Prime Minister Hassan Diab said in a televised address on Saturday that Lebanon will not pay a $1.2 billion Eurobond due on March 9 as its foreign currency reserves have hit critical levels and are needed to meet the basic needs of the Lebanese people.
The following is the Prime Minister's speech:
"Dear fellow Lebanese,
Our country is going through a critical period of its history, sailing through rough and turbulent seas. The strong will of the Lebanese people is what is saving our country from sinking.
The Lebanese people are known for their zest of life; thus, they have time and time again faced and overcome challenges and crises, no matter how enormous and overwhelming they might have been. This time, the fight is of a different nature. We have to rely on the ability of the Lebanese people to begin a new fight for our independence in order to be freed from the enemy tightening its grip on the present and future of the Lebanese people.
Throughout their history, the people of Lebanon have paid a huge price for rising up against injustice, oppression and tyranny. But never did they surrender, nor have they conceded their nation; they have fought for their independence and were always victorious.
Dear fellow Lebanese,
The exceptional conditions we are currently living through are a reflection of an unprecedented crisis which puts Lebanon at crossroads. The current government has, since since the first day of its formation, taken stock at the State's financial situation and reviewed all available options to deal with the profound public debt crisis; the government has worked, day and night, to assess the imbalances and lay the foundations for addressing the situation.
October 17 was a rallying cry in the face of corruption, mismanagement, and stifling financial and economic policies. The Lebanese have voiced their rightful demands, lighting the tinder and illuminating the way forward to put an end to corruption, and to the policies that have left us with an overburdened country facing difficulties to pay the accumulated debts and their interests. Is it viable for a country to be built on a leveraged economy? Can a nation ever be free if it is over-indebted?
Today, we are paying the price for the mistakes committed years ago. But will we pass them onto our children and future generations?
Our debt has become greater than Lebanon can bear, it has exceeded Lebanon's capability to pay its interests. Lebanon has become a prisoner of its own economic policies based on leverage and accumulated interests, which have undermined the productive sectors of our national economy, leaving no light in sight at the end of the tunnel.
The people of Lebanon are bitterly struggling with unemployment, a high cost of living and dilapidated infrastructure. All of this is adding to the suffering and hardship of the Lebanese people, increasing their feeling of resentment towards the State.
Over the past years, consecutive cabinets have witnessed the depletion of public resources; uable to take the drastic measures to stop the sharp decline of public finances. The Lebanese people have lived a dream which turned into a delusion. The illusion that everything was going well, although Lebanon has been drowning in debts and interest rates including in foreign currency, so much so that the total debt has exceeded 90 billion dollars, i.e. around 170% of the GDP.
The decline of foreign currency reserves has put a strain on the national currency, and is limiting the Lebanese people accessing their foreign currency bank deposits, with the formation of a parallel exchange rate market for the dollar against the Lebanese pound.
According to World Bank estimates, more than 40% of the population might be soon seeing themselves living below the poverty line.
How have we reached such a course?
The first reason is the failing economic model laid down by previous policies. This model has been unable to stimulate investment and create job opportunities, leading some Lebanese investing into bonds rather than into the real economy, while the state was caught in a vicious circle of deficit and indebtedness. Today's reality is that for every 1,000 LBP of state revenues, more than 500 LBP go to debt servicing instead of being spent on health, education and infrastructure. This constitutes an unsustainable approach that cannot continue as such, especially as Lebanon is at risk of becoming the most indebted country in the world relative to the size of its economy. This has shifted the main role of the banking sector as supporter and funder of the economic engine to a mediator attracting deposits with high interest rates exceeding, for the dollar, 5 to 10 times that of those provided by other banks around the world and further to the role of creditor granting loans to the State at a higher interest rate.
This has led to a budget inflation of the central bank and banking sector, much higher than needed to finance the economy. This has cost our economy an exorbitant price. It is an unfair model benefitting the few and adversely affecting the majority of the population. In fact, out of every 1000 LBP deposited in banks, only around 300 LBP are invested in the real economy. The Lebanese economy is not sufficiently productive, thus it pushes the Lebanese towards importing 80% of consumed goods and services; therefore, we are still spending more dollars than we can attract.
The second reason of this crisis is the endemic corruption and mismanagement of public funds, which have placed a heavy burden on the state, dictating our politics, economy, public administration and various areas of daily life.
Corruption took a timid start at first, before becoming an integral part of the State, power and society. Today, it is not possible anymore to keep on borrowing to finance corruption. It is time to restore ethical conduct in governance and gain back trust in our State.
The third factor is the repercussions of wars and conflicts in the Arab region, especially in terms of economic strangulation and the massive burden of an influx of refugees.
Dear fellow Lebanese,
We are facing a considerable Eurobond debt repayment amounting to around 4.6 billion dollars in principal and interests in 2020, with the first instalment due on March 9 (i.e. in two days from now).
