Lebanon's last chance to avoid financial collapse

23rd January 2007, Comments 0 comments

BEIRUT, Jan 23, 2007 (AFP) - An international conference on Lebanon to be held in Paris this week will be the country's last chance to avoid a potential financial collapse, analysts say.

BEIRUT, Jan 23, 2007 (AFP) - An international conference on Lebanon to be held in Paris this week will be the country's last chance to avoid a potential financial collapse, analysts say.

Lebanon is banking on Thursday's aid conference, which has become a new bone of contention between the Western-backed government and the opposition led by the pro-Syrian party Hezbollah, to pay back its gigantic public debt and overcome deep economic difficulties.

Prime Minister Fuad Siniora on Monday accused the opposition of "resorting to blackmail" to sabotage the so-called Paris III conference "at a time we most need it and which will be a one-time chance for Lebanon."

Lebanon's public debt reached 41 billion dollars -- more than 180 percent of gross domestic product -- after the Israeli offensive last year which inflicted several billions of dollars in material damage.

The Lebanese government is due to pay back seven billion dollars this year and another nine billion dollars in 2008, according to experts.

"Paris III will allow Lebanon to avoid bankruptcy because it cannot pay its debts," economist Antoine Shueiri told AFP.

"Lebanon may become a country indebted to the Paris Club, if it cannot pay back its debts," he said however, referring to the group of creditor countries.

"Lebanon may then lose its credibility, and will stop being an attractive place for investments," he said, noting that "Lebanon has always succeeded in paying back its debts on time, even at the most difficult of times."

Economist Kamal Hamdan explained that "most of the debt is not external, but an internal debt in dollars owed to local banks."

"The failure to pay back the debt will destabilise the banking system, which has is the backbone of the Lebanese economic system," said Hamdan.

Banking sources put the Lebanese government debt to local banks at 22 billion dollars -- about half of the public debt.

Hamdan said the Lebanese economy was "in a state of clinical death," and that a failure to pay debts "will push the country to become a debtor country of the Paris Club which will then decide its economic policy."

Shueiri said the conference "is a vital lifebuoy" which will help Lebanon's ailing economy through grants and soft loans.

Economic analyst Adnan Hajj noted that debt servicing is the main cause of the budget deficit, and has reached about 47 percent of budget expenses.

The Siniora government has prepared for the Paris conference a comprehensive five-year reform plan which provides for raising value-added tax starting 2008 as well as introducing privatisations.

The Paris conference has become a major point of disagreement between the government and the opposition which has seized upon the cost of the proposed social reforms as its new rallying cry.

The opposition has staged a sit-in protest outside Siniora's offices in central Beirut since December 1 in its campaign to replace the Western-backed cabinet with a government in which it would have a blocking minority veto.

"Even the opposition knows that Lebanon cannot achieve any economic revival without foreign aid," said Shueiri, noting that the reform programme "is acceptable to the international community, but the danger is in its implementation."

Hamdan said the conference, which will be attended by about 30 countries and international institutions, will provide political backing to the government and "is the only solution to face the looming (economic) dangers."

He said both the government and the opposition will be held responsible for any economic and social crunch because they would have both failed to "avoid bankruptcy."

The conference was initially scheduled to take place in December 2005 but had been repeatedly postponed because donor countries had been awaiting reforms by the Lebanese government.

Copyright AFP

Subject: French News 

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