IMF talks on hold
after getting scolded
France: Help us to help you
The leader of the IMF team assigned to discussions with Lebanon has informed the Minister of Finance that there would be no need for further meetings until the government comes with concrete proposals and actual implementation of reform programs.
In terse terms, Martin Cerisola said that his team was bewildered at the lack of progress on the Lebanon side. “What the hell are you doing,” he told Minister of Finance Ghazi Wazni at the last meeting held between the government and the IMF. “We have presented seven to eight reform areas and nothing has been started yet. These include capital controls, exchange rate, electricity, and other measures,” Cerisola said. Wazni responded that the government will have a capital control proposal in two weeks. “You don’t have two weeks,” the IMF representative said in reference to the economy not having this much leeway in time.
Cerisola and his team said that Lebanon should present itself with a united front and program, with a buy-in from major stakeholders, including the government, the Central Bank (BDL), and Parliament.
Both the US Secretary of State Mike Pompeo and the French Minister of Foreign Affairs Jean-Yves Le Drian have urged the government to initiate reform and have expressed their disappointment at the absence of progress. “We are ready to help you, but help us to help you,” Le Drian said. France had previously made it clear that any eventual financial support, including pledges at the CEDRE conference, is contingent on a successful agreement with the IMF. Pompeo said: “We are supportive of Lebanon as long as they get the reforms right and they are not a proxy state for Iran.” The US Secretary of State said that the US would not allow Iran to sell oil to Hezbollah. “Lebanon has an incredible struggle to conduct necessary reforms. The Lebanese people have been protesting in the streets, simply demanding a government that is not corrupt,” Pompeo said.
The Minister of Finance confirmed that talks with the IMF are on hold until the government starts the implementation of economic reforms and until the different stakeholders agree on a common approach for calculating losses of the financial system. The minister said that he will remain in contact with the IMF until the talks resume. The last meeting was held on July 6.
Conflicting figures, and their interpretations, have pitted the government against BDL. The IMF estimates were very close to those presented in the government’s ‘Financial Recovery Plan’. A Parliamentary sub-committee proposed an alternative approach to calculations which were close to BDL’s.
Net losses at BDL were estimated in mid-June by the IMF at LL60 trillion ($40 billion at LL1,500 exchange rate). BDL’s own estimations came at LL21 trillion ($14 billion). But estimations from both sides keep on changing as they exchange information.
The government started official talks with the International Monetary Fund (IMF) last May after defaulting on its foreign debt in March. It entered the negotiations hesitantly as it was waiting for the approval of major political factions. The government at first announced that it was only looking for technical assistance then it emphasized in its Financial Recovery Plan the importance of a full IMF program. Lebanon is seeking financing from the IMF to the tune of $10 billion. The IMF talks, which have tackled so far many critical issues, were eventually put on hold due to delays in the implementation of reforms and the lack of consensus on the Lebanese side regarding the approach used in the estimation of losses.
The government started official talks with the IMF on May 13, 2020 via video-conferencing with16 meetings held. The main issue that must be tackled is defining the losses and their size. The unified approach to the figures requires an agreement among political factions and coordination between the government and Parliament. The disagreement among the Lebanese team negotiating with the IMF was confirmed by the resignation of two of its members, Alain Bifani, Director General of Finance at the Ministry of Finance (MoF) and Henri Chaoul, the advisor to the Minister of Finance in the negotiations. Bifani who also stepped down from his position as Director General said the talks have reached a dead end and that the way political leaders are handling the financial crisis is reckless and would hurt people. Chaoul said he has resigned due to the lack of a genuine will by the political class to implement reforms and to restructure the financial sector, including BDL.
The meetings with the IMF, which were headed by the by Minister of Finance, have so far addressed key issues such as the government’s Financial Recovery Plan, restructuring the financial sector and BDL, and capital controls. The IMF inquired about how public budgets are prepared, and how public finance is managed and how rules are applied in public finance. It also inquired about BDL’s financing role and its relationship with the MoF as well as the relationships between the MoF and other public administrations. The two parties have also discussed reforms in the public sector such as financial reforms and the reforms being implemented at the Customs and Land Registration and Cadastre and about means to improve the performance of these two directorates. The talks also addressed the government’s strategy to fight corruption and money laundering. Besides the negotiating teams, top Lebanese officials have attended the meetings such as Governor of the Central Bank, Minister of Energy and Water, Minister of Administrative Development, Director General of the Customs, and Director General of Land Registration and Cadastre. In addition to these figures, teams from the MoF, BDL, and the Banking Control Commission have attended these meetings as well representatives of the President of the Republic and the Prime Minister.
Date Posted: Jul 09, 2020