| Welcome to Global Village Space

Thursday, May 23, 2024

Why is IMF unwilling to help Lebanon amid worsening economic crisis?

Lebanon and the IMF, despite holding a series of talks, have not managed to reach a concrete decision. Lebanon's economic crisis is worsening on an almost daily basis, with increased poverty and suicide rates.

Talks between crisis-hit Lebanon and the International Monetary Fund are deadlocked, and leaders reluctant to enact reforms. Without a vital multi-billion-dollar bailout, is Lebanon headed for “hell”?

For months, the Mediterranean country has grappled with its worst economic crisis since the 1975-1990 civil war.

Lebanon and IMF talks stopped

Tens of thousands have lost their jobs or part of their salaries, while a crippling dollar shortage has sparked rapid inflation.

After the country for the first time defaulted on its sovereign debt in March, the government pledged reforms and in May started talks with the IMF towards unlocking billions of dollars in aid.

But 16 meetings later, the negotiations are stalling.

“The IMF has left the negotiating table and talks have stopped,” said a member of the Lebanese negotiating team speaking on condition of anonymity.

Another Lebanese source familiar with the negotiations said IMF representatives have “not sensed serious commitment from the Lebanese delegation” towards reform.

“Every faction is vying for its own personal interests while the country burns,” they said.

Deadlock is common in multi-confessional Lebanon, where politicians have for decades been accused of cronyism, conflict of interest and corruption.

As Lebanon seeks help from the IMF, arguments are mounting over the scale of total financial losses for the state, central bank and commercial banks.

The government estimated losses at around 241 trillion Lebanese pounds, which amounts to around $69 billion at an exchange rate of 3,500 pounds to the greenback. But a parliamentary committee quoted much lower figures using the old currency peg of 1,507 pounds to the dollar.

The IMF considers the government’s figures to be more likely.

The discrepancy in the figures shows the great power and influence of a “lobby ready to see Lebanon burn rather than expose what they did to it”, the Lebanese negotiator said.

Protests over poverty crisis in Lebanon 

Since October, the deepening turmoil has sparked mass protests demanding the wholesale removal of a political class seen as incompetent and corrupt.

The crisis has shot poverty up to almost 50 percent, and unemployment to 35 percent.

Read more: Deepening economic crisis: Lebanon will default on debt payment

In recent days, the Lebanese pound fetched more than 9,000 to the greenback on the black market.

With prices soaring, many can longer afford to fill their fridges, while others have started bartering clothes or household items online for baby milk and diapers.

The Lebanese pound in recent days fetched more than 9,000 to the greenback on the black market, hyper-inflation has wiped meat off many Lebanese tables – including the army’s menu – and the desperation has triggered a spike in suicides.

Four Lebanese killed themselves last week in suicides apparently linked to the economic downturn.

In March, the government pledged reforms long demanded by international donors, including budget cuts, tax hikes and electricity sector reform, but little has come through.

A Western source told AFP the last meeting “went very badly”, ending with IMF negotiators urging Lebanon’s representatives “to stop taking them for a ride”.

Two key members of Lebanon’s negotiating team who resigned last month have accused the government of showing no clear commitment to reform.

On Wednesday, French Foreign Minister Jean-Yves Le Drian said he was “very worried”.

“Help us help you, dammit,” he urged.

Analyst Nasser Yassin said the ruling class lacked political will.

“To guarantee they won’t lose everything, they would rather the country remain on the cusp of collapsing than initiate serious reforms,” he said.

Such reforms, he said, “would strip them of essential tools they use to impose authority and control over the state, the economy, and society”.

IMF puts forth certain demands if Lebanon wants help 

Among the IMF’s demands are that Lebanon audit its central bank, and issue official capital controls to replace informal withdrawal and transfer caps imposed by the banks since the autumn.

It has also requested the country float its currency so Lebanese can follow a single exchange rate.

To further complicate matters, the IMF talks come as tensions rise between the United States and Hezbollah, the Iran-backed Shiite movement that is a key political player in Lebanon.

“Hezbollah is a terrorist organisation and we are supportive of Lebanon as long as they get the reforms right and they are not a proxy state for Iran,” US Secretary of State Mike Pompeo said this week.

The Western source said: “I don’t see any alternative to assistance from the IMF.”

“The country is collapsing, and so is the Lebanese pound, while officials are in denial.”

Lebanon’s government says it needs $20 billion in external funding, an estimate that includes an $11 billion aid package pledged by donors at a Paris conference in 2018.

But without an IMF rescue, donors are unlikely to pump money into Lebanon, the Western source said.

Read more: Lebanon currency drop leads to protests; govt to inject dollars

“An IMF agreement will help correct Lebanon’s reputation,” he advised.

The Lebanese source agreed an IMF rescue would help Lebanon avoid the worst.

“With a skyrocketing exchange rate that could reach 25,000 to 50,000 Lebanese pounds to the dollar and inflation increasing by the day, Lebanon, without the IMF, will plunge into hell,” he said.

AFP with additional input by GVS News Desk