The financial and economic challenges facing Lebanon have been at the forefront of discourse since the country’s default on its Eurobonds in 2020. Recent policy decisions have focused on extending the prescription periods for legal claims by Eurobonds holders until March 2028. This measure, spearheaded by the Ministry of Finance, aims to provide a structured and consensual platform for restructuring Eurobonds without forcing bondholders into immediate legal action. According to Finance Minister Yousef Khalil, the decision is meant to reassure creditors by protecting their rights while facilitating orderly negotiations for debt restructuring.
Extending the prescription periods align with the government’s intent to mitigate the risks of litigation, which could hinder Lebanon’s financial recovery. However, while the decision removes the obligation for immediate legal action, it does not preclude it, leaving the door open for potential disputes. Former Labor Minister and the eminent corporate lawyer, Camille Abou Sleiman, emphasized that bondholders may still pursue lawsuits to safeguard their claims, a point that highlights the limited scope of the current policy.
Despite its intentions, the policy has faced significant criticism for its lack of proactive engagement with creditors. Observers have noted that no substantial negotiations have occurred between Lebanon and Eurobond holders since the default in 2020. Former Minister Adil Afiouni described the decision as a superficial reassurance that does little to address the fundamental issue of restructuring the debt. He warned that this inaction could lead to severe consequences, including costly lawsuits and strained relations with creditors, which would further complicate future debts restructuring efforts. In Salwa Baalbaki’s published article in Annahar on the 13th of January, ““The Ministry of Finance” reassures Eurobond holders and does not promise them negotiations! Afiouni to “Annahar”: The decision will not deter them from filing lawsuits,” Afiouni claims that the lack of meaningful communication undermines trust and exacerbates Lebanon’s financial instability.
The lack of dialogue and transparency has been a recurring theme. Establishing trust and open communication with bondholders is essential to achieving a fair and sustainable restructuring agreement. The absence of such measures reflects poorly on the government’s commitment to resolving the crisis, potentially deepening the economic challenges the nation faces.
The government’s delay in addressing its debt obligations has broader implications for Lebanon’s economy. That is because Lebanon’s international credit standing remains precarious, as evidenced by the low valuations of Eurobonds despite recent improvements in market sentiment following the presidential election. Without a comprehensive economic recovery plan, the country will remain excluded from international capital markets, limiting its ability to secure external financing essential for growth and development.
Moreover, any restructuring plan must prioritize protecting the interest of local depositors while ensuring equitable treatment for international creditors. Balancing these interests requires a transparent and inclusive approach to negotiations, which has yet to be demonstrated. This balance is critical to ensuring that restructuring efforts are both fair and effective.
To move forward effectively, Lebanon must adopt a multifaceted approach that combines technical expertise with genuine engagement with creditors. Crafting a comprehensive economic reform plan, including debt restructuring, is essential to restoring confidence among creditors and investors. According to experts, such a plan should be underpinned by transparency, accountability, and an unwavering commitment to the public interest.
Additionally, the current extension should be leveraged to foster constructive dialogue with bondholders, laying the groundwork for a consensual restructuring agreement. By doing so, Lebanon can not only avoid litigation but also rebuild its reputation in international financial markets, paving the way for long term economic recovery.
By: Jana Boumatar
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