Private sector and others
criticize Govt recovery plan

Economic Associations consider it destructive,

Jeffrey Feltman says it is wishful thinking

The Lebanese Economic Organizations (LEO), a group representing the private sector including all chambers of commerce, trade associations (banks, traders, and others), as well as business organizations, issued a strongly-worded statement accusing the ‘Government Recovery Plan’ of containing unconstitutional elements.

The LEO called on Parliament to block parts of the plan that it considered “destructive.”

It welcomed the government’s decision to engage in an International Monetary Fund (IMF) program, as “a step in the right direction.”

The LEO said that while it represents all the major economic sectors and stakeholders, it has not been consulted throughout the preparation process of the plan.

“The plan intentionally acquits the politicians and the public sector from any responsibility, while unduly accusing and throwing the blame on the private sector,” it said.

“The plan takes advantage of the current financial collapse and social turmoil to overturn the liberal economic system and modify the economic identity of Lebanon, ignoring the fact that the political system is the one that failed, not the economic system, despite the need for improvements,” the LEO said.

It said that the plan overrides ingrained constitutional principles, is discriminatory, and creates a climate of anxiety and fear as well as legal insecurity. The LEO said that presumed financial losses have been determined even before legal and accounting definitions have been agreed upon, and before starting negotiations with lenders.

Plan "biased" against banks
The Association of Banks (ABL) said that it is a key part of any solution and that it was not consulted when the government prepared the plan.

It said that the plan’s presentation of the roots of the crisis is biased against the banks. “While we understand the political reasons for such presentation, we need to set the record straight in that the banking sector provided money to the public sector which decided to allocate it with no input from the banks whatsoever,” the ABL said.

“This presentation portrays a borrower accusing its lender of being responsible for its failure. Furthermore, having a punitive approach to the banking sector actually means a punitive approach to the depositors.”

The ABL called on Parliament to reject the plan because it breaches the constitutional and legal principles that are the foundation of the Lebanese State.

Nadim Kassar, Deputy Chairman of the ABL said that they have distributed on a number of MPs a detailed inventory of the negative points of the government draft plan which will have dangerous fallout when implemented.

He said that the ABL was not informed of the plan and when bankers read about it in the media they were appalled.

Kassar said they want to give the government a chance and that they are ready for negotiation to defend the rights of depositors whose money was invested in Eurobonds. He said that if the government does not repay the Eurobonds to the banks they might resort to legal action.

Kassar said that the proposed haircut on deposits above $500,000 is excessively high and unfair because for instance a deposit of $450,000 remains intact.

The ABL said that the proposed revenue and expenditure measures included in the plan, which are essential for IMF support, are vague and are not backed by a precise implementation schedule.

It said: “Some of the plan’s assumptions (including growth assumptions and fiscal consolidation) could be challenged given the limited impact ascribed to the aggressive nature of the domestic debt restructuring outlined and the yet unknown impact of the global crisis. An assessment of those impacts would lead to substantially different fiscal projections”

“The plan does not address inflationary pressures and may indeed lead to hyperinflation,” the ABL said.

According to the ABL, the proposed restructuring of domestic debt will further destroy investor confidence. “To the best of our knowledge, official discussions with the IMF on this matter are about to start while CEDRE disbursements are subordinated to the implementation of reforms,” it said.

Feltman: Plan rests on wishful thinking regarding foreign assistance
Jeffrey Feltman, a Brookings Institute fellow and former US Ambassador to Lebanon, said: “The proposal, despite detailed and sensible analysis, rests on wishful thinking regarding the willingness of Lebanon’s traditional external partners to step in when their attention is focused on their own coronavirus mitigation and economic recovery strategies.”

Feltman, who is also former US Assistant Secretary of State for Near Eastern Affairs, said that external actors have reason for skepticism, given the government’s previous broken promises for reform.

“The heavy reliance on large amounts of external support also provides a ready-made excuse for the government to claim ‘not our fault,’ if the donors don’t come through,” he said.

“The document notes that new laws may be required for certain aspects of the program, but a parliamentary debate on the overall plan, despite the fundamental changes to the Lebanese system envisioned, does not seem to be part of the design,” Feltman said.

BlackRock proposes gradual alternative
Amer Bisat head of Sovereign and Emerging Markets at global asset management firm BlackRock said: “The plan, as envisaged, effectively asks the society to halve its standard of living with no serious recovery anywhere in sight.” He said: “The kind of wealth-destruction needed to rebalance the economy will create instantaneous impoverishment.”

He said that the government should have looked for a “less-aggressive approach to crisis management—one that doesn’t try for perfection but can garner just enough political and social backing to avoid complete collapse.”

Bisat said he proposes a gradual plan that will involve a less ambitious fiscal effort and that would focus more on revenues than expenditures. He said that the losses of the Central Bank must be amortized over many years instead of in one go.

“A gradual plan will not avoid a deep recession but would limit its severity. The government will not avoid the IMF route, but it may mean a “smaller” ask—and lesser conditionality. Finally, and crucially, it means deposits will not have to be submitted to a haircut to the extent needed under a more aggressive approach,” he said.

Bisat said that the size of the problem is stunningly large and that there are no easy solutions.

“Painless measures are nowhere near enough. And policies that can make a difference (deep fiscal austerity, large devaluations, deposit haircuts, or usage of state assets) are either unbearably painful or socio-politically impossible to implement in today’s Lebanon,” he said.