Mike Azar Profile picture
International and project finance professional. UCLA and Johns Hopkins SAIS alumn. https://t.co/3FOKHNBeZ1
Elie Habib Profile picture Philippe Bustros Profile picture Georges Jahchan Profile picture ▲Luc Berlin▲ Profile picture 4 subscribed
Mar 23, 2023 16 tweets 5 min read
The IMF statement on Lebanon makes clear how far we are from implementing an IMF program here and undertaking any reforms to exit the crisis.

It paints a grim picture of the alternate scenario and is a direct rebuke of obstructionist MPs.

[A thread]

imf.org/en/News/Articl… 1. No change in the IMF view on financial sector restructuring: address losses upfront, respect the hierarchy of claims (i.e., bank shareholders lose first and then depositors), protect small depositors, and limit use of public assets/money given the unsustainable public debt. Image
Feb 2, 2023 26 tweets 8 min read
1/ Stop everything and read the three-part investigation by @MaucourantNada describing never-before seen details of the European money laundering investigation into Lebanon's central bank governor. I will summarize below:

Part 1: The Fake Commissions

apple.news/A-4yMBH4UPRmuZ… 2/ Firstly, the investigations were launched starting in 2020 as a result of the Panama Papers leak, a change in financial disclosure rules and related anti-money laundering laws in Europe, and, in some cases, complaints filed by watchdog organizations abroad, incl @NowActs.
Feb 1, 2023 4 tweets 2 min read
Practically, this doesn't change much for the economy or depositors

It's being sold as "a step towards implementing the IMF deal" but it actually cuts against the philosophy of the deal - recognizing ALL losses upfront & not dragging it

IMO, it's part of the "no-IMF Plan B"

👇 - Financial sector losses should be resolved through a comprehensive bank resolution framework, not piecemeal circulars

- What about banks other losses (BDL exposure, etc.). These are much larger than the fx losses referenced in the article/circular, so why are they ignored?
Dec 26, 2022 7 tweets 2 min read
Looking back at the Lebanese economy in 2022, a few things things to note.
1/ The exchange rate trajectory has not really changed, & the last few weeks weren't out-of-the-ordinary. The change from 35,000 LBP to 46,500 LBP is the same as the change from 1,500 to 2,000 in % terms 2/ The balance of payments deficit was ~$3 bn, not much different from 2021. This is all financed using BDL reserves. Despite the continued devaluation of the LBP, the BOP deficit remains high and is not falling. It takes more than currency collapse to make a productive economy.
Nov 16, 2022 15 tweets 3 min read
Based on Israel's summary of the framework agreement with Total/ENI, Lebanon's chief negotiator Elias Bou Saab either misled the Lebanese public about what was agreed in the maritime boundary deal or there's a serious misunderstanding between both sides.

gov.il/BlobFolder/new… Elias Bou Saab indicated on Sar El Wa2t that Lebanon is indifferent to whatever is agreed between Total and Israel as we are not affected by it.

mtv.com.lb/vod/en/video/2…
Nov 1, 2022 26 tweets 6 min read
1/Countries with poor governance systems often become poorer after making an oil or gas discovery.

Lebanon is making the exact same mistakes other countries who suffered from this "PRESOURCE" curse made before it.

The US is happily taking advantage of our ignorance.

[Thread] 2/ The Precourse Curse (reading 1*) analyzes 236 instances when large oil and gas discoveries were made, and the economic growth trajectory in each country over the six-year period after such discovery was made.

** last tweet contains reading list
Oct 12, 2022 15 tweets 3 min read
For Lebanon, a maritime boundary deal is better than none. But people need to understand what was agreed because it is being mischaracterized.

For example:

1. The parties did *not* resolve key economic issues related to hydrocarbon profit-sharing but deferred to a future date Image 2. Read the passage above. The economic arrangement is vague, open to interpretation, and could lead to disputes.

So the entire deal, including agreement on the actual boundary line, is contingent on future resolution of key unresolved economic issues. It's fragile.
Sep 23, 2022 9 tweets 3 min read
1/ Mass emigration is politically the most convenient solution to the economic crisis.

What is the LBP exchange rate level (or the amount of impoverishment, generally) that will get enough people to leave this country so that the amount of $ flowing out equals the $ flowing in? 2/ We still transfer more $ out of the country than we bring in. We are very import dependent and have too many $ deposits chasing too few real $.

The LBP collapse/widespread impoverishment wasn't enough to resolve those structural problems. ImageImage
Sep 21, 2022 4 tweets 2 min read
Our PM brings his nephew to all the high-level political meetings. Here he is at the UN General Assembly meetings in NY, meeting with the US Sec of State. Why is he there exactly? Corruption and nepotism. Your children pay to give a billionaire PM's nephew personal connections. Image This has been going on since day one. Here he is at the Elysee in Paris attending the PM's meetings with President Macron in September 2021, just weeks after the Government took office.

The problem is that they don't even see anything wrong with it. Nepotism is so ingrained. ImageImage
May 18, 2022 8 tweets 4 min read
1/ The LBP:USD rate has increased from 21,000 to 31,000 over the last two months. Here are some data points that could explain why.
For one, the average daily Sayrafa volume (a proxy for BDL intervention) has fallen by more than 50% since March.

[THREAD] 2/ The hole in BDL's balance sheet ("the losses") continues to grow due to inaction on a reform program, which translates into the real value of money falling (deposits + LBP notes).
Apr 6, 2022 6 tweets 4 min read
A photo of European Jewish refugees at the Karantina refugee reception center in Beirut in 1939.

