Friday, April 30, 2010

Pol Econ of Lebanon's problems

"TRABOULSI: Of course, that was on the assumption that Middle Eastern peace is coming, and then the rewards would be enormous. It was based on a very bad calculation, and there was no Middle East peace coming. And so we did build a huge Beirut city center [inaudible] of one million square meters of office space. A lot of it is still not occupied, and it did cost a tremendous amount of money.
JAY: So to understand the transaction, you have privately owned Lebanese banks, on behalf of the government, selling these bonds at 49 percent. The money is then owed—this is foreign money? Or it's Lebanese money that's loaned to the banks?
TRABOULSI: No. It's—I mean, it's everything. But now I should say that now it's 17.5 percent, the interest rate on government bonds.
JAY: Given, at a time when rates in the US are practically zero.
TRABOULSI: Yup. And at that time in the '90s you had an inflow of international capital, Arab capital, attracted by the huge [inaudible] profits that you can imagine. But a few years, when the rates came down, most of those sold their government bonds. So now we have—actually, 40 percent is foreign debt, and 60 percent is mainly our local banks. Now, when we say Lebanese banks, we mean—it's not always necessary to mean that the Lebanese own the majority of those banks. Usually you have oil money invested in it." (thanks Olivia)