Generational Dynamics World View

[John J. Xenakis]

** 07-Mar-2020 World View: Lebanon defaults on $1.2 billion loan payment

• Lebanon's prime minister Hassan Diab on television on
  Saturday announcing Lebanon's debt default

Months of government chaos and street protests, cause by corrupt
politicians, culminated on Saturday with an announcement that Lebanon
will default on loan payments scheduled for Monday. The $1.2 billion
loan payment is due on a portion of Lebanon's $91 billion debt.

Prime Minister Hassan Diab gave a televised speech to the nation,
saying the following:

Quote: "Today, we are paying the price for the mistakes of
past years. Must we bequeath them to our children and the coming
generations? The Lebanese lived a dream that was a delusion, as
though things were just fine, while Lebanon was drowning in more
debt and its interest, including in foreign currency, until the
gross public debt exceeded $90 billion, which makes up around 170%
of the domestic output.

The economic model which past policies imposed has proven to be a
failure, especially with its inability to stimulate investment and
create job opportunities. The state was stuck in a spiral of
deficit and endless borrowing. The reality today is that for every
1,000 Lebanese pounds of the state's revenues, more than 500
Lebanese pounds go to servicing the debt, instead of spending it
on healthcare, education and infrastructure.

This approach is not sustainable and cannot go on, especially as
Lebanese is today on the verge of becoming the most indebted
country in the world relative to the size of the economy. ...

Our debt has become greater than Lebanon can bear, and greater
than the ability of the Lebanese to meet interest payments.

This decision is, today, the only way to stop the bleeding and
protect the national interest. The Lebanese state will strive to
restructure its debt in line with the national interest by holding
fair, good faith negotiations with all creditors.

How can we pay creditors abroad when the Lebanese can not get
their money from their bank accounts? ... How can we pay creditors
and there are people in the streets who do not have the money to
buy a loaf of bread?"

Protests began on October 17 of last year, when the government
announced tax increases. The street protests have become increasingly
violent, with rock throwing and molotov cocktails. The economy has
gone from bad to worse. Inflation is soaring, and the banks are
restricting people from withdrawing their savings. The country is
running out of foreign reserves (dollars).

Part of Lebanon's problems is that Iran has had to cut back on aid to
Hezbollah, as a result of US sanctions on Iran. Lebanon's government
is largely in control of Hezbollah, which is considered in the West to
be an international terrorist organization. Because of Hezbollah, and
because Lebanon's government has refused to implement much needed
structural reforms, Western nations have been reluctant to extend more
aid to Lebanon than they already have.

The debate in Lebanon is whether they should appeal to the
International Monetary Fund (IMF) for debt relief. Hezbollah opposes
going to the IMF, since they consider the IMF to be a tool of the
United States. Furthermore, the IMF would insist on the structural
reform that Lebanon has been avoiding for years, and possibly decades,
including raising taxes.

As I've described in detail in the past, Lebanon has a "confessional
system of government," where power is divided based on sectarian
affiliation or confession, with Sunni Muslims, Christians, and Shia
Muslims each in total control of one portion of the government.

** 19-Jan-20 World View -- Violence surges in street protests in Lebanon as economy collapses
** http://www.generationaldynamics.com/pg/x...tm#e200119


Because each sect has complete control of one portion of the
government, there are no checks and balances and corruption is
rampant, with the leaders of each sect able to steal as much money as
they like from their own part of the government. The three sects have
been fighting among themselves to gain as much money and power as
possible, leading now to economic default.

Next week, Lebanon will go around to the EU, IMF, World Bank, and
other organizations, begging for a bailout. However, no bailout will
be possible without structural reforms and severe austerity measures,
resulting in even larger and more violent street protests.

And, of course, it's worth noting in passing that Lebanon is right
next door to an ongoing international disaster in Syria's Idlib province,
which can blow up in any of several different ways.

** 6-Mar-20 World View -- Turkey's Erdogan travels to Moscow to beg Russia's Putin for Idlib ceasefire deal
** http://www.generationaldynamics.com/pg/x...tm#e200306



---- Sources:

-- Why Divided Lebanon Has Left a Decision on Bond Default So Late
https://www.bloomberg.com/news/articles/...lt-so-late
(Bloomberg, 6-Mar-2020)

-- Lebanon to default on debt for first time amid financial crisis
https://www.theguardian.com/world/2020/m...ial-crisis
(AFP, 7-Mar-2020)

-- Hassan Diab / FACTBOX-Lebanon was living a 'delusion' - excerpts
from PM's speech
https://www.devdiscourse.com/article/int...pms-speech
(Reuters, 8-Mar-2020)

-- Lebanese leaders oppose paying sovereign debt: Presidency
https://www.cnbc.com/2020/03/07/lebanese...dency.html
(CNBC, 7-Mar-2020)

-- Lebanon defaults on its $1.2 bn Eurobond debt, PM says corruption
‘has eaten the state’
https://www.rt.com/business/482578-leban...orruption/
(Russia Today, 7-Mar-2020)

-- Lebanon to default on debt amid financial unrest
https://www.dw.com/en/lebanon-to-default...a-52676967
(Deutsche Welle, 7-Mar-2020)

-- Crisis-hit Lebanon to default on $1.2 billion loan payment
http://www.therepublic.com/2020/03/07/ml...-eurobond/
(AP, 7-Mar-2020)