refugees.

The IMF team’s visit comes in line with an official request signed by Prime Minister Hassan Diab and Finance Minister Ghazi Wazni on May 1 for financial assistance from the IMF, a first by a Lebanese government. The request came just one day after the Cabinet unanimously approved the economic rescue plan.

The blueprint, which calls for a restructuring of the soaring public debt, the shaken banking sector and the Central Bank, is seen essential to encouraging the international community to extend desperately needed financial aid to the cash-strapped country. Diab said last week the government would ask for more than $10 billion from the IMF in the first phase of the loan plan.

But the IMF and donor countries insist on the implementation of reforms before making any commitment to channel funds to help Lebanon.

Wazni told The Daily Star the rescue plan aims for $10 billon to $15 billion of financial support from the IMF and other donor countries, noting that the plan was well received by many countries.

On the eve of the IMF team’s visit, sources at the Finance Ministry appeared to be cautious about the outcome of the team’s talks with Lebanese officials.

“We cannot say we are either optimistic or pessimistic toward the negotiations with the IMF, even though there are many reasons that make us to be optimistic,” Al-Joumhouria newspaper quoted a Finance Ministry source as saying.

“The Lebanese side is fully ready to begin serious negotiations with the IMF and has prepared its complete files for this event. It has prepared itself to enter into several rounds of negotiations despite the fact that the positive signals we have received from the fund encourage us to believe that we may not be in for a long path of negotiations,” the source said.

Asked about fears that the IMF might impose political conditions that would affect the country’s sovereignty, the source said: “We are going to the negotiations under the ceiling of the rescue plan which we see as a road map to overcome the crisis, and not under any other ceiling, be it political or nonpolitical.”

The source pointed out that if the government’s talks with the IMF ended smoothly and quickly, “this would make it easier for Lebanon to negotiate with the [foreign] creditors and we could then go directly to CEDRE to benefit from its [promised] aid.”

The source was referring to the CEDRE conference hosted by France in 2018, where international donors pledged more than $11 billion in grants and soft loans to shore up Lebanon’s ailing economy and finance key infrastructure projects. However, the release of the promised aid was contingent on Lebanon enacting a series of structural economic reforms.

A source at the Grand Serail said Lebanon would negotiate with the IMF under its conditions. “We are on the threshold of entering into historic and fateful negotiations with the IMF … What we can assert is that Lebanon is going to the negotiations with the fund under its conditions that begin and end with Lebanon’s interest,” the source said. “Therefore, we will agree to what befits Lebanon’s interest and we will not agree to any matter that contradicts its national sovereignty.”

Hezbollah, which had initially strongly opposed the IMF’s possible financial assistance, fearing that the fund’s terms would entail imposing new taxes and political conditions, has softened its stance as the economic crisis was hitting the Lebanese hard.

In a televised speech last week, Hezbollah leader Sayyed Hasan Nasrallah endorsed the government’s rescue plan, and said his party was not against Lebanon asking for funds “unless they are Lebanon’s enemies.”

“So in principle we are not opposed, but we do oppose Lebanon surrendering to the International Monetary Fund,” he said.