Aside from shifting liabilities from the Banque du Liban to the government, Ricardo Hausmann’s proposed resolution for Lebanon’s economic crisis (“There is a realistic solution for Lebanon’s economic crisis”, Opinion, December 1) comprises two elements.
First, a writing down of government and central bank debt by “upwards of 80 per cent” — albeit obscured initially by a dollarisation of the economy and the substitution of government paper for the assets of banks with the central bank and depositors with the banks.
And, second, structural reforms to advocate rapid gains in productivity and higher growth. These are conventional solutions for debt crises. Lebanon’s is dire and has been exacerbated by decades of political instability and economic mismanagement.
It is difficult to imagine that bank depositors will be greatly enthused about holdings of dollar-denominated government paper if this will be subject to the broad 80 per cent haircut on debt. And such a debt writedown, acknowledged to be inevitable, will surely be anticipated. Changes in financial arrangements — a shifting of liabilities from the BdL to the government — will do little to advocate confidence, investment and growth unless it can somehow be coupled with deep governmental reform.
The second element — the elixir of growth — is the magic wand that cures all ills, if only it can be found.
I would question the word “realistic” in the title. Structural reform that elicits sustained growth is chimerical with a fractured, dysfunctional government. Perhaps the offshore
gas agreement with Israel is the one glimmer of hope.
Leslie Lipschitz
Boston, Massachusetts, US
