IMF Favors Reform of Lebanon Finances

The International Monetary Fund said in a report Saturday that it welcomed Lebanon’s proposals to reform disastrous public finances but warned debt levels would be dangerously high even if all went as planned.

The report, a translation of which appeared in Prime Minister Rafik Hariri’s Al Mustaqbal newspaper, followed consultations with IMF officials on Lebanon’s strategy for handling its $25-billion public debt, which exceeds 160% of gross domestic product.

The IMF praised Lebanon’s pledges to tighten spending, impose a value-added tax and privatize businesses to help arrest the debt. It urged swift passage of a 2002 budget with a deficit of about 40% of spending compared with about 50% this year.

The report warned, however, that even if all the fiscal measures were implemented, bringing the debt down would depend on privatization revenues. It said some IMF board members believed the option of devaluation of the Lebanese currency should be left open.

Lebanon’s central bank has seen its gross reserves fall from the equivalent of $7.6 billion at the end of 1999 to about $4 billion now, as it intervenes to defend the currency amid fears about the public debt and regional stability.

Hariri’s government has repeatedly said devaluation is not an option for handling the debt, about two-thirds of which is locally issued. Many local economists believe the country’s narrow export base would be no advantage in a devaluation.

The government instead hopes to restart growth while boosting revenue via taxes and sales of state assets such as cellular phone operating licenses and unwieldy public utilities. It also has fired political patronage appointees at the national airline and television station.