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French Version

Lebanese gold reserves ride hot market

Doubling of value leads some economists to cry 'Sell'

The Central Bank's gold reserves, seen as the last line of defense in Lebanon's debt crisis, rode a hot market to jump in value by 110 percent in the last year, reaching more than $5.8 billion in value.

Lebanon is known to have the biggest gold reserves of all Arab countries. Some economists speculate the reserves could be used as collateral to secure large loans from international organizations.

On Monday, the price of an ounce of gold leaped $14.40 to $634 in Hong Kong and jumped by $1.30 to $623.70 in London.

The Central Bank holds more than 9.2 million ounces of gold. The reserves are mainly kept in Lebanon, the United States and London.

"The rise in the value of gold will surely boost Lebanon's balance of payments," economist Marwan Iskander told The Daily Star.

He added that the Central Bank is not authorized to take any action on gold because the Parliament passed a law in 1984 that prohibits the Central Bank from selling gold or from using it as collateral for new loans.

"Only the government and Parliament have the right to take action on gold and this in my opinion a big mistake," Iskander said.

Some leading bankers proposed to liquidate the gold to help reduce the public debt, which now stands at more than $38.6 billion, or 183 percent of the country's GDP.

The depreciation of the U.S. dollar has helped increase the value of gold in the international markets.

"The high demand for gold, especially in India, also allowed gold to rise in value," Iskander said.

He said he proposed that the government sell gold reserves when the ounce hit $370.

"But the problem is that the government did not pay any attention to my suggestion."

The Central Bank's gross foreign reserves stand at more than $11 billion, but bankers say Central Bank net reserves are very low.

"The bulk of the Central Bank's foreign currency reserves belong to commercial banks," one banker said. "Lebanon can buttress its reserves if it sold part of its gold reserves."

But it is very unlikely for the time being that the government will heed the advice of bankers and economists to sell part of the gold reserves.

Sources said that the government does not want to touch the gold reserves because the time is not ripe for its sale.

"But the government has to consider using the gold reserves as collateral to secure soft loans to reduce the debt servicing," one banker said.

The government hopes to obtain soft loans or even grants from the donor states that are expected to meet in Beirut this year to discuss the proposed five-year economic reform plan.

Beirut 24-04-2006
Osama Habib
The Daily Star

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