Thread by @HassanFSinno

Amid discussions in 🇱🇧 abt the role of the IMF, latest tonight on #عشرين_30, expectations that the fund will immediately disburse 💰 and magically fix our issues abound. Let’s review the way the fund works, its tools/timelines & most importantly, how to approach an IMF program

A/ How does it work?

The #IMF lends countries that are implementing financial & economic policy changes to stabilize their economy & grow again. Instead of having to take extreme and harsh corrective measures, the fund enables it to fix its issues in a more composed manner.

This financing is usually staggered in tranches corresponding to a set of corrective actions that need to be effected by the government and verified by the fund. The IMF’s ultimate goal, beyond assisting member countries, is to get its loan repaid in full and on time.

B/ What are its tools?

2 types of financing exist: 1/ the General Resources Account (GRA), a loan extended on terms unachievable in the current credit markets (in terms of interest %, grace period, etc) 2/ a more standard loan under the Poverty Reduction and Growth Trust (PRGT)

The GRA is usually granted to emerging & advanced market economies while the PRGT usually goes to low-income countries.

In principle, the GRA applies to Lebanon.

It comes under 5 types, 3 of which are relevant to us:

C/ What can we expect?

Looking at relevant recent examples compiled, this is what can be noticed:

Given our limited ability to repay & in light of the comments of the IMF team in its report dated Oct 17, 2019 (after its Beirut visit on Sept 11, 2019), I expect anywhere from 2 to 4 x our quota, i.e. $1.72bn to $3.44bn.

How a quota is calculated will be explained further down.

D/ What is the procedure?

To give its program more chances of success (ie. REPAYMENT!), the #IMF follows a series of steps:

1/ A formal request must be received from the member country

2/ An IMF team holds discussions with the government to assess the situation

3/ The govt & the IMF team agree on a program that is submitted to the IMF’s Executive Board (Letter of Intent+Memorandum of Understanding)

4/ The Board validates the program's viability

Note: The process can be expedited under the IMF’s Emergency Financing Mechanism

E/ Does the US decide?

Voting is based on gathering 70% or 85% (depending on the matter at hand) of votes. Each country’s vote weighs as much as it quota, meaning its weight in the world economy. The quota's formula includes 4 variables (GDP, openness, variability and reserves).

Today’s voting weights are as follows:

US: 16.5% | Japan: 6.2% | China 6.1% | Germany: 5.3% | France: 4.0% | UK: 4.0% | Italy: 3.0% | Russia: 2.6% |
India: 2.6% | Brazil: 2.2% | Canada: 2.2% |
Saudi Arabia: 2.0% | Others: 43.3%

Clearly, when an 85% approval is required, the US alone has veto right. But let’s also notice that any combination of countries adding up to 15.1% can also veto.

Thus the US can theoretically veto any request but has interest in avoiding its requests being vetoed in retaliation.

F/ When can we expect anything?

Once the program is validated (3 to 6 months from the request), then we can be expected to achieve some "Prior Actions" before any disbursement: these are corrective steps to be taken by the government.

Then, our performance is monitored through specific & measurable conditions related to macroeconomic variables within the reach of the govt and/or targets which maybe be set as well to assess a program’s progress, and non quantifiable reform measures critical for the program.

To have an idea of the ability of governments to meet review targets, note that SBA & EFF Programs approved in 2016/17 for completion in 2020 are on average 64% disbursed as of today. So historically, the IMF does not rush into disbursing money if goals aren't achieved.

G/ How do we approach an IMF program?

We have a tendency in #Lebanon to put people under a binary position: you are with us or against us. You are with the IMF or with Lebanon…

As in most things in life, the answer is neither black or white.

Ultimately, 3 financing options are available to a country that cannot access credit markets (eg 🇱🇧):

1/ political money (traditional loans/grants, Paris I/II/III, CEDRE, foreign sovereign deposits at BDL, etc)

2/ international organizations such as the IMF,IFC, EIB...

3/ from within (increasing income, reducing waste & expenses).

Many point to the reality that we have a consistent history of breaking promises once foreign lenders disburse funds to us. This does not however justify that fixing our financial situation must exclude (more) debt.

This new debt wouldn't be structural like in the past nor open the way, as some suggested, for further funding. This means that CEDRE as it is should never take place. The IMF's new debt would be a bridge loan we'd use as we travel from the OLD to the NEW Lebanon we're building

It is a debt that, unlike its predecessors, gets repaid.

Because only when we repay our debt, can we really be independent and respected.

If we do it right, there is a decent chance we won’t need anything other than that bridge loan.

Why not option 3?

That option requires time to achieve necessary steps that would allow us to avoid taking on more than the bridge loan.
The steps are:
a/ reform the judicial system and initiate an asset recovery taskforce
b/ redefine all the constituents of the financial sector

c/ resuscitate the real economy with specific measures by sector
d/ revise the fiscal structure and it administration
e/ setup & fund an urgent social safety net

H / So the IMF will do the work for us?

Let me make myself clear: all this was done to show the actual need and purpose of an IMF program.

It does not however replace the absolute URGENCY of changing the current political establishment that is holding the country hostage.

One can point to the elephant in the room indefinitely - the reality is, the elephant has made friends in the political zoo that protect it at the expense of our country. Only when we will realize that we need to get rid of them all, will we have hope to raise from our ashes.

I strongly believe in our ability to achieve this & see a unique opportunity to stand united against the oppressors that have been destroying our country for decades. Each one of them is a part of the same cancer that is eating us alive.

Let’s walk a path to building a nation.

Source: imf.org

Thank you for the guidance
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