Declaring it cannot pay debts, Lebanon sets stage for default
BEIRUT (Reuters) – Lebanon announced it cannot meet its debt payments and halted a March 9 bond payment of $1.2 billion on Saturday, setting the heavily indebted state on course for a sovereign default as it grapples with a major financial crisis.
In a televised address to the nation, Prime Minister Hassan Diab said foreign currency reserves had hit a “critical and dangerous” level and were needed to meet basic needs. He called for “fair” negotiations with lenders to restructure the debt.
The default will mark a new phase in a crisis that has hammered the economy since October, slicing around 40% off the value of the local currency, denying savers free access to their deposits and fuelling unemployment and unrest.
The crisis is seen as the biggest risk to Lebanon’s stability since the end of the 1975-90 civil war.
“How can we pay creditors abroad when the Lebanese cannot get their money from their bank accounts?” Diab said. “Our debt has become greater than Lebanon can bear, and greater than the ability of the Lebanese to meet interest payments.”
The long-brewing crisis came to a head last year as capital inflows slowed and protests erupted over decades of state corruption and bad governance.
“We are paying the price for the mistakes of the past years. Must we bequeath them to our children?” Diab said.
The Lebanese had “lived a dream that was a delusion as though things were just fine, while Lebanon was drowning in more debt”, he said.
There has been no sign of a bailout from foreign states that aided Lebanon in the past. Western governments insist Beirut first enact long-delayed reforms to fight waste and corruption.
Diab was appointed in January with backing from the Iranbacked group Hezbollah and its allies. Former prime minister Saad Hariri, a traditional ally of the West and Gulf Arab states, stayed out of the government.
Diab, a little-known academic when he became prime minister, said corruption had drained the state while also criticizing economic policies adopted since the war.