Lebanon halts loan payment

Prime minister says country’s debt beyond what it can handle

BEIRUT — Lebanon’s prime minister said Saturday that the government will suspend payment of $1.2 billion in loans, marking the crisis-hit country’s first-ever default on its sovereign debt amid ongoing popular unrest.

Hassan Diab made the announcement in a televised address to the Lebanese people, saying the country will seek to restructure its massive debt. The $1.2 billion Eurobond matures on Monday.

The default marks a new chapter in the crisis and could have severe repercussions on the tiny country, risking legal action by lenders that could further aggravate and push Lebanon’s economy toward financial collapse. The currency has already lost up to 60 percent of its value on the dollar on the black market and banks have imposed crippling capital controls on cash withdrawals and transfers.

Diab said Lebanon’s debt reached $90 billion or 170 percent of GDP, making it one of the highest in the world.

He added that the total debt and interest Lebanon had to pay back in 2020 is at $4.6 billion.

“Lebanon’s debt is greater than the country can handle,” he said.

By saying that Lebanon will suspend paying back the debt rather than directly saying it will not pay it, Diab’s government appeared to be keeping the door open for negotiations with creditors.

Late last month, the government appointed Cleary Gottlieb Steen & Hamilton LLP as a legal adviser on the country’s Eurobond debt and financial advisory and asset management firm Lazard as a financial adviser.

Diab said Lebanon’s foreign currency reserves “have reached a critical stage” leading the government to suspend its debt payment so that it can continue to provide basic commodities to the Lebanese people.

“The decision to suspend payment is the only way to stop the attrition and protect our national interests, while at the same time launching a comprehensive reform program,” Diab said.

Diab’s 6-week-old government is grappling with a severe financial and economic crisis that has led to months of protests and upended trust in the Lebanese banking system. The issue of whether to make the $1.2 billion Eurobond payment was among the first tough decisions his Cabinet had to make.

In a 20-minute speech, Diab repeatedly pledged various measures to combat corruption and restructure Lebanon’s banking sector. He referred to measures that would need to be taken, hinting at the possibility of raising taxes, but did not announce any immediate painful measures.

He sought to calm nerves, telling the Lebanese that their deposits will be safe.

Hassan Diab