IMF deal seen as only way out for Lebanon

The Lebanese government must swallow its misgivings and reach a rescue deal with the International Monetary Fund (IMF) or risk economic implosion and further turmoil, economists, diplomats and politicians said.

Privately, some government officials acknowledge that an IMF bailout is the most logical solution to Lebanon’s economic crisis, according to a source familiar with ongoing discussions.

But to get such a rescue program in place, the new government would have to overcome the objections of Hezbollah, the powerful Iranian-backed power broker in Prime Minister Hassan Diab’s cabinet and its Christian and Shi’ite allies, who are concerned about the austerity measures an IMF rescue would involve.

As Lebanon’s financial crisis drags on and government revenues dwindle, the bill to rescue the country is rising. Former economy minister and ex-vice central bank governor Nasser Saidi estimates the economy will need $30 billion, and an additional $25 billion to recapitalise a banking system in hock to the state.

“Lebanon needs external liquidity both for the balance of payments but also for the government,” Saidi said. “That’s why the external package and the IMF reform program which comes with all the associated reforms which we need is so necessary”.

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.