The photos are from a Lebanese Jewish magazine called L'Univers Israelite published in 1939, just as WW2 and the Nazi persecution of Jews was ramping up.

More in the thread below Almost every article is tinged with a fear of Nazism and its potential spread to Lebanon.

The headline article is a strong condemnation of accusations of "zionism" against local Jews.

"Our adversaries accuse us of zionism to cover up their literal bankruptcy".
Apr 5, 2022 4 tweets 1 min read
This debate over whether the government/BDL are or even can be bankrupt is a stupid semantic one. In the common usage of the word, of course they're bankrupt. The difference is there's no formal bankruptcy resolution process for Govt's like there is for companies. Companies declare bankruptcy and go through a formal legal process under certain bankruptcy laws and are either liquidated or restructured. There are laws governing this process.
Nov 5, 2021 4 tweets 1 min read
You learn early on in infrastructure finance that you cannot use creative financial engineering to overcome governance problems and poor project economics. Lebanon's power sector doesn't have a "financing" problem. It has a problem of poor governance and economics. Any creative financing structure is destined to fail if the very reasons that give rise to the need to use such financial engineering (eg poor economics, macro instability, bad governance) aren't solved first. Once you solve those, the financing is easy to get.
Sep 4, 2021 14 tweets 3 min read
1/ I'd surprised if this was the full fuel sale and purchase agreement between the Iraqi and Lebanese governments. It looks more like a term sheet/summary of terms that would've been fleshed out in a full agreement. It contains almost no details, very unusual. A few other things: 2/ Leb is buying the fuel at the market price in dollars, which may be converted to LBP at approximately the parallel market rate. Iraq isn't taking exchange rate risk. The payment is deferred for one year with interest. It looks less like a gift and more like a $ loan from Iraq.
Sep 2, 2021 4 tweets 1 min read
1/ Increasing the withdrawal rate to 8,000+ would increase BDL's unrealized balance sheet losses by hundreds of trillions of LBP. It doesn't matter if there are withdrawal limits. The loss will eventually materialize either as LBP deval or higher discount on bank deposits/checks. It's like saying it's OK if I borrow/spend $1 bn loan because it's zero interest in the first year. It's a huge problem. Unrealized losses on the book are a MAIN reason for the LBP deval. Increasing the withdrawal rate increases BDL's debts when it's already facing massive losses
Apr 15, 2021 14 tweets 5 min read
1/ In the 1920's, Germany experienced hyperinflation because it had a large amount of public debt from World War 1, which its central bank covered by printing money. The central bank governor sought to "buy time" for the politicians.

I see so much of Lebanon in there. 👇 ** The excerpts below are from the book "Lords of Finance" by Liaquat Ahamed about the role of central bankers in the period between World War 1 and World War 2.

The passages are not that long. I really recommend reading them.
Apr 12, 2021 24 tweets 4 min read
1/ The first nuclear power plant in the Arab world began commercial operations in UAE last week. Our firm acted as financial advisor to the lenders for this groundbreaking $25+bn project. What does it take to develop & finance a complex nuclear project?

reuters.com/article/us-emi… 2/ We faced multiple challenges in structuring this and other (very rare) new nuclear project financings over the last 15 years. I'll describe a few general challenges related to nuclear financings, from a bank's perspective.
Apr 10, 2021 16 tweets 5 min read
1/ Head of Budget and Finance Committee @IbrahimKanaan accuses unnamed Govt advisors/others of having purchased Credit Default Swaps (CDS) on Leb Eurobonds and then pushed for default to make a profit. Any trader could've explained to him why this is far-fetched had he only asked 2/ I suggest the MP hire advisers as these are technical topics and we can't keep wasting time on this nonsense over and over again.

While not my job, I did the research for anyone who's interested.
Feb 5, 2021 18 tweets 4 min read
1/ BDL appears to be proposing that all official intl humanitarian aid (~$1.5bn in 2021) be channeled through BDL and given to recipients in LBP at a rate of 6,200 LBP. BDL says this will allow it to sustain the 1500/3900 subsidy longer. It's a gross misuse of humanitarian aid. 2/ Firstly, as we've said before, the issue is HOW the $ are being used. If the $ are used to sustain the peg, a large portion of which benefits monopolies, smugglers, money launderers, &the wealthy, then the value of the aid is NOT going to the people it's meant to help. For ex:
Feb 3, 2021 10 tweets 3 min read
1/ The Leb financial crisis in one chart. We tend to focus on the blue bar (how the $ were spent to maintain the peg), but that misses half the story. It's not only about why the blue bar decreased, but why the red bar increased (why deposits are so high)? The ratio is the story 2/ The problem is that the ratio of dollars remaining in the system is low *relative to* the amount of deposits that those dollars are needed to cover. It's not that dollars are low in some absolute sense, it's the ratio of the two.
Jan 20, 2021 8 tweets 3 min read
The 2020 estimate for remittance inflows to Lebanon aren't that surprising (remittances tend to be stable). But, they are down over the last 5-yrs, worse than comparable countries. And, in 2020 vs. 2019, they are down around the average for the top remittance recipient countries. So Lebanon performed around the average in terms of remittance inflows in 2020v2019 at a time when the country is in deep trouble with the figure possibly inflated, as @lebfinance mentioned, by many sending money to close out loans (plus after the explosion, etc.).