So far, there has been no serious contact with creditors. Of course, Lebanon can at any time be brought to justice before a New York court, in accordance with the Eurobond terms. In my view, however, it is more likely and more beneficial for all parties that negotiations take place, and this is true to the extent that the Lebanese government tends to reach out to creditors. But, to do this, 75% of the holders of each of the 27 Eurobond issues (for a total of just over $30 billion) must be prepared to take this path.
Therefore, I believe that all parties are interested in negotiating a “win-win” situation in compliance with international standards; the creditors can hope that their interests will be preserved as much as possible, taking into account the state’s ability to repay. There are several ways to achieve this, whether it’s a reduction in principals, a reduction in interest rates, debt rescheduling or a combination of the three.
How long will negotiations last?
These negotiations should last six to nine months based on similar cases elsewhere in the world. The country will therefore be done with this by the fourth quarter. The final plan (outlined by the cabinet on March 7) will be ready in mid-May, and within a few weeks, a first version is expected to be available. We’ll take other measures when we have a better visibility of the situation. Personally, I’m absolutely convinced that Lebanon will get out of the crisis.
The fact that Lebanon has arrived at this stage means that its leaders can no longer delay the launching of reforms needed to make the country competitive and solvent. What are the government’s priority plans?
Priority projects are listed in the cabinet’s policy statement (the cabinet committed to introducing a series of reforms within a period of 100 days to three years).The three most pressing objectives are to reduce the debt-to-GDP ratio, between 60% and 80% (it should be less than 90% according to the minister, while it is close to 170% today), to rebalance the state budget and to erase the balance-of-payments deficit.
One of the first actions to take is to reduce public spending and increase revenues. The aim of the debt negotiations is to reduce payments to creditors, and this will have a positive impact on government spending (by reducing debt service) and the balance of payments (by reducing the flow of money out of the country). Reforming the electricity sector or shutting down certain public bodies are also included in the program.
Enforcing a comprehensive austerity policy also seems inevitable at this stage, but we must draw lessons from other countries, such as Greece, by prioritizing the protection of the most vulnerable, those who are most at risk. The World Bank predicts that 40% of Lebanon’s population is at risk of falling below the poverty line, of being forced to live on less than $5-8 per day per person.
There remains the question of the trade deficit that needs to be reduced by rationalizing our imports while boosting, at the same time, our export capabilities. For the latter objective, we'll need to focus on bringing up to standards our products, which are generally of good quality but are often rejected by customs in some countries. Our fruits are excellent, but the fact that farmers sometimes use during cultivation certain non-standard pesticides and chemicals is a problem. We must also build on high-value-added products, and encourage the cultivation of produce requiring less water and pesticides. The Agriculture Ministry is already working on this matter.
You have mentioned a bill being prepared to strengthen the authorities’ capacity to protect Lebanese consumers, including unfair price increases by some sellers. Any updates on the matter?
A full version of the bill was submitted to me on March 9, and my objective now is to review it and then publish it on the ministry’s website so that people can comment on it. Afterwards, I’ll pass it as soon as possible to the council of ministers for approval before it’s being voted in parliament. In short, the legislation is meant to enable us to be less “friendly” with offenders and to cover all sectors of the economy.
Today, it’s a fact that the law and the resources allocated to the ministry don’t allow us to protect consumers as effectively as we would like. Currently, the ministry checks only sellers’ margins vis-à-vis consumers, not the margins of manufacturers or importers vis-à-vis wholesalers or wholesalers’ margins vis-à-vis stores. So if a person in this chain increases their margins, the final consumer price will increase, while the seller’s margin will remain the same. The draft law is already intended to extend the jurisdiction of the Consumer Protection Department (CPD).
Another objective is to speed up the procedures. Today, the CPD monitors margins and, when needed, refers cases to the judiciary, or warns a vendor who has committed a violation and undertakes to resolve the problem first. If during a second visit (which we randomly program), the same or new violation is committed by the same vendor, the CPD will record it and refer the case to the judiciary. Under the current law, this process could take up to three years, but with the new legislation, it will only last one to two weeks.
The legislation will also modify the way the fines are being set, so that the judge can in particular adjust it depending on the business size. The aim is to protect consumers, not to convict the vendors. We also plan to publish the names of offenders, but this still needs to be validated by the high authority of the Justice Ministry’s Legislation and Consultations Department. The director of the Judicial Inspection Department, Bourkan Saad, has already recommended that judges be faster and stricter in this regard.
Finally, we are preparing a new law to regulate competition which will indirectly help influencing sellers’ pricing policy, sometimes distorted because of the cartels.
Some are demanding a restructuring of the banking sector. As a bank’s former executive, do you think this prospect is inevitable?
When debt restructuring negotiations are on track, it will be necessary to study the condition of banks – which are highly exposed to public debt – in order to come up with advice in this regard. What I can assure you is that the priority of any intervention in the banking sector will be to protect depositors and, in particular, the small ones. In other countries, depending on their respective situations, deposits were either protected or, for example, in Cyprus, a so-called “bail-in,” which means that major depositors were stripped of some of their deposits in return for shares in the banks, was imposed. On the other hand, a “haircut,” in the sense that depositors’ money is chopped without compensation, seems to me out of the question.
The priority is that Lebanon can once again rely on a strong banking sector capable of financing and supporting economic growth. This will necessarily require recapitalization of banks in order for banks to mobilize more liquidity and be more profitable. All of these goals can only be achieved through a restructuring of this sector.
The shareholders will have to recapitalize the banks, and the Bank of Lebanon (BOL) may ultimately demand recapitalization exceeding the 20% currently imposed (BOL Circular No. 532 published in November). Some mergers may also be necessary, and in this case market laws will apply. The Central Bank will certainly intervene to supervise these deals.
(This interview was originally published in French in L'Orient-Le Jour on the 20th of March)
Lebanon announced on March 7 its willingness to restructure its debt. The seven-day grace period for repaying the 1.2-billion-dollar Eurobonds ended on Monday (March 16). Have negotiations begun?
So far, there has been no serious contact with creditors. Of course, Lebanon can at any time be brought to justice before a New York court, in accordance with the Eurobond terms. In my view,...