Many Lebanese lawmakers are threatening to kill the government’s economic rescue plan unless drastic amendments are made to the program, a reliable source said Wednesday.
“Some of these lawmakers appear to have a big influence in their blocs in the Parliament and bluntly told the representatives of the Cabinet that the plan would not pass if no amendments were made. They want the Finance Ministry and Lazard to downsize the estimated losses and even accept the inclusion of the state’s assets in the sovereign fund,” the source, who is familiar with the talks, told The Daily Star.
A team from Lazard headed by Francois Kayat has been summoned by the government to hold further talks on the 53-page economic rescue plan which was prepared by the international asset management company and advisors from the Finance Ministry.
There was no information yet on the real purpose of Lazard’s visit to Lebanon and who they will meet during their short visit.
Nadim Kassar, the vice president of the Association of Banks in Lebanon, told The Daily Star that the association would not accept any type of haircut on deposits or a default on the payment of the internal debts, repeating his call for the creation of the sovereign fund as a way out of the crisis.
“Our position is very clear. We won’t accept any default on the internal debt nor drop our demand for setting up the sovereign fund. They can’t force us to accept the government and Lazard’s conditions,” he maintained.
Kassar added that the International Monetary Fund would not give Lebanon any financial assistance if it did not see substantial reforms from the government, noting that the fund wanted the state to lift the subsidies on fuel, gasoline and wheat.
The IMF has endorsed all the estimated losses in the government’s economic plan, but insisted that it must obtain Parliament’s support for this program in order to review Lebanon’s request for financial assistance.
The fund reiterated that it wanted the government and Parliament to approve the capital control law, stick to one exchange rate and implement reforms in the electricity sector.
The government said that it was aiming for $10 billion in financial assistance from the IMF and another $11 billion from the CEDRE donor conference.
The source said the talks between the government and the IMF are on hold as the talks between the Finance Ministry and ABL reached an impasse with both sides refusing to make any kind of compromise.
Lazard, with the help of top advisers from the Finance Ministry, called for total restructuring of Lebanon’s public debt as well as the Central Bank and commercial banks.
Lazard and the advisers said in the report that the banking sector faces large losses on its credit portfolio, sovereign holdings and its very large exposure to BDL.
The paper stressed that acknowledging these losses was a prerequisite for a long-term solution, while analyzing each bank’s situation would help determine each one’s needs.
Lazard estimated the total losses incurred by Lebanese entities that have to be addressed in the program amount to LL241 trillion.
According to the paper, LL73 trillion are related to the restructuring of the government’s debt (losses generated by excessive fiscal deficits over a long period of time, and notably by very high interests paid to local banks and BDL.
LL66 trillion are related to BDL past accumulated losses (losses generated by loss making transactions aimed at preserving the peg and maintain a high dollar inflow, including the financial engineering since 2016)
LBP40 trillion are related to banks’ losses on their credit portfolio (losses related to non-performing loans generated by the recession)
LBP62 trillion are related to net losses on the balance sheets of BDL and the banks The losses will materialize in the balance sheets of BDL and the banks based on an estimation of the Lebanese Pound at the rate of 3500 US$/LBP
LBP177 trillion are aggregated losses in the BDL balance sheet.
LBP64 trillion are direct aggregated losses in the banks’ balance sheets.
In addition, foreign holders are expected to face significant losses on their holdings of Eurobonds.
But ABL and the budget and finance parliamentary committee strongly disputed these losses, insisting that the losses are far lower than the estimates of Lazard and the advisors.
The source said that Lazard team will probably join the talks between the government and ABL in the future in order to listen to the remarks of the bankers.
“But so far, the government made no hint that it would make any major compromise or make any major amendments to the paper. But I can’t tell for sure if the authorities will eventually make concessions in a bid to break the deadlock,” the source said.
The source explained that the contract with Lazard is clear. If the restructuring of the public debt is implemented then they will get their fee but if nothing happen then they won’t get anything.
But he declined to give further details about the contract with Lazard although he emphasized that this company has restructured the debt of many countries.
On May 20, ABL put the ball in the government’s court by presenting an alternative strategy to counter the Cabinet’s argument that the lenders had to accept restructuring of this sector which was once the pride of the Lebanese economy.
ABL has lobbied hard over the past few days to dissuade Parliament from endorsing the government’s entire economic rescue plan, which it described as catastrophic to the economy.
ABL chairman Salim Sfeir was quite vocal on the subject of the government’s default on Eurobonds, telling Parliament’s Budget and Finance Committee, in the presence of representatives of the Finance Ministry, that what the banks wanted from the government was to settle all its dues to the banks.
“Lebanon’s banks are not asking for a bailout because we don’t need one. Our industry is sound and what we need is for the government to pay us back – in time. We stress ‘in time’ because, although it’s the government’s responsibility to fulfill its promises, we recognize that the government is now undergoing a cash shortage that impedes the fulfillment of its obligations on time,” Sfeir told the committee.