BDL: Eurobond is­sue plans not new ‘fi­nan­cial en­gi­neer­ing’

Fi­nance Min­istry to re­ceive $1.7 bil­lion worth of Trea­sury bills in debt swap

The Daily Star (Lebanon) - - BUSINESS -

BEIRUT: Le­banon’s Cen­tral Bank said a planned $1.7 bil­lion debt swap be­tween it and the Fi­nance Min­istry did not rep­re­sent an­other round of the “fi­nan­cial en­gi­neer­ing” it car­ried out in 2016 to boost for­eign cur­rency re­serves.

Le­banon’s Fi­nance Min­istry is to is­sue $1.7 bil­lion in Eu­robonds to the Cen­tral Bank in ex­change for an equiv­a­lent amount of Trea­sury bills, two min­istry of­fi­cials told Reuters Mon­day.

Cen­tral Bank Gov­er­nor Riad Salameh told Reuters last month the bank’s for­eign re­serves were at a record high of around $44 bil­lion, de­spite the war in neigh­bor­ing Syria that has bat­tered Le­banon’s econ­omy and do­mes­tic po­lit­i­cal ten­sions.

Last year the Cen­tral Bank un­der­took what it and the In­ter­na­tional Mone­tary Fund have called “un­con­ven­tional” fi­nan­cial en­gi­neer­ing, to in­crease for­eign ex­change re­serves, main­tain the U.S. dol­lar peg and raise banks’ cap­i­tal re­serves.

First the Cen­tral Bank ex­changed some of its hold­ings of pound-de­nom­i­nated debt for dol­lar­de­nom­i­nated Le­banese Eu­robonds from the Fi­nance Min­istry to the tune of $2 bil­lion.

Com­mer­cial banks were then asked to trans­fer dol­lars to the Cen­tral Bank and in ex­change were given the Eu­robonds and newly is­sued cer­tifi­cates of de­posit in dol­lars.

In ad­di­tion, to en­cour­age the com­mer­cial banks, the Cen­tral Bank bought pound-de­nom­i­nated bonds held on lo­cal banks’ books from them for the full prin­ci­pal amount in ad­di­tion to the in­ter­est that the lenders would have made had they held them to ma­tu­rity, boost­ing their lo­cal cur­rency re­serves.

Econ­o­mists have told Reuters there is no ev­i­dence yet that this debt swap would be fol­lowed by the steps seen in last year’s en­gi­neer­ing.

There is no ev­i­dence this swap will be fol­lowed by the steps seen last year

Nas­sib Gho­bril, chief econ­o­mist at By­b­los Bank, said the planned $1.7 bil­lion is­sue was part of mea­sures taken by the Fi­nance Min­istry and Cen­tral Bank to im­prove the pub­lic debt pro­file, re­duce debt ser­vic­ing costs, and main­tain debt sta­bil­ity.

He added that the Fi­nance Min­istry had swapped $2 bil­lion in Eu­robonds with the Cen­tral Bank last year.

Le­banon’s po­lit­i­cal prob­lems have pre­vented the gov­ern­ment from mak­ing nec­es­sary re­forms, leav­ing the Cen­tral Bank as the key player in ef­forts to main­tain eco­nomic sta­bil­ity. –

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