Exclusive: Lebanon approves financial rescue plan with 'painful steps'

BEIRUT (Reuters) - Lebanon’s government on Thursday approved a rescue plan to pull the country’s from its worst financial crisis in decades, including interest rate cuts, recapitalization of banks and other “painful steps”, according to a copy seen by Reuters.

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The 17-page plan - which also includes appeals for help from foreign donors - will be presented to parliament next week for a vote of confidence, the speaker’s office said.

Prime Minister Hassan Diab’s new government is facing a liquidity crunch, shattered confidence in banks which have imposed informal controls, a weakened Lebanese pound and soaring inflation.

The cabinet was formed last month by the Iran-backed Hezbollah movement and its political allies, which hold a parliamentary majority. It took office nearly three months after Saad al-Hariri’s government resigned under pressure from mass rallies against a ruling elite that protesters blame for decades of waste and corruption.

In its statement, Diab’s government pledged to come up with an emergency plan by the end of February that addresses people’s needs and the country’s debt maturities. It said some “painful steps” would be necessary while vowing to curb the impact on those with limited income.

The policy plan - which had minor changes from a draft seen by Reuters on Sunday - said banks must use their reserves and sell their investments abroad to help restore the sector’s stability.

It envisaged foreign donors providing soft loans, though it did not name any institutions or say how much was required.

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Finance Minister Ghazi Wazni’s office said he would meet a World Bank delegation on Friday.

Foreign donors say they stand ready to help only if Lebanon’s government implements long-stalled reforms.

Hezbollah’s parliamentary bloc said on Thursday that decisions on the country’s debt maturities in coming months would need national consensus.

“Radical (moves)... require a national decision and popular understanding,” it said in a televised statement.

Cash-strapped authorities are struggling to decide whether to repay a $1.2 billion Eurobond maturing in March, political and banking sources told Reuters this week.

Diab urged European states to open a credit line and provide aid. “Lebanon needs urgent help today at various levels, power, food supplies, raw materials,” he told a meeting of European ambassadors.

The U.N. Special Coordinator for Lebanon, Jan Kubis, said this week that a clear and transparent action plan was needed.

“If you don’t help yourselves, why do you expect assistance from the outside world?” he told local media.

Reporting by Laila Bassam, Ellen Francis and Ghaida Ghantous in Beirut; Editing by Nick Macfie, Gareth Jones and Andrew Heavens