In the times of “Corona”, dwelling on financial matters, despite their importance, may seem frivolous. Nevertheless. The Corona crisis cannot conceal the impasse awaiting the government should it not enact one of these two possible solutions: The first is to commit to implementing the reforms recommended by the International Monetary Fund without its direct supervision or financial support. This solution will certainly be costly and backbreaking for the Lebanese Government. The second option is also committing to the IMF’s recommendations and implementing the necessary reforms to restore international trust under its supervision. Certainly enough, the IMF is a body that has adequate knowledge of the Lebanese economy as well most economies around the world.
In his latest media appearance, Hezbollah Secretary-General Hassan Nasrallah left the door to the IMF bailout option open. This came several weeks after he had categorically rejected any form of cooperation with the IMF beyond a consultancy. Hezbollah however, failed to produce an alternative plan. That means that the party has no alternative solutions to Lebanon’s calamities. Failure to take any measures will be the most harmful scenario. The brunt of that inaction will be borne by the middle and lower classes. This is especially due to the discretionary measures that are being taken in the absence of well defined and just laws. The current government which is a corrupt quota-based administration cannot take necessary steps to guarantee such laws, unlike an institution such as the IMF. Hezbollah’s refusal to call for the IMF was based on two reasons: The first one is due to the painful monetary policies that the Fund is likely to impose, such as increased consumption taxes, that Hezbollah cannot embrace as their support base is already suffering from mounting living expenses and can no longer incur additional ones. The second reason is based on the strong influence of the United States on the IMF’s decisions, such as possessing the power of VETO, which raises strong concerns for Hezbollah over the possibility of future sanctions on their activities.
Hezbollah’s concern over increased consumer taxes is justifiable in the light of current reductions in economic growth due to the current financial crisis. However, imposing a wealth tax will not provide enough revenues in the current situation. Hence accepting the assistance of the IMF is the most reasonable solution.
Risk Management versus Aversion
Since 1975, Lebanon has become accustomed to adopting a risk management policy rather than a risk averse one. As a result, the primary goal of the government remains maintaining the stability of the financial system which has cost fortunes over the years and has resulted in the levels of debt we know today. The International Monetary Fund aims to ensure the stability of international monetary and financial systems. Accordingly, it assists countries in resolving crises and works with its member states to promote growth and reduce poverty. The IMF specializes in 3 main capacities: Monitoring, technical assistance and training, and lending. These functions are based on IMF research and statistics in addition to an abundance of reports and expertise.
According to a 2018 report by the IMF, the Lebanese market had begun to slow down due to decreased inflows of foreign capital since 2017. These inflows that are used to fund the FX deficit were not longer enough to sustain the financial system. Bank du Liban increased interest rates significantly and sold bonds in both Lebanese and foreign currency to curb dollar outflows. However, these attempts did not reach the desired results and failed in preventing the financial and economic crises we the country is experiencing today.
In short, the IMF was aware, before anyone else, of the consequences that would befall Lebanon due to its failed policies and mounting debt. This is why the IMF, that has studied the Lebanese economic, financial, and monetary situation is the best bet in leading the country away from the mess it is in. From this standpoint, the rhetoric rejecting the IMF option is nothing but demagogic rhetoric by those who cannot present any alternative, especially when Lebanon has repeatedly demonstrably massive failures when it comes to independently implementing reforms.