The World Bank urged the Lebanese government on Thursday to embark swiftly on privatisation to reduce the country’s massive public debt, but denied it had advocated a currency devaluation.
“People have been talking about devaluation and saying that the World Bank have been recommending that. My answer is very simple: no,” said Hari Prasad, the bank’s representative in Lebanon. “It is not true and that was not one of the subjects on which we have been consulted,” Prasad said.
He dismissed fresh press reports that Lebanon would be placed “under the custody” of the bank and speculation by financiers that it has asked the government to devalue to make it easier to repay the stock of Lebanese pound debt with foreign currency revenue.
The central bank has maintained an intervention band of LL1,501-1,514 pounds to the dollar for more than a year.
Dealers said the Central Bank intervened on Monday to defend the pound for the first time in weeks because the upcoming general elections and worsening state finances had raised the demand for dollars.
The Association of Banks in Lebanon estimates that the central bank spent $435 million to defend the pound in May, when net foreign reserves finished at $3.99 billion.
First-half figures released last week showed the budget deficit at 53 percent of expenditures and revenues falling short of even debt servicing costs. But Prasad said Lebanon could control the $22 billion net public debt, which is mostly held by Lebanese banks and 75 percent of which is in the form of treasury bills, by embarking on a delayed privatisation programme forecast to fetch $5 billion.
Prasad said privatisation and more efficient taxation, such as a value-added tax that the government says would be introduced in 2001, were more favourable than devaluation.
“In discussing the pros and cons of devaluation in general one should look at how much the benefits can outweigh the costs, not regard it as a magic wand,” the economist said.
Financiers said Prasad’s comments agreed with the Central Bank’s policy of projecting a willingness to defend the pound to the last penny of reserves.
The Central Bank, they said, would easily deal with expected pressure on the pound until the general election at the end of the month, but a new government that would assume office in October must act to prevent further, more prolonged pressure. - Reuters