This is my last tweet about Eurobonds until the Govt announces its decision. We've spent the last 3+ months digging through the bond documents, learning about other countries' experience, and understanding the broader economic/political situation to put the risks into context.
The country is in a difficult place. The choices it faces are all bad. Defaulting is not cost-free. There will be lawsuits. There will be challenges. There are strengths in the Govt's position & weaknesses, some of which I've avoided discussing for fear of harming the country.
Paying is also not cost-free. We are burning through a negative reserve position while choking the economy w/ draconian capital controls, which will make our ability to recovery difficult because businesses are being hollowed out, massive brain drain, no capital investment, etc.
Everyone would like to avoid a default with all of the complications it presents. Is it worth paying $4.5+ billion this year and more next year and the year after to avoid these potential complications? We've tried to explain the risks of a default so won't rehash it here.
What if we find ourselves, a year from today, with minimal reserves, struggling to import the essentials, and at that point we are forced to default? This is a nightmare scenario.
What if local banks and BDL keep selling bonds to foreigners (which makes a restructuring significantly more difficult) and our bond prices sink to < 10c, attracting more of the worst type of bondholder?
If we have no faith that the Govt will be able to manage an orderly default and implement the necessary economic reforms, is that an argument for paying or not paying? Wouldn't that only make the scenario where we default next year w/ no reserves more likely?
The right decision can become a nightmare if poorly executed. I'm torn about about our political system's ability to take fast and courageous action. Developments over the last few months has confirmed how torn I feel.
In any case, it is a long and difficult road ahead, and we need to be ready for it. The Eurobond issue is one part of the bigger problem. I'll be hopeful when I see movement on economic/political reform programs, definitive bank/BDL restructuring plan, more transparency, & unity.
Check finance4lebanon.com/?s=mike+azar for everything I've written about the bonds and the risks involved. The other authors up on the blog have covered a wide range of topics. Read all of them.
