Committee for the Abolition of Illegitimate Debt

Lebanon is firmly en route to becoming the third nation in the Middle East after Iraq and the Palestinian territories to experience a devastating Washington-backed war and a massive influx of new illegitimate debt to cover reconstruction expenses, anti-debt activists say.

A conference held Thursday in Stockholm for donors raised more than $940 million in pledges of new money to reconstruct Lebanon after 33 days of Israeli bombing of the country’s infrastructure, bridges, roads, and factories.

More than 1,100 Lebanese people were killed in the conflict between Israel and Hezbollah, a third of them children under 12. More than one million were forced to leave their homes.
Initial official figures estimate the first phase of reconstruction at $2.5 billion. Damages include some 150 bridges and an oil spill that dumped 15,000 tons of oil into the sea and polluted 90 mi. of coastline.

According to the UN High Commissioner for Refugees, 60,000 housing units in Lebanon were damaged or destroyed in the war, of which at least 15,000 were completely destroyed while another 15,000 sustained major damage.
Since the Aug. 14 cease-fire, the United Nations says the return of hundreds of thousands of people to their homes has been hampered by enormous quantities of unexploded ordnance (UXO), especially the bomblets scattered by cluster bombs, which will place a long-term drain on the government.

Prior to the conference, the Lebanese government said at least $540 million were immediately needed to help the country with short-term recovery.

On Thursday, the International Monetary Fund IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org (IMF) said the damages could reach at least $3.5 billion for infrastructure alone.

“We have heard of preliminary estimates of $3.5 billion in infrastructure damage, to which one needs to add the impact of the massive displacement of the population, the exodus of many professionals, and possible private sector bankruptcies,” the IMF’s representative at the Stockholm meetings said in a statement.

At this rate, Beirut will most certainly continue to turn to international lenders and donors for help with reconstruction for a long time. And this, debt watchers say, will in turn plunge the country into greater debt.

World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

figures show that Lebanon was already up to its neck in debt - some $22.2 billion - even before the war. For a country of only 3.5 million people, the smallest Arab nation, it is a colossal burden.

"What was already a difficult budgetary and debt situation has been made much more precarious by the conflict.
Government debt Government debt The total outstanding debt of the State, local authorities, publicly owned companies and organs of social security. stood at 175 percent of GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. [gross domestic product] at end-2005, one of the highest ratios in the world. The conflict has made matters much worse," the IMF said.

The country’s main creditors are Saudi Arabia and France.

Both have pushed for a neo-liberal set of policies in Beirut, which led to the privatization of pubic assets and, critics say, the empowerment of local elites and foreign companies at the expense of the middle classes and the poor.

The European-based Committee for the Abolition of Third World Debt (CADTM) notes that in 2004, Lebanon paid out $4.4 billion to service its external debt and warns that new borrowing will bring further pressure from rich nations and international financial institutions like the IMF.

“This implies another increase in its debt and in new economic measures of structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ which accompany it,” said Éric Toussaint and Damien Millet of CADTM in a brief assessment of the country’s new needs.

“Therefore, the Lebanese people are going to have to pay very dearly, in the years to come, for consequences of this war inflicted by Israel in violation of international treaties governing relations between states.”

Just like Iraq in 2003, a foreign country came in and destroyed the country’s infrastructure, only to give foreign companies and institutions power in the subsequent reconstruction efforts, they said.

For example, the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

of bilateral creditors gave Iraq a partial and conditional debt reduction in 2004 as long as it followed economic prescriptions from the IMF. The Paris Club figures say the country’s total debt for 2005 was $63.2 billion, or 183 percent of GDP.

Now Iraq is back to borrowing from multilateral lenders like the IMF and the World Bank. The IMF alone lent Iraq $685 million last year.

“The Lebanese people paid the first time by giving their lives, losing their loved ones, enduring the destruction of their homes, their property, and infrastructure,” the authors said. “They must not pay a second time by being bled dry to finance reconstruction.”

Israel has also destroyed most of the Palestinian infrastructure, consistently targeting power generation stations as well as government ministry buildings.
“Palestine, Iraq, and Lebanon must demand accountability from their aggressors,” the CADTM analysts say.

For Lebanon, they suggested that its people demand cancellation of their debts instead of allowing their government to seek more aid and new loans.

“For Lebanon, a possible solution resides in the immediate cancellation of its debt and the establishment of funds for its reconstruction, which would be fed FED
Federal Reserve Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank : http://www.federalreserve.gov/ by reparations deposited by Israel,” the authors suggested.

The United States, which backed the Israeli campaign and helps equip and finance the Israeli army, should also contribute to the fund.

“It is only then that it will be possible to say that the Lebanese people will have received justice,” they said.

In a telephone interview from Paris, Millet acknowledged that their proposal will not fly without the commitment of the Lebanese government, which as part of the local elite and ruling class, is unlikely to back a proposal that would not benefit the local businessmen.

He argued that some rich Lebanese whose wealth is held in Western banks should invest in their own country’s bonds.
“They have no interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. in [debt] cancellation because cancellation will give power to those who suffer from the debt [the poor and the middle classes],” Millet said.

The IMF itself acknowledges that without highly concessional new financing for Lebanon, there is a real risk of the total collapse of the Lebanese economy. The institution did not mention grants or debt cancellation.

The combination of a growing government financing need, higher world interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. , and lower GDP growth will all certainly cause Lebanon’s debt to spiral upward.