If the government decides to refinance Lebanon’s massive debt, it should be orderly and include negotiations with debt holders as foreign funds are ready for such discussions, the head of Lebanon’s banking association said Wednesday.
Lebanon is going through its worst financial and economic crisis since the end of the 1975-90 civil war after decades of corruption and mismanagement by the ruling elite. Nationwide protests broke out in mid-October against the country’s rulers, after which banks closed for two weeks, triggering a run on the banks and worsening the crisis.
Chairman of Association of Banks in Lebanon Salim Sfeir made his comments after meeting Prime Minister Hassan Diab, during which they discussed Eurobond debt due in 2020 worth $2.5 billion.
The first to mature are Eurobonds worth $1.2 billion on March 9, and Lebanese officials have been discussing whether to pay on time as they have always have or default.
Sfeir’s comments came a day after Fitch Ratings said Lebanon’s financial situation points to a likely restructuring of the country’s debt and financial sector to preserve declining foreign currency reserves.
Sfeir said in a statement after the meeting that if the government makes a decision on rescheduling the debt they should “negotiate with bond holders especially foreign funds who have expressed until now readiness to negotiate.”
“Any decision regarding Eurobonds is a decision that should be taken by the government only in accordance to what it sees as the good of Lebanon,” he said, adding that the bank association’s aim is to preserve the money of depositors.
Earlier on Wednesday, Parliament Speaker Nabih Berri was quoted by a member of his parliamentary bloc as saying that “restructuring the debt is the best solution.” There was no elaboration.
A delegation from the International Monetary Fund is scheduled to begin a three-day visit to Lebanon on Thursday, meeting with officials to give an assessment on what is needed to save the plummeting economy.
Lebanese banks have imposed capital controls to managedeclining foreign currency reserves and have prevented transfers outside the country except for emergencies. Lebanon’s economy has depended heavily on U.S. dollars since the 15-year civil war ended in 1990.
Lebanon has one of the highest debt to GDP ratios in the world, standing at about $87 billion or more than 150% of the country’s GDP. Most of the debt is held by local lenders but there are concerns that if Lebanon defaults, some foreign investors might take legal action against the tiny Arab country.