Lebanon’s Economy Between Scenarios of Argentina, Venezuela

A worker cleans receipts from an ATM machine outside a closed Blom bank branch in the southern city of Sidon, Lebanon November 12, 2019. REUTERS/Ali Hashisho
A worker cleans receipts from an ATM machine outside a closed Blom bank branch in the southern city of Sidon, Lebanon November 12, 2019. REUTERS/Ali Hashisho
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Lebanon’s Economy Between Scenarios of Argentina, Venezuela

A worker cleans receipts from an ATM machine outside a closed Blom bank branch in the southern city of Sidon, Lebanon November 12, 2019. REUTERS/Ali Hashisho
A worker cleans receipts from an ATM machine outside a closed Blom bank branch in the southern city of Sidon, Lebanon November 12, 2019. REUTERS/Ali Hashisho

The complex Lebanese crisis opened the door for comparison with previous crises that took place in other countries, in search of common points for which international entities found effective solutions, with the hope of facilitating the process of soliciting rescue programs.

Bank of America’s Merrill Lynch prepared a study last year about the debt restructuring imposed by the International Monetary Fund (IMF), and its impact on the banking sector.

The study considered that Lebanon was close to countries such as Mozambique, Cyprus, and Barbados, which are debt-ridden states and have a high percentage of public finance deficits relative to GDP.

Many experts, however, consider that Lebanon may be closer to Argentina, while others describe it as “another Greece”.

In this context, Dr. Pierre Khoury, economist, says: “There is a fundamental error when comparing Lebanon’s experience with Argentina, as the latter has entered into structural adjustment programs with the IMF, which are programs that are based on an essential change in the economic and social structure, redistribution of income and factors of production.”

According to Khoury, Argentina has made an explicit political decision to follow the policy of the IMF, based on political harmony and leadership, which has not seen sharp differences over the cooperation with the Fund.

“In the past two years, the IMF secured massive financing for Argentina in two phases, the first reaching USD 50 billion, and then an additional USD 7 billion was added to it,” he explained.

“In Lebanon, there is no unified view of how to get out of the economic crisis,” Khoury said.

“Politically, there is a major rift between political parties on cooperation with the IMF through a specific program.”

Khoury noted that the IMF only “gives money based on agreement on a reform program that restructures the economy towards further liberalizing the sector and opening it to the outside, and creating an economic environment that encourages the flow of capital, by signing a clear-cut agreement, which includes executive steps linked to specific timetables.”

Based on these points, Khoury believes that Lebanon is more inclined in its crisis towards the Venezuelan model – the oil-rich country. This advantage is still only a probability in Lebanon, at the present time.

Khoury added that the economic, political and financial blockade led to the collapse of the internal economy of Venezuela, and the disruption of the international payment system, in addition to the crisis mismanagement of President Nicolas Maduro’s government.

He noted that Lebanon had common points with Venezuela, whether the set of mistakes in the public administration of the state, the lack of a long-term view, the dangers of geopolitical conflicts and their potential impact on the economic activity and the lack of international flows, as well as corruption.

“Lebanon is witnessing a sharp division in politics, especially with regards to the IMF assistance... All these matters make Lebanon close to the Venezuelan model,” Khoury underlined.



Gold Bounces Back from One-month Low after Fed Jitters

Gold bars from the vault of a bank are seen in this illustration picture taken in Zurich November 20, 2014. REUTERS/Arnd Wiegmann/File Photo
Gold bars from the vault of a bank are seen in this illustration picture taken in Zurich November 20, 2014. REUTERS/Arnd Wiegmann/File Photo
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Gold Bounces Back from One-month Low after Fed Jitters

Gold bars from the vault of a bank are seen in this illustration picture taken in Zurich November 20, 2014. REUTERS/Arnd Wiegmann/File Photo
Gold bars from the vault of a bank are seen in this illustration picture taken in Zurich November 20, 2014. REUTERS/Arnd Wiegmann/File Photo

Gold prices erased losses to gain on Thursday, after dipping to the lowest level in a month earlier in the day on the Federal Reserve's hint of a possible rate cut slowdown next year.
Spot gold gained 1.2% to $2,617.96 per ounce as of 0748 GMT, having hit its lowest since Nov. 18 in early trade. However, US gold futures were trading 0.8% lower at $2,632.00.
Bullion declined more than 2% on Wednesday after the Fed lowered rates by 25 basis points as expected, but indicated that there will be fewer cuts by the end of 2025, boosting the dollar and bond yields.
Fed Chair Jerome Powell said more reductions in borrowing costs now hinge on further progress in lowering stubbornly high inflation.
"The big question over here is that because the Fed says they will still be data-dependent and if Trump's policy starts to actually see inflation, a big risk would be that the Fed may not cut rates next year at all," said Kelvin Wong, OANDA's senior market analyst for Asia Pacific.
Markets now expect interest rates to remain unchanged at the Fed's January meeting.
"A rate cut is usually supportive for the yellow metal... but right now gold is up on short-covering after the dip," said Ajay Kedia, director at Kedia Commodities, Mumbai.
Traders are now awaiting key US GDP, initial jobless claims data later in the day and core PCE data - the Fed's preferred inflation measure - on Friday.
"If the US Personal Consumption Expenditures (PCE) data comes in line with expectations that shouldn't be a big surprise. But in case it inches up to 3% and above, we could see some pressure on gold again," Wong said, adding that very short-term oriented speculators are looking for opportunities to buy the dips.
Higher rates dull the appeal of the non-yielding asset.
Spot silver gained 0.8% to $29.59 per ounce, platinum added 0.9% to $927.75 and palladium advanced 1.7% to $917.86.