Importantly, banks held 65% of debt (and 40% of eurobonds); sector profits tied to high interest on govt debt —> so vulnerable to restructuring involving FV haircut, and concern over stability and solvency of banks (2)
Debt exchanged only involved domestically-held debt (incl in $) - they didn’t have acute $ shortage (dollarization rate was lower) Lebanon now has. Foreign debt was repaid under tough austerity measures (+7% primary surplus over many years) (3)
Debt exchange was par-neutral, with lower coupons/longer maturities. Fund was on standby to backstop financial sector given balance sheet impact. Two exchanges brought debt ratio down to 95%.
Question is can we do something similar in Lebanon? BdL could buy back medium-to-long term Eurobonds cheaply now, bring foreign ownership down below 25%, then undertake a debt exchange like Jamaica’s with the banks without impairing them? Wishful thinking?
