Who Pays? Lebanon’s Government Faces Tough Question in IMF Bailout Bid

  • Economics
Who Pays? Lebanon’s Government Faces Tough Question in IMF Bailout Bid

In its bid for IMF support, Lebanon must address a question it has evaded since the economy imploded two years ago: how should it distribute the huge losses caused by its financial collapse?

Till now, the answer has been brutally simple: ordinary Lebanese have paid the price as they watched savings evaporate, the currency crumble and basic goods disappear from the shelves.

When a plan was drawn up last year that identified a $90 billion hole in the financial system, it was shot down by banks which complained it made them foot too much of the bill and by the ruling elite who had driven Lebanon into its crisis.

Since then, Lebanon has sunk deeper into trouble with no plan and no government until its fractious sectarian politicians ended a year of bickering and agreed a new cabinet this month.

The new prime minister, billionaire tycoon Najib Mikati, and his government need to acknowledge the scale of losses and work out how to share them out to deliver on a promise to secure International Monetary Fund assistance with economic reforms.

The financial system collapsed in 2019 because of decades of corruption and waste in the state and the unsustainable way it was financed. The trigger was slowing inflows of hard currency into the banking system, which lent heavily to the government.

Mikati may have a better shot in IMF talks than his predecessor partly because there is now broader political recognition – including, it seems, within Iran-backed Hezbollah group - that an IMF deal is the inescapable path to aid.

Source: Reuters