The upcoming March 9th is the deadline for Lebanon to repay its first foreign bond in 2020. With its target date closing in, this Eurobond has resulted in a major debate in Lebanon’s financial scene: To pay or not to pay?
From this situation has emerged a more heated argument on the global scale between major investors in Lebanon’s dollar bonds.
According to The Financial Times, the large British investment management company Ashmore Group owns a quarter of the Lebanese Eurobond due next month. As such, it has been pressing Lebanon to pay that bond in full.
But Lebanon is in no good position whatsoever to pay $1.2 billion in March. Only this week, the severely-indebted country requested the assistance of the International Monetary Fund (IMF) in a desperate attempt to pull itself out of the increasingly worsening situation.
The Lebanese economy is a giant mess right now. US currency is practically nonexistent in the country. Expending such an enormous amount from the treasury will plunge the country deeper into the financial abyss.
Regardless of this fact, Ashmore insists on getting its full payment on time — an attitude that has sparked bitter arguments with other creditors similarly invested in Lebanon’s dollar bonds.
According to The Financial Times, the Senior Portfolio Manager of PIMCO, another major investment management company, called Ashmore’s pushing manner in dealing with the nearly-mature Lebanese bonds “irresponsible.”
Considering they might lose considerable amounts of their investments in Lebanon due to the high possibility that its government will resort to debt reconstruction, international creditors are in a difficult position.
But defaulting on the upcoming $1.2 billion – something Lebanon has never done before – will not only negatively affect the overseas bondholders, but also Lebanon itself. Its banking sector is (or was) arguably its most successful sectors thus highly attractive to foreign investors.
However, the reputation of this sector will be effectively demolished if the repayment is not made on time. The repercussions of this failure will add more fuel to the readily enormous fire engulfing Lebanon’s economy.
As the Lebanese economist and former IMF official Toufic Gaspard described it to The Financial Times, the Lebanese government has a “choice between two evils” in front of it: Either to pay the bond and suffer dire economic consequences or default on it and, well, suffer dire economic consequences…