|Baz says 'Paris II' can provide valuable breathing space soft loans would reduce debt burden - The Daily Star
|Top banker predicts 'an opportunity to turn things around' but warns of need for 'other measures by the government'.
A leading banker said Wednesday that $3 billion-$5 billion in soft loans from the 'Paris II' donor conference would give Lebanon a window of at least 18 months to implement financial and economic measures to reduce the public debt.
'We have an opportunity to turn things around if we get guarantees for a soft loan. But this step is not enough if it's not matched by other measures by the government,' Freddie Baz, adviser to Banque Audi chairman Raymond Audi, told journalists at the bank's headquarters in Beirut.
Baz added that the government should speed up privatization, securitization and other financial reforms.
'Paris II will not solve all our problems, but it will definitely will be a turning point,' he said.
Prime Minister Rafik Hariri said Tuesday that the Paris meeting would take place either on Nov. 23 or Nov. 24.
The European Union, the six members of the Gulf Cooperation Council, Malaysia, Japan, Canada and the United States are expected to participate. In addition, the World Bank and the International Monetary Fund will send representatives.
Hariri declined to say how much assistance Lebanon would get from the donor states.
But sources gave a range of $3 billion-$5 billion in soft loans with long maturities. These loans would replace part of Lebanon's massive public debt in pound-denominated Treasury bills. The Finance Ministry said that $5 billion in soft loans would reduce debt-servicing costs by $300 million a year. Debt servicing, which consumes 90 percent of revenues, is about $3 billion a year.
Baz said the Central Bank would add the loans to its current foreign currency reserves.
'Adding the soft loans to the reserves of the Central Bank will further increase confidence in the pound,' Baz said.
He added that already the monetary situation in Lebanon had improved, as more people are switching to local currency.
Baz said interest on the soft loans should not exceed 6 or 7 percent. Lebanon pays between 9 to 10.5 percent on its outstanding eurobonds, which are mainly held by local banks.
'We can save up to $300 million if we get $3 billion in soft loans,' he said. 'In addition to the direct savings, the soft loans will enter the coffers of the Central Bank.'
Baz stressed that the Central Bank could reduce interest rates on the two year T-bills by 2.5 percent.
'Even if the Central Bank drops interest rates on the pound,' he said, 'the margin of difference between the local currency and the dollar will remain significant.'
Economists have said that the interest gap between the pound and the dollar should be around five basis points.
The two-year T-bills carry a yield of 16.4 percent, compared to a maximum 6 percent on dollar deposits.
Thanks to a strong tourist season this summer, the Central Bank managed to boost its foreign currency reserves. At present, the gross foreign currency reserves of the Central Bank are just over $4.5 billion.
The influx of Arab tourists also helped narrow the country's accumulated balance of payments deficit.
But the Audi official said that banks would not finance the public debt, even if the government secured soft loans from Paris II.
'We are (already) holding the bulk of the government T-bills and eurobonds,' he said.
He added that the gross domestic product should jump above current levels.
Baz estimated GDP growth up to the end of September at only 1 percent.
'There is enough room to achieve a higher GDP growth in the future,' he said. 'The private sector has enormous untapped resources.'
The Daily Star