Differences recently emerged between the Hezbollah party and its ally, the Free Patriotic Movement, over how to tackle Lebanon’s crippling financial crisis.
Hezbollah had outright rejected any cooperation with the International Monetary fund, saying contacts with it would be limited to consultations. The position stood in contrast with that of leading members of the FPM, who rejected preemptive statements amid the lack of serious alternative options.
An IMF rescue plan appears as the best option to tackle the crisis. A $1.2 billion payment on a Eurobond is falling due on March 9 and even though Lebanon is widely expected to restructure its foreign-currency-denominated debt that is unlikely to be enough to deal with the total debt burden, economists and analysts say.
The IMF has estimated that Lebanon’s public debt would reach 155% of gross domestic product by the end of 2019, one of the biggest debt burdens in the world. Any move to restructure will further pressurize local banks, which after years of funneling their deposits to the state, have an exposure to Lebanese sovereign debt that stands at almost twice their capital base.
Lebanon hired US investment bank Lazard and law firm Cleary Gottlieb Steen & Hamilton LLP last week as advisers.
But with inflation shooting up to 30%, the pound depreciating by 40% since October and the number of jobless rising every day, analysts say only a full IMF deal will unlock the tens of billions of dollars Lebanon now needs.
Corruption and bad governance are seen as root causes of Lebanon’s problems and the crisis, which has seen street protests against the ruling elite, represents the most serious threat to the country’s stability since the 1975-1990 civil war.
Hezbollah deputy chief Naim Qassem was the first to announce his rejection of an IMF bailout, saying: “We will not accept submitting to (imperialist) tools ... meaning we do not accept submitting to the International Monetary Fund to manage the crisis.”
FPM MP Alain Aoun criticized his remarks, noting: “Before rejecting any option, we must at least have an alternative one available.”
“Difference of opinion should not be blown up into a major political dispute... The financial crisis is a new issue up for debate and the political class has enjoyed complete ease and comfort because the state financial system did not allow it to think or prepare for the day when it will fall over into the abyss as it is now,” he told Asharq Al-Awsat.
“Many views have been expressed over how to resolve the crisis, but ultimately, it is important that we reach a joint vision and place a roadmap and realistic and serious solutions,” he stressed.
“We should not make presumptions about any issue, whether about the IMF or anything else,” he urged. “We are now studying a rescue program. The plan must secure the necessary financial needs and other issues, such as the debt and bank restructuring.”
“Once we determine our needs and the side we can turn to, such as the IMF or friendly nations, then we can make our choice,” Aoun said. “Of course, any option must respect our sovereignty and how much our society can handle.”
Hezbollah has proposed alternatives to the IMF to provide much-needed liquidity to revive the economy. It has suggested holding banks responsible for restoring funds that have been smuggled abroad during the recent crisis.
Informed sources said Hezbollah is open to technical assistance from the IMF, but without being obligated to adhere to its conditions. The party was also willing to go ahead with the debt restructuring and seeking alternative liquidity sources within the next three months.
“The country needs some 4.5 billion dollars until June. We can secure this sum, whether through internal measures or foreign help,” the sources told Asharq Al-Awsat.
Director of the Levant Institute for Strategic Affairs Sami Nader said Lebanon has “no choice but to turn to the IMF, because reforms, as much as they are necessary, are no longer enough.”
He told Asharq Al-Awsat that 10 billion dollars in liquidity were needed for the economy within a year.
He acknowledged that this was a “difficult” choice, but the alternative will be a more severe crisis and the closure of more institutions and firing of more employees.
Furthermore, Nader accused Hezbollah of waging a campaign against the IMF because it is controlled by the United States.
“How do they expect to receive loans if the loaner does not have guarantees that it will get its money back?” he wondered.
Qassem’s remarks drew criticism from various Lebanese officials, including Lebanese Forces leader Samir Geagea, who slammed him for linking the country’s financial woes to the party’s ideological beliefs.
