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As IMF Talks Drag, Lebanon’s Economy Spirals

Women walk past open shops, as Lebanon is gradually reopening its economy following a four-day shutdown imposed to curb the spread of coronavirus disease (COVID-19) in Hamra street in Beirut, May 18, 2020.

Critical bailout talks between Lebanon and the International Monetary Fund may be ‘hitting the rocks,’ according to a former economy minister and central banker, Nasser Saidi. Infighting between the government and the central bank threatens to derail badly needed emergency funding to prop up the country’s faltering economy, analysts say. The IMF says it is still not clear whether Lebanon’s leaders and people can unify around reforms needed to stabilize the economy and return it to a growth path.

So far, Lebanon is not winning the battle to overcome its financial crisis, analysts warn, after its currency lost about 80 percent of its value since October.

Once called the Switzerland of the Middle East, Lebanon’s model of banking, tourism, and commerce has collapsed, said Maha Yahya, who directs the Carnegie Middle East Center in Beirut. She said Lebanon’s middle class has been decimated and talented professionals are trying to leave.

"The World Bank is projecting an increase in poverty to reach 50 percent of the population. The size of the wealth destruction that is happening is huge. The central bank, which normally would have stepped in to provide the kind of economic stimulus needed is unable to do so because itself has a gaping hole. Meanwhile, none of the political parties are interested in structural reforms to address the crisis. Businesses are collapsing," she said.

Talks between the IMF and Lebanon over an initial 10 billion-dollar bailout have been snagged by a dispute between the government and central bank over the scale of losses in the banking system. The IMF is reporting more than 90 billion-dollar losses at Lebanon’s central bank, while that bank and lawmakers says it is half that large.

Joseph Bahout, an academic fellow in the Middle East program at the Carnegie Endowment for International Peace, told VOA that the talks also suffered a blow with the resignation of two members of Lebanon’s negotiating team who have accused the political class of not being serious about the reforms required by the IMF and – in his words - “massaging” huge financial losses.

"We’re in now a very dire phase in this and my bet is that it will completely drag on and at one point it will completely stall, probably, which will put the country again in a very dangerous situation. The classical political class, opposition included: Hariri and etcetera, aren’t very much happy with the entire process. They know that this kind of reform operated by the IMF will hit also their own interests in the country. So, no one wants exactly to go to the IMF, except maybe certain technocrats," he said.

The collapse of Lebanon's embattled currency has accelerated, triggering more protests around the country. The Lebanese pound hit a new low of 9,000 to one dollar on the black market on Wednesday. The worst devaluation in Lebanon’s history makes the monthly minimum wage less than 100 dollars. Analysts say that is insufficient for a country that relies heavily on imports priced in U.S. dollars.