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Debt restructuring: time is no longer a valid excuse, according to Sibylle Rizk


By early March, Lebanon is due to repay a series of maturing Eurobonds amounting to $ 1.2 billion. The questions regarding repaying these Eurobonds as opposed to exploring the option of debt restructuring, is currently the subject of serious public debates across many financial circles, the political class, and the major civil society actors . Kulluna Irada's director of public policy explains to L'Orient-Le Jour why her organization is calling for immediate debt restructuring.

The civil organization Kulluna Irada, in a memo published on February 4, called the Lebanese government to "carry out a restructuring" of its debt, with the objective "to uphold and protect the interests of the Lebanese population before those of the State’s creditors and the banks’ shareholders”. What are the implications of a default?

To Kulluna Irada, default is not an objective in itself. The real objective is to put in place a rescue plan, one of the pillars of which is to restructure the debt, because it is now clear to everyone that Lebanon will no longer be able to honor it. The cost is too high for the economy. It is therefore urgent to begin negotiations with the State’s creditors. By continuing to pay the installments, we are running out of the little foreign currency reserves [we have left], which the country needs in order to survive the crisis and recover.

To carry out this restructuring, the government needs two types of expertise. First, it must carry out an accurate assessment of the country's economic and financial situation, which presumes a full access to the Central Bank’s accounts. The International Monetary Fund (IMF) is definitely able to provide this type of assessment to its member States. In addition, the government must also be assisted by lawyers specialized in these matters, who will assess all the legal and financial aspects.

It must also urgently establish legal capital controls, and no longer rely on only informal and arbitrary measures. This is the sine qua non condition of the strategic management of the Central Bank's currencies, which are declining at an alarming speed, and which therefore must be rationed.

Do you think that the government is able to conduct all the necessary assessments and take all the steps required before such a decision is made in early March?

Putting the blame on [a lack of] time is no longer permissible. Buying time has been an objective in and of itself for years, and no one has cared to pay attention to the cost of these politics. Today, that cost is increasing exponentially. The risks are many: a high inflation rate, fierce devaluation, massive unemployment, and emigration. The authorities have the obligation to enforce a general mobilization in order to face a situation of unprecedented gravity.

Lebanon is going through several simultaneous crises: a balance of payments crisis, a debt crisis, a banking crisis, and a currency crisis. In addition, there are two particularities: a deficit in BDL's (the Lebanese Central Bank) foreign currency reserves -which must be dealt with without delay-, and an unproductive economy which will make bouncing back extremely difficult, even after the country's financial situation has been stabilized.

One should also be aware that the postponement of inevitable decisions benefits some parties, such as the holders of Eurobonds and the banks’ shareholders, while they heavily weigh on others: the whole population is suffering from a fully fledged devaluation, which has reduced its purchasing power by more than 40%, while depositors no longer have access to their savings. It is important to mention that the markets do not expect Lebanon to pay its debts: the price of the Eurobonds value the debts at less than half of what these titles would bring to their holders in the event that the State honors its next deadline.

Kulluna Irada recently led a large lobbying campaign with political decision-makers, specifically in regards to the need for an immediate restructuring of the debt. Do you feel that the political class understands and grasps the ins and outs of such a decision?

We are seeing an evolution in views and outlooks. But if currently there is an awareness of the magnitude of the problem, the answers are not there yet. However, it is up to the political authorities to not only anticipate problems, but also to find solutions to them. The new government’s policy statement did not mention any. It talks about a simple "crisis", at a time when we are facing a real collapse of our economy, and are in dire need of a bailout.

The way the government was formed does not promise genuine changes. We called for the formation of an independent, homogeneous and compact cabinet, with legislative powers allowing for real room for maneuver. The transition towards a new system of governing , is the only possible way to rescue the economic, financial and social situation in Lebanon. The country is at a crossroads. The next few weeks will be decisive.

(This interview was originally published in French in L'Orient-Le Jour on the 12th of February)

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Mireille Kang

Instead of paying Eurobond creditors and banks 1.2 billion dollars in March, the Lebanese state should instead pay its long-overdue bill of 1.2 billion dollars owed to hospitals since 2012 so they can recover and continue functioning. Why are rich creditors more important than the survival of our healthcare system. The hospitals are also creditors and deserve to be paid although they hold less leverage than the all-too powerful banks and creditors.

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