The week of the faux pas

On Sunday, an emergency meeting was chaired by the president, attended by the prime minister, central bank governor, and other officials and ministers
by Dan Azzi

15 January 2019 | 17:02

Source: by Annahar

  • by Dan Azzi
  • Source: Annahar
  • Last update: 15 January 2019 | 17:02

A file photo of the headquarters of Lebanon's Central Bank in Beirut (Annahar)

It started Thursday when a minister nonchalantly announced that he’s working on a plan to restructure our government debt. This type of individual initiative, where one person decides to work on a project that his fellow colleagues don’t know anything about, and without their help, could be highly valued. But not for a government, and certainly not regarding unilateral announcements characterizing its debt.

Teamwork, consistency, and credibility are much more important. Thus, his announcement was unequivocally interpreted by the market as speaking in the name of our government. For more sophisticated observers, he was speaking for the powerful and durable Leader of the Chamber of Deputies; except according to several sources close to the situation, he was not, but it was so difficult to find an alternative rational explanation, that it was hard to think otherwise.

Naturally, the bond holders weren’t amused, and proceeded to dump our bonds en masse, causing a collapse in their prices, a surge in yield to maturity (interest rates), and a spike in Credit Default Swap levels (the market barometer of bankruptcy). The Minister of Economy (from the Free Patriotic Movement) Raed Khoury and Deputy Prime Minister (from the Lebanese Forces) Ghassan Hasbany, in a valiant attempt at damage control, both jumped in immediately to contradict him and deny it.

A major investment bank started buying on Thursday afternoon, either to protect their existing long position or because they genuinely thought they were getting a good deal. They probably regretted it, because the very next day, ostensibly to help out, the notorious minister “corrected” himself. He said he didn’t mean restructuring, he meant rescheduling, which from a bondholder’s perspective is identical, with respect to receiving their money on time and as promised when they originally subscribed to the bonds. Thus, the bonds melted even more, forcing several of our officials to spend the weekend calling international banks and organizations trying to defend the indefensible.

I mean what do you tell Moody’s or Goldman on that call? He was just kidding? It’s just Lebanese politics? Do you disparage your colleague? Would that even help? I don’t envy the guys who were on that call.

Some rare sophist voices actually tried to defend him, blaming the paper that first reported this, saying that they misinterpreted the highly technical language he was using. They even tried to prove to readers that if I owe you $100 in a year, and decide to pay you $70 (a haircut) instead or spread the payment out to $5 a year for the next twenty years (rescheduling), that somehow, the latter is better. Clearly, they were betting that many readers don’t understand the concept of time value of money.

On Sunday, an emergency meeting was chaired by the president, attended by the prime minister, central bank governor, and other officials and ministers, and a joint statement issued. They made the infamous minister read it himself, perhaps as punishment for the havoc he wreaked, or maybe just to make sure they watch him closely, so they can pull the plug if he deviates. I could have sworn that one of the other ministers standing behind him was concealing a baton behind his back and looked like he was willing to use it any second.

The markets recovered somewhat on Monday, partly because of these actions, but mostly due to (rumored) central bank buying. Who else would be brave enough to dive in? Certainly not Morgan Stanley, which just issued a report saying they “dislike” our bonds. “Dislike” is a new economic term, possibly inspired by Facebook, that was introduced after I left the business. Back in my day, we only had the bland recommendations: buy, sell, or hold. Maybe they should add a couple of new ones: “Angry Emoji at this bond” or “swipe left for this bond.”

Finally, the bankers uttered a collective sigh of relief and went home to relax in a well-deserved steaming hot bubblebath, only to see their world shattered again, with a poorly-worded (and poorly-timed) communiqué issued by the central bank. It said “All institutions doing cash transfers from overseas must pay the recipient strictly in Lira.” And then all hell broke loose. This went viral, with even my taxi driver talking about it, and ended up having the exact opposite of their (real) intent, which is to reduce the acute shortage of US dollars. Instead, it caused panic and a potential run on the Lira.

So they issued a clarification saying that this applied only to non-banking financial institutions, like Western Union or OMT, but not before the damage was done. The justification for this circular was to curtail money laundering. Even the most naive citizen questioned how forcing the recipient of a cash transfer to convert from dollars to Lira somehow cleans the money.

I started to wonder why such poorly worded stuff got through in the first place, whether it’s the minister or this circular, and then I realized that this has always been the type of stuff the Lebanese people get from their leadership. We took it at face value and gave them the benefit of the doubt, because we’ve always been natural optimists, some might call us pathologically so. We’re not just “glass half-full” types — we’re glass 90% full (even when it’s at 10%). Why else would we accept lack of electricity or potable water 30 years after the war and still vote for the same guy (or his son, when he died, God rest his soul)?

So what’s different today? Apparently, the average Lebanese has lost so much faith and trust in the leadership and the system, that the simple, old stuff just doesn’t cut it anymore. We’ve started to actually think about it now, analyze it, and reject it, when it doesn’t make sense.

There’s a downside to people who keep believing lies and are always optimistic, always seeing the silver lining in every bad outcome, living by the Arab mantra, “Don’t hate something, lest it be good for you.” You can get away with a lot of stuff for a long time, exploiting them, abusing them, robbing them, but if they ever wake up, like they’re doing now, heavens help you, for they will stop believing even the truth.

Dan Azzi is a regular contributor to Annahar. He has recently been invited to be an Advanced Leadership Initiative Fellow at Harvard University, a program for senior executives to leverage their experience and apply it to a problem with social impact. Dan’s research focus at Harvard will be economic and political reform in a hypothetical small country riddled with corruption and negligence. Previously, he was the Chairman and CEO of Standard Chartered Bank Lebanon

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