AMMAN - Lebanon's government has officially defaulted on its payment of a $1.2 billion Eurobond debt due Monday. This marks the first default in Lebanon's financial history, as it copes with dwindling foreign currency reserves and inflation running into double digits.
In the past, the country once known as the Switzerland of the Middle East managed to repay debt, despite civil war and political unrest. But now it faces the challenge of securing loans amid global economic issues and the coronavirus outbreak.
The situation has left many Lebanese concerned, said Habib Malik of the Lebanese American University. The national news agency says 41 coronavirus cases have been reported in Lebanon, one of several Middle Eastern countries grappling with the infection and its economic implications.
"People are very, very nervous," Malik said. "If a global economic recession is going to kick in because of this epidemic, then this will simply mean that there will be less money for countries like Lebanon, ailing for other reasons.
"Right now, the Diab government is being very honest and realistic with the people and the debtors that Lebanon would like to negotiate a restructuring of the debts. In the next couple of weeks, we will see the representatives of the debtors and the Lebanese government come together to try work out a deal. It’s going to be slow and rough going," Malik added.
Prime Minister Hassan Diab formed a new government two months ago. The previous government resigned in 2019 following mass protests over financial mismanagement and corruption, and calls for reform.
The ruling class is still very resistant to badly needed economic and political reform, said Michael Young of the Carnegie Middle East Center in Beirut. He added that Diab has some room to push for change because the Shi'ite Hezbollah Party realizes that it must avoid his resignation.
The powerful Shi'ite bloc is not happy about a possible bailout for Lebanon by the International Monetary Fund because this would grant the global financial institution significant control over aspects of the Lebanese state, including the party's own patronage networks.
Corruption in the ruling class caused Lebanon to reach this point, Malik said, adding that there must be an accounting and restitution.
"It's going to be a very intricate three-way dance between the government, the debtors and the local powers that still want to monopolize as much as possible the revenue-yielding components of the economy that they have actually plundered over the years and decades," he said.
Lebanon won't be able to access funds to refloat its economy or get the hard currency necessary to import basic necessities like food, medicine and fuel without an IMF bailout, Young said, adding that Hezbollah will need to allow the IMF to come in.
Diab's government was formed with the backing of Hezbollah and its allies. Diab has called for "fair" negotiations with lenders to restructure the country's debt. According to the Reuters news agency, Lebanon's public debt is worth about $89.5 billion, with around 37% of that in foreign currency.
Hezbollah is designated as a terrorist group by the United States.