As Lebanon heads towards starting talks about debt restructuring in the next two weeks, there is growing concern over how Lebanon would deal with its debts and whether creditors will cooperate with the Lebanese government.
UN Special Coordinator Jan Kubis had a few things to say about Diab’s announcement as he tweeted: “Honest statement of PM Hassan Diab about the failure of the previous economic model opens the way out of the crisis.”
He then added that he would like to see creditors cooperate with the Lebanese government to help them through this situation to avoid a “disorderly default.”
The announcement on March 7th that Lebanon will choose to default on its Eurobonds due on March 9th is one that undoubtedly angered many Lebanese.
It is not merely due to the fact that this is one more element of Lebanon’s unprecedented economic crisis but also because of its preventability.
Many experts and even government officials have stated that the IMF bailout plan is the best choice for Lebanon and that Hezbollah’s refusal to comply with the deal will eventually doom Lebanon.
As Michael Young from Carnegie’s Middle East Center commented: “The problem is that without an IMF bailout, Lebanon cannot access funds to refloat its economy, nor receive the hard currency necessary to import vital necessities such as food, medicine, and fuel.”
He continued saying: “Unless Hezbollah wants the whole system to come tumbling down, with no prospect of a resolution, it will have to compromise on the IMF.”
Given that this marks an unpleasant first-time in Lebanon’s history, it is unknown what this unprecedented economic crisis holds in store for Lebanon.
Even if creditors choose to cooperate with the Lebanese government on restructuring the debt, it’s still won’t be enough to help with most of Lebanon’s debt, which is to the country’s local banks.
There are different opinions on whether or not to pay the debt. Some would say that there are more urgent matters to attend to, such as fuel and wheat.
However, it is important to point out that with the IMF’s bailout plan, much of these problems would’ve been dealt with as Lebanon makes the necessary reforms to decrease the debt-to-GDP ratio and increase productivity.
So, with Lebanon defaulting on its Eurobonds, what happens next?
