Lebanon has nearly completed the sale of $1 billion worth of Eurobonds, scoring a modest victory in a battle to slow down the rapid growth of the public debt.
Prime Minister Rafik Hariri and Central Bank Governor Riad Salameh made the disclosure during the inaugural session on Thursday of the eighth annual Arab Investment and Capital Markets Conference, which according to organizers has attracted up to 1,200 delegates from 25 countries.
Hariri also revealed that the often-delayed signing of the Euro-Mediterranean Partnership Agreement would finally take place on June 17 in Brussels, opening a huge market of 320 million consumers to Lebanese products.
He sought to lure Arab investment to Lebanon, dwelling on international developments since the Sept. 11 disaster which left Arabs largely unwelcome in the West and, as such, put their assets at risk.
While Hariri focused on the impact of local, regional and international politics on the Lebanese economy, Salameh delved into facts and figures to refute claims that the country was on the verge of bankruptcy.
“The ability to withstand, since 1997, the smear campaigns and predictions of economic collapse prove that the Lebanese economy is armed with resources that should not be belittled,” Salameh said.
He paid tribute to Lebanon’s banking system, which has upheld banking secrecy while combating money laundering.
Salameh declined to identify the investors who have purchased the eurobonds, which the Central Bank bought a few weeks ago in exchange for local-currency Treasury bills carrying the hefty interest rate of 14 percent.
“Most of the investments have come from abroad, largely thanks to contacts undertaken by the prime minister, who has informed me of imminent additional funds which will be disclosed in due course,” Salameh said.
Hariri’s recent itinerary has included China, Malaysia and Saudi Arabia ­ trips that raised speculation at the conference that the three countries were the main contributors.
But a senior economist said that some of the money had come from foreign central banks, and that private investors and commercial banks abroad had picked up most of the bonds ­ a seductive three-year investment bearing an annual interest rate of 10.25 percent. For the government, it means a 3.75 percent drop in interest rate payments it would have had to dish out for local currency Treasury bills, which the Central Bank had swapped for $1 billion worth of foreign-currency eurobonds earlier this year.
Salameh said that up until Thursday, the government had sold eurobonds worth $600 million. “Commitments for the purchase of $350 million more will be completed in the next two weeks,” he said.
The new cash injection was expected to boost the Central Bank’s gross foreign currency reserves, which dipped from nearly $7 billion in May 2000 to $4.3 billion this month. The
present deposits include $1 billion secured between 1998 and 2000 from Saudi Arabia, the United Arab Emirates, Kuwait and Qatar. It also enhances the bank’s ability to withstand pressure on the national currency coming from a public debt that has exceeded 165 percent of gross domestic product.
Last year, the Central Bank spent $2 billion defending the pound. The International Monetary Fund has prescribed a devaluation of the currency as part of an economic reform package. But Hariri, who has pinned his political career to the currency’s stability, has adamantly resisted such a measure.
Participants in the conference questioned the significance of the cash injection when the Treasury is grappling with a $27 billion public debt and the government is fighting to restrict this year’s budget deficit to 40 percent.
But economists stressed the morale-lifting value of the development, which underlined confidence in the future of the economy and in the present investment climate. Others argued that investors were lured by the 10.25 percent annual returns, compared to the dipping bank interest rates on cash deposits.
Economists were also impressed with the speed with which the Central Bank was able to market the bonds over the past two months.
Arab League Secretary-General Amr Moussa said that in its postwar recovery, Beirut has regained its glory as the “home of intellectual freedoms and free economies.” A glance at downtown Beirut proves that “the phoenix has indeed risen,” said Moussa. But he lamented the failure of Arab governments to take steps that encourage investment and cut the red tape crippling their economies.
“We have to defeat bureaucracy. We have to create an appropriate climate for investment,” said Moussa, who flew in for the three-day event.
In his pitch for the redirection of funds, Hariri said: “After the events of Sept. 11 I think we, and particularly the Arab private sector, have to reconsider our investments abroad.”
The terror attacks on New York and Washington, in which the No. 1 suspect is the Saudi dissident Osama bin Laden, have changed Western perceptions of Arabs, he told the forum at the Phoenicia Inter-Continental Hotel.
“The (West’s) perception of Arabs is now one of suspicion and distrust,” Hariri said. “The truth is that the Arab visitor to the West is now surrounded by a question mark … We urge Arab investors to invest in all Arab countries, depending on where they find it appropriate.”
Hariri said Lebanon enjoyed the economic and political stability sought by investors. He acknowledged that regional developments affected the economy, but said Israel “is a present danger, a present problem or a present occupation ­ call it what you want. But this will not derail our search for a better future for our countries.”
In an indirect reference to political rivals who have delayed his privatization plans, Hariri said “solutions” for the economy required a political will.
“The political decision is there, but things are sometimes not moving as quickly as they should,” he said.
Joseph Tarabey, head of the Association of Banks in Lebanon, linked deteriorating economies to Mideast “tension that has reached boiling point.”
Tarabey, who is also president of the Union of Arab Banks, added: “We have no choice but to barricade our economies and markets from the repercussions of conditions that are not conducive for peace.”

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