Faced with this major hurdle, we can only make a decision that protects the interests of our nation and our people.
Our international reserves have reached critically low levels, forcing the Lebanese Republic to withhold all the payments on the Eurobonds that are due on March 9.
This decision was not an easy decision; it is the result of thorough assessments (including the financial and legal perspectives) of all available options at all levels.
Today, the decision to withhold payment is the only way forward for Lebanon to stop the depletion of its reserves and to protect the public interest, concurrently with the launch of a comprehensive reform agenda to build a resilient and sustainable economy on solid and modern grounds. We have made this decision out of our concern to preserve the interests of all citizens.
We have made this decision, because we are determined to restore the state's ability to protect the Lebanese people and provide them with a decent life.
How could we pay creditors while the Lebanese people are unable to access their own money in their bank accounts?
How could we pay creditors while hospitals are subject to medical supplies shortages? While we cannot provide healthcare services to our citizens?
How could we pay creditors while people in the streets have no money to buy their bread?
Lebanon is a country that honors its commitments. However, the state is currently unable to pay its upcoming liabilities.
In the light of this, the Lebanese government will seek to restructure its debts in a way that is consistent with the national interest, through a fair and good faith negotiation process with its creditors and adhering to best international practices.
More than 50 countries have failed to pay their debts; countries which have implemented required reforms have recovered, and that is what we are determined to do in order to overcome the triple crisis Lebanon is facing: the monetary crisis, the banking crisis and the sovereign debt crisis.
Since its formation less than one month ago, this government has immediately started working on drafting a reform program based on:
The debt restructuring that is part of both, the government's reform program to restore confidence in our country and of our ministerial statement, especially the measures that we promised to take during the first 100-day period.
Restoring the balance of public finances is at the forefront of our priorities. If we want to free ourselves from the burden of debt, we cannot spend more than we earn. Lebanon will manage to reduce its spending through long-awaited measures, including the reform of the electricity sector. Our government's gasification plan will generate savings amounting to more than $ 350 million per annum.
This is only the beginning.
The reform program will also secure additional resources for healthcare, education and infrastructure.
I have asked the ministers to propose reforms to make our tax system fair for everyone. We pledge to fight tax evasion while increasing the efficiency of tax collection. We will also launch a social safety net to protect the most vulnerable in our society.
Only three weeks after the parliament granted its vote of confidence, this government has embarked upon the preparation of a national anti-corruption strategy. In this regard, a specialized committee will be formed soon, and will be equipped with the necessary powers and autonomy to fulfil its mandate. Since transparency is the best way to fight corruption, this government has submitted a draft law aimed at lifting banking secrecy for everyone who was or is currently involved in public affairs.
We have also started the reform of our judiciary system by submitting a list of judge nominations to the Higher Judiciary Council, and law bills are being prepared to improve the outlook of Lebanese businesses and create a favorable environment for investment and growth. These measures will help us transition from a rentier economy to a productive economy. The Lebanon of tomorrow will be the Lebanon of Agriculture, Industry, Knowledge and Technology in addition to the traditional sectors of Trade, Tourism and Services.
We will also work on the redeployment of our banking system. The Lebanese economy and its entrepreneurs cannot flourish without the required funding from its banks. But at the same time, we don't need a banking sector four times the size of our economy. We will therefore have to come up with a plan to downsize and restructure the banking sector. I have heard the growing concerns of small depositors. We are still assessing the exact nature of the required adjustments and the various options at hand. But let me be clear: We will endeavor to protect the deposits in the banking sector, especially those of small depositors who represent more than 90% of total accounts.
In the meantime, we must stop the financial bleeding of our economy. We will soon propose a special law for the organization of the banking sector and the bank-client relationship, to bring more fairness.
This action plan will shape the future economic and financial environment for our country. My Government is committed to this plan. I would like to seize this opportunity to also reaffirm to our international partners the adherence of the Lebanese Government to CEDRE's vision for stability and growth. The reforms agreed at the conference will be implemented, as these are essential to restarting our economy and bringing prosperity to the people of Lebanon. These reforms are important to restore trust and support from our Arab brothers and the international community.
The Eurobonds restructuring and reforms will take time and efforts and will certainly require difficult measures. Solidarity, patience and determination are needed to implement these reforms. This is the only way forward to preserve the future and safety of our country and people.
Dear fellow Lebanese,
Our country is wonderful and exceptional. Our people are unique. I truly believe in our collective and extraordinary talents.
Our history teaches us that our biggest enemy has always been: Division. For together we stand and divided we fall.
If we stay united throughout this crisis, if we stay focused - not on ourselves, but our nation - I know that we will prevail and build together a stronger and more successful Lebanon.
Long Live Lebanon and the people of Lebanon."