CHANGES AND CHALLENGES.

Author:Smith, Pamela Ann
 
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Pamela Ann Smith reports on the changes and challenges facing Lebanon

Lebanon's economy is facing a set of challenges this year that could determine the future of the government's reconstruction programme and the hopes of the Lebanese people for an improvement in their standard of living. While investors, both at home and abroad, appear to remain confident in the future, bankers, businessmen and many of the country's politicians are concerned about the rising public sector debt, the lack of economic growth and the slow pace of legal and administrative reform.

Lebanon's appeal to international investors was impressively demonstrated at the end of March, when the government raised $1 billion in Eurobonds to help refinance the public debt. The move was part of an overall plan to raise $2 billion by the middle of next year.

Initially the government had planned to offer only a three-year tranche of $200 million this spring. However, the issue was rapidly oversubscribed and quickly raised to $500 million. By late March a second issue of $250 million spread over a five-year period had also been launched. It too was quickly oversubscribed and subsequently increased to $500 million as well.

Half of the funds were raised in Lebanon, and the other half outside the country, Luc Cardyn, Global Head of Emerging Market Syndications for Banque Paribas in London told The Middle East. "Gulf investors, especially in Bahrain and the United Arab Emirates, played a large role, as did financial institutions in Switzerland, Germany and Austria," he added. "The success of the issue stemmed in part from the lack of similar products in the Middle East," Cardyn noted. "A lot of Lebanese and Middle Eastern investors are cash rich in dollars, and don't know what to do with it. The newer generation is open to all sorts of modern finance."

Investors "look at Lebanon and realise that the debt is largely financed internally," a senior European investment banker later told the Beirut-based newspaper, The Daily Star. "They have no problem extending credit to the country."

"Financiers bet that in three to five years the atmosphere will get better," he maintained. "The Middle East is becoming interesting. There will be investors who will buy new bonds and enable the government to repay yesterday's issue."

DEBT PROBLEMS

However, although senior Lebanese officials, including the Minister of Finance, Fouad Siniora, were quick to claim that the issue's success demonstrated investors' faith and confidence in the Lebanese...

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