Lebanon to resume IMF talks, begin reforms, draft policy statement says

BEIRUT — The Lebanese government will resume negotiations with the International Monetary Fund while beginning reforms demanded by donors, according to a draft policy program that aims to tackle what is likely one of the worst financial meltdowns in history.

New Prime Minister Najib Mikati's government will also resume negotiations with creditors over a restructuring of public debt on which Lebanon defaulted last year, a draft seen by Reuters on Wednesday said.

The government was agreed to on Friday after more than a year of political conflict over seats in the cabinet, which left the country rudderless as more than three-quarters of the population fell into poverty and shortages crippled normal life.

The cabinet is due to meet on Thursday to approve the draft, which will then go to a vote of confidence in Parliament.

Underscoring the gravity of the situation, the policy program was drawn up in a matter of days, much faster than the weeks the process has taken in the past.

The draft said the government was committed to resuming talks with the IMF for a short- and medium-term support plan.

Donors want to see Lebanon enact reforms, including measures to tackle the corruption and graft that led to the economic collapse, before they will unlock billions of dollars of assistance already earmarked for the country.

Talks with the IMF broke down last summer when Lebanon’s political elite and banking sector objected to the scale of financial losses set out in a recovery plan drawn up by the previous government.

The draft program said the Mikati government would renew and develop the previous financial recovery plan, which set out a shortfall in the financial system of some $90 billion — a figure endorsed by the IMF.

The government will also draw up a plan to "correct the situation of [the] banking sector," which has been paralyzed since late 2019, the draft said.

Lebanon’s financial system unraveled in late 2019.

The root cause was decades of profligate spending by the state and the unsustainable way in which it was financed.

As US dollars dried up, depositors were frozen out of their accounts. The value of hard currency savings has plummeted by up to 80 percent since then, with the lira collapsing by 90 percent from a peg that had existed for more than two decades.

The program draft said the government was committed to all the articles set out in a reform initiative drawn up by France, which has been at the forefront of efforts to help Lebanon.

The government will work with Parliament to pass a capital control law, the draft document said.

It also said parliamentary elections due next spring would be held on time.