|Banks agree to bail out government sector... - The Daily Star
|Banks agree to bail out government sector will lend state $4 billion - with no interest - The Daily Star
The Association of Banks in Lebanon agreed Tuesday to subscribe to a $4 billion issue of Treasury bills or eurobonds with zero-percent interest to help the government further reduce debt-servicing costs.
The agreement came after a long day of deliberations at the Central Bank, which will issue the bonds at the beginning of next year. The step will allow the government to reduce debt-servicing costs by at least $400 million a year.
According to a statement issued by the Central Bank, the commercial banks will buy six- month Treasury bills denominated in Lebanese pounds with no interest, which would then be renewed three times over the next two years, or eurobonds with two-year maturities and also no interest. "This is an exceptional measure by the commercial banks," the statement said.
The $4 billion sum represents about 10 percent of the commercial banks' total deposits, which are estimated at more than $40 billion.
The 10 leading banks in the country will subscribe to the bulk of the new issue. Sources in the banking industry have stressed their position that the $4 billion in interest-free bonds will not have any negative impact on the banks or their depositors.
The Central Bank will issue $4 billion in T-bills ranging from zero-percent interest rates to a maximum of 4 percent. Bankers in general have been more inclined to reduce interest rates on all deposits and loans following the success of the donor conference in Paris last month, at which Lebanon received pledges for $4.4 billion in soft loans.
The donor states have yet to fulfill their commitments to Lebanon but have said they will do so early next year.
France and Saudi Arabia, which both pledged more than $500 million in soft loans during the Paris meeting, want the government to implement the economic plan it submitted to participants in the conference.
Debt servicing, which consumes some 90 percent of government revenues, is expected to drop by more than $1.2 billion a year if the commercial banks and the Central Bank make good on their pledges and the soft loans come through. All told, debt servicing cost the Treasury more than $3 billion this year. Joseph Torbey, who heads the Association of Banks in Lebanon, had expressed willingness to help the government control its $30 billion public debt. Interest rates on the eurobonds negotiated at "Paris II," which will have maturities between seven and 10 years, will not exceed 5 percent.
Finance Minister Fouad Siniora said earlier that the government expected to receive the soft loans from donor states at the beginning of next year. But the chairman of the banking association has repeatedly warned that it was up to the government to speed up the planned privatization program and reduce spending in public departments.
The government hopes to generate $5 billion from privatization and securitization next year. The telecom sector will be the first to be privatized, followed by electricity and water. Commercial banks hold the bulk of the T-bills and eurobonds, which make them vulnerable to a possible government default on its debts. The government says it believes that it can reduce the ratio of debt to gross domestic product from 176 percent to 90 percent by 2007.
The Daily Star