Lebanon needs to reduce debt by $23 billion

Lebanon should cut its public debt to about 80 percent of gross domestic product, from the current level of 147 percent, Templeton Asset Management Ltd.’s Mark Mobius said. Mobius, who oversees about $34 billion in merging market assets as Templeton’s Singapore-based executive chairman, said he’s considering an investment in Lebanon’s banking and real estate industry this year.

“We are looking to do something here,” he said. “We have Lebanon in our list and we have price points at which we want to buy, but those price points have not yet been reached.”

“If Lebanon cannot exhibit the ability to fairly rapidly pay down its debt then of course they will be a target for a high credit-default-swap spread,” and higher borrowing costs because of the reverberations of the Greek debt crisis, Mobius said in an interview in Beirut today.

Prime Minister Saad Hariri’s government, which was formed in November, has to finance public debt that reached $52 billion at the end of February. Lebanon accumulated the debt as it rebuilt the country after a 15-year civil war that ended in 1990 and a month-long conflict with Israel in 2006.

Plans to sell two state-owned mobile phone operators, which previous governments had hoped would raise as much as $7 billion, were put on hold because of an 18-month political crisis that eased in May 2008, and later due to the global credit crisis and parliamentary elections in June of last year. Restructuring the state-owned power company, Electricite du Liban, which received $1.5 billion of government subsidies last year, has also been delayed.

Lebanon’s economy has weathered the global financial crisis, expanding 9 percent last year as a fixed exchange-rate policy combined with high interest rates helped banks attract about $1.5 billion a month into the country.

The inflow enabled a 16 percent increase in bank credits in 2009, Lebanese central bank Governor Riad Salameh said in a Jan. 20 interview, forecasting a similar increase for this year. Last week, Salameh predicted that the economy will expand as much as 8 percent this year, almost twice as fast as estimated by the Finance Ministry.

The current system is “sustainable if you’re able to put that money to work in something that is productive, that’s the key” Mobius said. “The advantage of course with Lebanon is that you have experienced bankers who understand the region and the world and are able to place that money hopefully in enterprises and companies that will be productive.”

By Massoud A Derhally

Bloomberg