Lebanon’s government today started negotiations with the International Monetary Fund (IMF), Al-Joumhouria has reported. The negotiations, said the local daily, are set to be “long and arduous” and will be held via video conference. Those taking part include officials from the prime minister’s office, the central bank and the presidency.
Prime Minister Hassan Diab officially requested IMF assistance on 1 May, after the cabinet unanimously approved a national economic rescue plan. Lebanon’s government is seeking a $10 billion bailout to help Beirut deal with its worst financial crisis since the end of the civil war in 1990.
Observers, however, have raised concerns that IMF aid may not be forthcoming. Some items in the plan “may be difficult to achieve, while others were hastily raised with the purpose of completing the plan’s preparation and moving quickly to the stage of negotiating with the IMF,” said Al-Joumhouria.
One such issue is the plan’s reliance on international largesse. It not only hinges on receiving $10 billion in aid from the IMF, but also the release of a further $11 billion in reform-conditional loans, pledged by the international community in 2018. Successive Lebanese governments have failed to implement the necessary reforms to trigger the release of the $11 billion, sparking fears that conditions attached to an IMF bailout could also fall foul of political will and capabilities.
According to a report by Al Jazeera, the IMF could request formal capital controls to replace the informal restrictions imposed by banks since November, while also forcing an official devaluation of the currency away from the 23-year-old official peg to the US dollar. Beirut could also be forced to sell-off state assets, restructure its debt and reform its pension system, with the release of cash from the IMF contingent on the completion of these painful reforms.
Such reforms are, however, unlikely to protect depositors’ cash with the financial sector sitting on an estimated $70 billion worth of losses thanks to assets tied up in non-performing loans.
Moreover, negotiations with the IMF have started just as photos and videos have surfaced on social media showing banks in Lebanon building barricades around their buildings.
This is a reaction to the increasing vandalism and burning of banks by protesters in recent weeks. It is hardly likely to fill account holders with confidence, even as the government turns to the IMF in what many believe is Beirut’s only option to move forward.