The International Monetary Fund said on Thursday that Lebanon was in a “very dangerous situation” and that “everybody will have to take losses” in the acute financial crisis that has locked depositors out of their savings and led to much of the population being pushed in poverty.
The IMF urged Lebanon's leaders to enact much-needed reforms, saying the process had been “very slow” considering the country's devastating financial situation.
“The delays can only increase the cost on the Lebanese people; we urge the authorities to accelerate the process, and to start finally completing the necessary prior actions,” said Ernesto Ramirez Rigo, who led an IMF delegation visiting Beirut this week for meetings with the government, central bank officials and experts.
The meetings are part of a consultation under Article IV, which is held every year for all IMF member countries and involves assessing a country's financial conditions, reviewing existing policies and exploring options for reform before the publication of an annual report.
The IMF delegation met caretaker Prime Minister Najib Mikati and his deputy Saade Chami.
The stakes are high: billions of dollars in relief funding from the IMF, which could pave the way for releasing other international funding and foreign investment to ease Lebanon out of more than four years of economic crisis.
Lebanese and IMF negotiators reached a staff-level agreement in April last year that depended on an economic recovery plan and a series of crucial reforms.
But Lebanese leaders have failed to reach agreement on how to resolve the crisis despite an economic recovery plan adopted by the government in May.
“Time has gone by, it's almost a year since we have reached an agreement,” Mr Rigo pointed out.
Allocating losses
One of the main bones of contention is the allocation of financial losses between the main stakeholders: the government, the banks and depositors.
Mr Chami, the architect of the recovery plan, has estimated that the hole in the financial sector amounts to $73 billion.
“The numbers are on such a scale for a country as small as Lebanon that everybody will have to take losses,” Mr Rigo said, stressing that the IMF does not have updated numbers as it would need an audit of the major banks.
“Lebanon is very unique because of the complexity of the balance sheets between the central bank, the commercial banks and the public sector, but also the size of the losses, it’s hard to find a place similar to this one,” he said.
The negotiations with the IMF notably stalled on the state's contribution to cover the financial losses.
Mr Rigo said the state's participation should be minimal to maintain public debt sustainability.
“Any solution needs to ensure that there is debt sustainability. Lebanon is in default … it doesn't have the capacity to recapitalise the system; that would have been the easy solution, but it can't do that,” he said.
The IMF called for a fair allocation of losses while protecting the value of small depositors as much as possible. Based on these recommendations, the recovery plan initially put the state's contribution at a few billion dollars, while placing the brunt of the losses on bank shareholders and big depositors.
However, Lebanon's banking association, the banking lobby, some MPs and others have been calling for bigger government contributions to bail out large depositors.
The option was first ruled out by the government, with Mr Chami labelling the selling of the government's assets as “a reverse Robin Hood”.
But the issue is still being debated, preventing the talks with the IMF from moving forwards.
Mr Rigo questioned the equity of using public assets to bail out depositors.
“It is a major concern, people who are not bancarised [who do not hold a bank account] and even new generations will settle losses. There is an issue of intergeneration equity as much as an issue of capacity,” he said.
Required measures
Several required measures have been enacted by the authorities, including the approval of a budget for 2022, an audit of the central bank's foreign assets and a revised law on banking secrecy
But a law on capital control, with the “objective to protect liquidity” and to ensure depositors have access to their savings, has yet to be enacted, Mr Rigo said.
However, the law on banking resolution, another prior condition imposed by the IMF which is intended to set the criteria for bank viability, “is advancing very well”.
The IMF has provided additional comments “but it's going in the right direction”, Mr Rigo said.
He called for the multiple exchange rates that have emerged since Lebanon’s economic collapse began to be unified, including the Sayrafa platform managed by the central bank, which he said was not driven by the market.
“Lebanon is at a dangerous crossroads, and without rapid reforms will be mired in a never-ending crisis,” he said.
Company profile
Date started: 2015
Founder: John Tsioris and Ioanna Angelidaki
Based: Dubai
Sector: Online grocery delivery
Staff: 200
Funding: Undisclosed, but investors include the Jabbar Internet Group and Venture Friends
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
ENGLAND SQUAD
Team: 15 Mike Brown, 14 Anthony Watson, 13 Ben Te'o, 12 Owen Farrell, 11 Jonny May, 10 George Ford, 9 Ben Youngs, 1 Mako Vunipola, 2 Dylan Hartley, 3 Dan Cole, 4 Joe Launchbury, 5 Maro Itoje, 6 Courtney Lawes, 7 Chris Robshaw, 8 Sam Simmonds
Replacements 16 Jamie George, 17 Alec Hepburn, 18 Harry Williams, 19 George Kruis, 20 Sam Underhill, 21 Danny Care, 22 Jonathan Joseph, 23 Jack Nowell
Scoreline
Liverpool 4
Oxlade-Chamberlain 9', Firmino 59', Mane 61', Salah 68'
Manchester City 3
Sane 40', Bernardo Silva 84', Gundogan 90' 1
Expert input
If you had all the money in the world, what’s the one sneaker you would buy or create?
“There are a few shoes that have ‘grail’ status for me. But the one I have always wanted is the Nike x Patta x Parra Air Max 1 - Cherrywood. To get a pair in my size brand new is would cost me between Dh8,000 and Dh 10,000.” Jack Brett
“If I had all the money, I would approach Nike and ask them to do my own Air Force 1, that’s one of my dreams.” Yaseen Benchouche
“There’s nothing out there yet that I’d pay an insane amount for, but I’d love to create my own shoe with Tinker Hatfield and Jordan.” Joshua Cox
“I think I’d buy a defunct footwear brand; I’d like the challenge of reinterpreting a brand’s history and changing options.” Kris Balerite
“I’d stir up a creative collaboration with designers Martin Margiela of the mixed patchwork sneakers, and Yohji Yamamoto.” Hussain Moloobhoy
“If I had all the money in the world, I’d live somewhere where I’d never have to wear shoes again.” Raj Malhotra
