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More loans to state contingent on reforms, banks insist

  • Some bankers are not pleased with the previous Cabinet’s performance.

BEIRUT: Lebanese banks said they were reluctant to lend any new Cabinet more money until they see concrete efforts to reduce waste, combat corruption and allow the private sector to take part in the megaprojects in the country.

“How can anyone ask us to buy more Treasury bills or Eurobonds while the authorities have failed to carry out needed reforms and cut waste?” chairman of Byblos Bank François Bassil told The Daily Star. “There is waste in many government departments such as electricity and the social security fund. They need to get their act together.”

But he stressed that banks would continue to swap maturing bonds with new ones, adding that the banks had no interest in seeing the state collapse.

Another banker, who spoke on condition of anonymity, said most banks had been following a policy of not increasing their holdings of T-bills and Eurobonds for some time.

“We are careful not to buy more bonds because this could increase our exposure to this debt in the future. We are ready to replace the maturing bonds with new ones even if the yields on these bonds are lower,” the banker added.

He noted that the Central Bank was subscribing to T-bills to help finance the state’ short- and medium-terms needs.

Despite the resignation of Prime Minister Najib Mikati, many observers and financial analysts believe the caretaker Cabinet will not have problems replacing the maturing bonds this year.

Lebanese lenders and the Central Bank hold the biggest chunk of Treasury bills. Lebanese banks’ share of the public debt in local currency stands at LL27.1 trillion, or 54 percent, compared to 30 percent held by the Central Bank.

The Central Bank’s share of the public debt in Lebanese currency was 32 percent but it managed to reduce its share at the end of 2012 after replacing part of its holdings with $2 billion in dollar-denominated bonds.

This was part of the Central Bank’s financial engineering policy to curb its holdings in pound-denominated debt.

Finance Ministry officials said the caretaker Cabinet would have no problems in funding the investment projects that were approved in 2012 and the first two months of 2013.

They added that all the funds earmarked for electricity projects such as leasing Turkish electricity generating barges and the construction of two new plants were available.

Economist Ghazi Wazneh feared that the pound would come under increasing pressure if a new Cabinet was not formed soon.

“I am worried that there may be a run on the U.S. dollar if politicians failed to form a new Cabinet in a few months,” he told the paper.

But Bassil did not share this view, repeating that the Central Bank had huge foreign currency reserves, not to mention its gold reserves:

“We are not concerned about the monetary situation but are worried about the economic outlook of the country this year if the Cabinet is not formed soon.”

He favored the formation of a Cabinet that includes technocrats eager to revitalize the economy and cut waste.

“We want a government that takes quick actions and implements reforms. Some of the public departments lack qualified people who will carry out these reforms,” Bassil explained.

For his part, Wazneh stressed that the budget deficit could reach more than $4 billion at the end of 2013 if the new Cabinet passed the salary scale to Parliament for approval.

The economist supported a 0.50 percent tax on T-bills held by the commercial banks, noting that this step would generate good money for the Treasury.

 
A version of this article appeared in the print edition of The Daily Star on April 03, 2013, on page 5.
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