Lebanon's premier said his government can overcome differences with the International Monetary Fund over a proposed law that would let depositors recover billions of dollars trapped in the country's beleaguered banking sector.
The IMF "want more clarifications on a number of matters," Prime Minister Nawaf Salam told Bloomberg in an interview. "In my view, any observations and remarks constitute a gap that can be bridged."
Salam's administration in December advanced the so-called financial gap law that allows depositors to reclaim as much as $100,000 each over the next four years, with larger sums being converted into bonds backed by the central bank's assets. Cash payouts will be financed by local lenders and the regulator.
The IMF, which is in talks with Lebanon on a loan program, is looking for a series of government measures before it will commit financing, prominent among them a restructuring of banks and the repaying of depositors.
The Middle Eastern nation defaulted on about $30 billion of international bonds in 2020 amid its worst economic crisis since the 19th-century, and investors see cooperation with the IMF as crucial to a turnaround.
In the years prior, Lebanese lenders parked large sums of dollars at the central bank -- Banque du Liban, or BDL. That unraveled in 2019 as foreign inflows dried up and the currency peg to the dollar collapsed. BDL couldn't repay banks an estimated $80 billion, leaving the two sides locked in a standoff and people lost their life savings.
The IMF is "not fully satisfied" with the "language on the hierarchy of claims" in the draft law, which is soon to be reviewed by a parliamentary committee, Salam said in an interview at the Munich Security Conference.
"It also has to do with the capacity to pay and the capacity to pay has to do with debt sustainability," said Salam. "They want to make sure we have enough liquidity to live up to our commitments."
The legal hierarchy of claims suggests that losses should be absorbed by shareholders of local banks first, then creditors and depositors. The current draft law requires banks and BDL to share the burden of repaying small and large depositors.
The IMF said the draft regulation should be aligned "with international principles, including to ensure that the hierarchy of claims will be respected and no losses would be allocated to depositors before they are allocated to shareholders or junior creditors."
BDL currently has $11.9 billion in foreign-currency reserves and an estimated $45.8 billion of gold holdings.
A former president of the International Court of Justice, Salam quit about a year ago to head Lebanon's government. The IMF concluded a four-day visit to Beirut on Friday, according to the premier, who said he met the delegation before traveling to Germany.
Salam said BDL also claims the government owes $16.5 billion but there isn't yet an agreement on denomination and thus the exact amount of that debt. If approved, this could impact debt-sustainability levels.
"It has a dimension that has to do with the IMF and we cleared it that we will also negotiate with them," Salam said. "Hopefully in a matter of weeks we will have a figure agreed upon."