Lebanon blast seen adding urgency to talks with IMF
August 05 2020 10:35 PM
A view of destruction at Beirut port in the aftermath of a massive explosion in the Lebanese capital yesterday. As far as Lebanon’s immediate needs are concerned, Beirut’s governor estimates the cost of the damage to be between $3bn to $5bn.


As emergency services assess the toll from Tuesday’s deadly explosion in Beirut, one immediate consequence is becoming clear to analysts: It will ratchet up pressure on Prime Minister Hassan Diab to make meaningful progress in talks with international lenders and investors.
For some observers, that means quickly addressing the internal divisions and foot-dragging that have stalled negotiations with the International Monetary Fund about a $10bn loan programme following the country’s March Eurobond default. But that assumes the government can even hold together, which is far from assured, some analysts say.
As far as Lebanon’s immediate needs are concerned, Beirut’s governor estimates the cost of the damage to be between $3bn to $5bn.

Nafez Zouk, emerging-markets macro strategist at Oxford Economics, says in a message:
“The immediate economic damage is going to require that the country uses dollars it barely has to import what is needed in terms of fuel, grain, materials for reconstruction and for medical supply. The gross mismanagement and corruption means those buffers are nonexistent. Hence the need for immediate financial and humanitarian assistance is pressing.”
“I think the ramifications are going to be more political than economic, though. This may prove to be the spark that re-ignites the protests, which had died down recently,” due to the coronavirus and the formation of the new government. “But popular discontent has been building up again, and this may prove to be the straw that breaks the camel’s back.”
“I suspect the demand for FX is going to rise materially.” Also, the “supply side pressures on inflation will push prices up.”

Richard Segal, a senior analyst at Manulife Investment Management in London, says in an e-mail message: The events could motivate the political parties to set aside their differences and make efforts to break the deadlock and begin to fix the economy, negotiate with the IMF, bondholders, regional governments and the like. The direct economic impact should not be that significant, though.
“Regarding the negotiations, the IMF is always closely attuned to humanitarian developments in its member countries.”
Ayham Kamel, Henry Rome and Sofia Meranto, analysts at Eurasia Group, write in a note:
“The incident will worsen already troubling political and economic conditions in Lebanon and increase the likelihood of a government collapse.
“Prime Minister Hassan Diab is opening an investigation into the incident and is likely attempting to evade responsibility for the incident. The investigation is likely to prove extremely controversial and divisive.
“The government’s credibility is declining, and large elements of the public no longer believe the government is able to manage. In our view, this accelerates movement towards a collapse. The economic crisis will also deepen as the port is the main trade valve and base for many stored goods awaiting clearance.”

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