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French Version

Lahoud urges banks to swap eurobonds soon (Daily Star)

president meets with bankers' association
Some analysts argue that the government may not save money from the operation

President Emile Lahoud met with the Association of Banks in Lebanon on Tuesday in an attempt to speed up the swapping of $7.5 billion worth of eurobonds that will mature in 2005 and 2006.

The banks have agreed in principle to negotiate with the Finance Ministry and the Central Bank on the proper mechanism to swap the eurobonds - an issue that almost caused a serious rift between the president and Prime Minister Rafik Hariri.

Lahoud, whose presidential terms will end before 2004, told the bankers that the political and security stability in the country should be matched by economic measures.

After underlining the importance of commercial banks, Lahoud said that economic issues should not be part of the political debate."We need to tackle the pending financial matters with a new mentality to preserve the rights of the state and protect the institutions," Lahoud said.

Finance Minister Fouad Siniora and Central Bank governor Riad Salameh were authorized by the Cabinet to negotiate with the commercial banks as soon as possible to get good rates for the swap operations. The 2005 and 2006 eurobonds will be swapped with new issues with a five-year maturity.

The president believes that the financial and monetary authorities would be able to save some money for the state if they persuaded the banks to swap the eurobonds at cheaper rates. The 2005 and 2006 maturing eurobonds have an average yield of 9.5 percent but some ministers say that these rates should drop to 6 or 7 percent.

The Finance Ministry has commissioned nine international investment banks to co-manage the swap operation and hold talks with the Lebanese commercial banks, which hold more than 80 percent of the sovereign eurobonds.

The Finance Ministry must complete the swap transaction before September of this year.

Lahoud and his supporters argue that the time is very convenient to swap the maturing eurobonds with new issues at lower interest rates.

They project interest rates will rise in the coming few months and therefore it would be better for Lebanon to replace the eurobonds now.But many bankers argue that the government may not save a lot of money from this operation, especially if the premium risk factor was included.

The negative credit ratings of Lebanon have increased the risk factor on the country, prompting banks to charge higher interest on the loans to the government.

However, financial analysts say banks have other option these days because the return on investments in Europe and the United States are very low."The banks cannot have a liquidity surplus following 'Paris II' conference which pledged $4.4 billion in soft loan to Lebanon to help the government reduce debt servicing," one banker said.

Interest rates on treasury bills and deposits both in US and Lebanese currencies fell by more than 6 percent in five months after Paris II. But despite the willingness of the banks to swap part of the maturing eurobonds, economists warn that the government cannot resort to these temporary measures forever.

They say the government must implement reforms such as privatization, securitization and reduction of public spending.

Beirut 05-07-2004
Osama Habib
The Daily Star

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