Lebanon officials greenlight first debt default

Beirut: Top Lebanese officials said on Saturday they opposed making an upcoming debt repayment, as cabinet mulls whether the country should default for the first time amid a spiralling financial crisis.

Lebanon, hit by a severe liquidity crunch and months of anti-government protests, is due to decide on Saturday whether it should pay a $1.2-billion Eurobond maturing on March 9.

The president, prime minister and senior finance officials "agreed to support the government in any decision regarding debt management, with the exception of a payment of debt maturities", the presidency said in a statement Saturday.

That signalled that officials are leaning towards defaulting on the payment.

Prime Minister Hassan Diab is expected to address the public at 16:30 GMT, after the cabinet meeting.

Lebanon´s debt burden had been among the largest in the world, equivalent to 150 percent of its GDP, but despite a series of crises, the country has never defaulted.

Yet in recent months, Lebanon´s pound has plunged and banks have imposed tough restrictions on dollar withdrawals and transfers.

Local banks, which own a chunk of the Eurobonds maturing on March 9, have argued against a default, saying it would pile added pressure on an ailing banking sector and compromise Lebanon´s ties with foreign creditors.

Lawmakers, most notably those representing the Shiite Amal and Hezbollah movements, have advocated debt restructuring to preserve plummeting foreign currency reserves.

Anti-government demonstrators who have remained mobilised since October have also lobbied against repayment.

Lebanon´s sovereign debt rating slid into junk territory long ago, but investor confidence has fallen further since the mass protests erupted.

Credit rating agencies have warned of further downgrades in the event of a default, but

economists have stressed the need to protect Lebanon´s foreign currency reserves.

The Lebanese pound, which has been pegged to the dollar since 1997, has plummeted on the parallel market, further crippling the country´s import-dependent economy.

in a separate action Lebanon´s central bank has sought to rein in exchange rates and enforce a cap on the local currency in the parallel market to contain its unofficial devaluation.

Central bank chief Riad Salameh asked "all exchange offices, under pain of legal or administrative sanctions, to commit exceptionally to a maximum buying price for foreign currency in Lebanese pounds of no more than 30 percent above the exchange rate set by the central bank to deal with lenders".

The official exchange rate has stood at 1,507 Lebanese pounds to the dollar for decades, but the value of the local currency has plummeted to more than 2,600 on the black market.

Money changers in protest-hit Lebanon had agreed in January to cap the dollar exchange at 2,000 pounds, but the move has failed to stem spiralling rates.

Friday´s central bank order, which reinforces the January agreement, is to apply for the next six months, according to the statement carried by state-run National News Agency.

Debt-ridden Lebanon is facing its most serious economic crisis since the end of its 1975-1990 civil war.

Banks have increasingly limited dollar withdrawals and transfers abroad to stem a severe liquidity crisis, even as the tanking economy has caused businesses to slash salaries, fire staff, or close.

The country has been rocked by unprecedented, nationwide protests in recent months, led by young people who blame government corruption and incompetence for the lack of jobs and basic services.