Lebanon will default on $1.2 billion in foreign currency debts coming due on Monday, the prime minister said on Saturday, as the country lurched deeper into an economic crisis that has set off widespread anti-government protests and left the country grasping for a foreign bailout.
Amid a rapid devaluation of the Lebanese pound, shortages of imports, a slow-motion bank run and thousands of layoffs, the decision is likely to appease protesters who have clamored for the government to prioritize domestic concerns over repaying the Eurobond. Lebanon has a $1.2 billion Eurobond due on March 9, part of a portfolio of some $31 billion in dollar bonds that sources told Reuters on Friday the government would seek to restructure in negotiations with its creditors. A default on Lebanon’s foreign currency debt will mark a new phase in a crisis that has hammered the economy since October, slicing around 40% off the value of the local currency. The crisis is seen as the biggest risk to Lebanon's stability since the end of the 1975-90 civil war. “The reserves of hard currency have reached a critical and dangerous level,” Prime Minister Hassan Diab said in announcing that the government would not make the debt payment. “It is necessary to use these funds to secure the basic needs of the Lebanese people.” Some economists and policymakers had argued against a default to preserve Lebanon’s unblemished record of repaying its debts, pushing instead to restructure it. Without delving into specifics, Mr. Diab said the government would seek to negotiate with creditors to restructure the rest of its foreign currency debt, which totals $31 billion. The country has floundered in the grip of simultaneous political and economic crises for nearly half a year, as the remittances from Lebanese working abroad, aid from Gulf countries and financial wizardry at Lebanon’s banks, which had kept the economy buoyant for years, began to collapse. This led to the Lebanese people taking to the streets in massive protests in mid-October, denouncing the political elite for mismanagement and corruption that have left the country unable to provide basics such as 24-hour electricity and reliable running water. That forced the government’s resignation and led to a months-long political vacuum, during which the economy slid further. But the cabinet that eventually replaced it, a mixture of policy experts and political appointees led by Mr. Diab, has failed so far to gain public confidence or head off further economic damage.
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Old autocrats rarely resign, nor do they just fade away. So when Vladimir Putin slipped proposals for a few changes to the Russian Constitution into his annual state-of-the-nation talkathon followed immediately by the resignation of the entire government, the presumption was that the president, who is 67, was laying the groundwork to extend his 20-year reign past the expiration of his current term in 2024.” In the biggest overhaul of Russian politics for decades, Mr. Putin surprised the country’s establishment with his timing, if not the outcome. He announced he would seek to rewrite the Russian Constitution to fortify the power of parliament and reduce the clout of the presidency. In effect, negating his direct successor and opening up an easy route to maintain his grip on the country. In a 70-minute speech, Mr. Putin addressed the burning question over the future of his reign but also provided a peek of just how the new system would work, and his exact role in it. This can be seen as a move inspired by fellow autocratic leader China's Xi Jinping, who, in effect made himself 'president for life', while Vladimir Putin has made it clear he has more decades left in the tank. Most importantly, he killed the rising hubbub of those jostling for influence around him and the dreams of would-be usurpers. Mr. Putin’s overhaul had immediate repercussions. Within a few hours of Mr. Putin’s speech ending, his long-time ally Dmitry Medvedev stepped down as prime minister and his entire government resigned. A day later a previously little-known government official, a tax technocrat with a mandate for economic renewal, was sworn in as Mr. Medvedev’s replacement in the fastest-ever change of Russian premier. Mr. Putin’s regime — which has looked tired, grey and has lost public confidence in recent years — had a feeling of being immediately refreshed. The shift away from a presidential-led system — which Mr. Putin strengthened for his advantage — to a stronger parliament with the power to choose the cabinet gives Mr. Putin a wealth of options to remain and even strengthen his power when his fourth term as president ends in 2024. Thus one can begin to speculate about how Mr. Putin might seek to maintain power, including complicated plans such as ramming through a proposal to form a joint state with Belarus and appointing himself leader of the resulting entity, or taking on a “father of the nation” role like Kazakhstan’s long-time leader Nursultan Nazarbayev did last year. Conclusion: The advantage of this system would be that, while exercising command, Mr. Putin could blame the prime minister for any shortcomings, and also Parliament for appointing the prime minister. Staying off the main stage would also allow Mr. Putin to reduce his workload and better enjoy his many billions. Whatever his ultimate intentions, Mr. Putin has the authority and popularity to get the constitutional amendments through a referendum without any serious resistance, and the time to plot his next move. What that means for the West is that there will be no change in policy until 2024, and possibly very little after that. |