Lebanon’s version of Murphy’s law

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The Lebanese have a choice to make; one that will likely shape the future of Lebanon as a nation.

by Elias Sakr -Source: Annahar

Lebanon’s foreign currency reserves are shrinking by the day. The central bank’s official figures put gross FC reserves at $30 billion. In other words, Lebanon has $30 billion in cash or liquid assets at its disposal. How much of these FC reserves is classified as “accessible” or “usable” ranges anywhere between 6$ and $30 billion under different scenarios.

Last year, Rating agency Moody’s said that number could range between 6$ billion and $10 billion while S&P estimated the number at around $19 billion.

Fitch, in a recent report, estimated the central bank’s accessible FC reserves at 29.6 billion and its FC liabilities at $70.5 billion. Under Fitch’s calculations, accessible FC reserves exclude $13.9 billion in gold, $5.7 billion in eurobonds and $2 billion in other FC securities. The central bank’s $70.5 billion liabilities, on the other hand, include $18 billion in reserve requirements, $20.9 billion in certificate of deposits and $31.6 billion in FC deposits by commercial banks who have close to $120 billion in FC deposits on their balance sheet.

Lebanese banks are not only significantly exposed to the central bank but are also likely to take a significant hit on around $15 billion of eurobonds when the government proceeds with a debt restructuring of some sort before March 9, the day a 1.2 billion eurobond matures.

Bottom line, Lebanon is nearing a meltdown amid an intertwined banking, monetary and sovereign crisis and will eventually deplete most of its reserves barring a foreign capital injection.

Foreign financial support, however, will only flow via the International Monetary Fund; both France and the US made it clear this week. The US is a major contributor to the IMF with significant influence on the extent of aid to be offered to Lebanon, if any.

The Iranian-backed Hezbollah understands this too well as evidenced by the recent remarks of its deputy leader Sheikh Naïm Qassim who categorically ruled out a conditional IMF package; a package, which hinges on painful economic, fiscal and monetary reforms that would fuel discontent among the Shiite party’s base. The IMF will also demand reforms that involve tighter border controls to stop all forms of trafficking and a stricter crackdown on suspected Hezbollah-centered illegal banking and money laundering activities.

While demanding these reforms, the US is widening sanctions targeting the Iranian-backed Hezbollah and its allies.

US Assistant Secretary of State for Near Eastern Affairs David Schenker hinted at potential fresh sanctions targeting corrupt Lebanese politicians under the Global Magnitsky Act, broadening the spectrum of who might be targeted for aligning with Iran and Hezbollah. Meanwhile, US lawmakers are sponsoring a bill to ban visas and freeze the assets of Lebanese officials involved in the detention of Amer Fakhoury, a US-Lebanese national accused of managing the Khiam prison when Israel occupied part of Lebanon.

These developments indicate that the US will continue to pile pressure on a system that is about to collapse without foreign support if Lebanon remains aligned with the Iran-led camp.

Hezbollah’s track record of holding its ground when coming under pressure means the party will very likely continue to veto an IMF financial package.

This will lead the lira, which already lost over 40 percent of its value against the dollar, to depreciate further, and could potentially culminate in a quick disruption in imports including necessary fuel for power supply among other basic commodities in the event Lebanon faces a disorderly default.

The economic crisis will also worsen with unemployment and poverty expected to significantly rise, according to a recent World Bank study. Growing economic pain will fuel further public discontent, and hence, fresh protests and instability on all fronts.

But will the majority of Lebanese direct their anger against the entire ruling class or will they be divided along sectarian and regional agendas?

Will some blame Hezbollah for plunging Lebanon in the midst of a US economic siege on Iran while others accuse their US and Saudi-backed political rivals of succumbing to US imperliasm, violations of sovereignty and Israeli threats?

The Lebanese have a choice to make; one that will likely shape the future of Lebanon as a nation.

 

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