BEIRUT – The International Monetary Fund on Wednesday said it has begun remote discussions this week with Lebanon, which is seeking some $10 billion of aid to help it out of the worst financial crisis in its history.
Tough negotiations lie ahead for Lebanon, which will be expected to enact economic reforms its sectarian leaders have long avoided if Beirut hopes to secure international aid, analysts say.
With Lebanon in a coronavirus lockdown, the first round of talks began via videoconferencing.
“The aim is to reach a comprehensive framework that can help Lebanon address the current challenging economic and social conditions and restore sustainability and growth,” an IMF spokeswoman said of the talks that began on Monday.
She said the discussions would continue in coming days.
“We are comfortable with the atmosphere of these initial discussions, and we expect that the upcoming discussions will be equally constructive,” Lebanon’s Finance Minister Ghazi Wazni said in a statement.
Beirut officially asked for IMF assistance earlier this month, in what Prime Minister Hassan Diab called a “historic moment” for a country facing the biggest threat to its stability since the 1975-90 civil war.
The talks will be based on a government rescue plan which maps out tens of billions of losses in the financial system.
An international support group including the United States and France said in a statement the decision to request an IMF program was “a first step in the right direction”.
Domestic political support was “necessary for successful conduct and rapid completion of negotiations with the IMF”, the support group noted, hinting at the need for consensus among Lebanon’s fractious politicians.
Foreign donors, which have helped Lebanon in the past, say they will not think about giving any fresh aid before the state enacts reforms to address rampant corruption and waste – root causes of Lebanon’s economic problems.
“Whilst there are no quick and easy fixes to economic reconciliation given that there will inevitably be losers in a likely fraught reform process, the crisis has become so complex that the need for sweeping action is now,” said Ehsan Khoman, head of MENA research and strategy at MUFG.
None of Lebanon’s main parties are opposed to going to the IMF, widely seen as the only way for the country to secure support. However some groups, including the powerful, Iran-backed Shi’ite group Hezbollah, have warned against conditions that would violate the country’s sovereignty.
Lebanon descended into crisis late last year as capital inflows dried up and protests erupted against the ruling elite over decades of bad governance and corruption.
The crisis has more than halved the value of the local currency and fuelled unrest, as inflation, unemployment and poverty soar.
Cash-strapped banks have largely frozen depositors out of their savings for months as dollars have grown ever more scarce.
After defaulting on its sovereign debts in March, Lebanon hopes an IMF program will help in talks with its creditors.
Some economists see the plan as a good first step but remain sceptical about Lebanon’s ability to enact reforms to cut public sector spending and overhaul the banking sector after years of dragging its feet and political wrangling.
“We are certainly nowhere near out of the woods yet, but a coherent, credible and coordinated IMF rescue package will, over time, reassure investors that Lebanon is on a more sustainable footing,” said Khoman.
The plan has also faced strong pushback from banks that are projected to sustain losses of some $83 billion. The banks, major lenders to the government for decades, are working on their own plan that seeks to keep some of their capital.