The meeting was followed by the anticipated drop in interest rates that has galvanised local bond markets in recent weeks. Banque du Liban (central bank) said on 25 November that yields were lowered at auction – on three-month treasury bills (t-bills) to 10.8 per cent from 11.18 per cent, on six-month bills to 12.05 per cent from 12.12 per cent and on one-year bills to 13.28 per cent from 13.43 per cent. The coupon on Lebanon’s benchmark two-year bills was also lowered.

The Lebanese pound gained on the dollar following the donors meeting, trading at $1=£Leb 1,509 on 26 November, the strongest it has been in over a year. Fears over the government’s ability to service its debt has put increasing pressure on the local currency in the last few years. Prior to the Paris II meeting, Hariri warned that without significant foreign financial assistance the government would be forced to default on payments in mid-2003. The loans will be used to retire the most costly debt due to mature over the next year.

The two single largest donors were Saudi Arabia, which has pledged $700 million, and France, which has contributed $500 million. The other main donors are Malaysia, Canada, Italy and the five other Gulf states. Loan pledges mainly take the form of low-interest bond issues, guarantees from lender countries and syndicated loans, according to the Finance Ministry. The loans have a 15-year maturity and a five-year grace period. Interest rates have not yet been set, but are expected to range between 3-5 per cent depending on rates in the lending countries.

Although the pledges fell short of the $5,000 million the government was officially seeking from donors, several European and Middle East governments are understood to have pledged up to $1,000 million in additional concessionary loans on a provisional basis. The two conditions are that the government makes progress in reducing the budget deficit in the next six months, and that an agreement can be reached with the IMF. The government has traditionally kept the fund at arm’s length, and relations have been strained by the IMF’s recent recommendation of a devaluation of the Lebanese pound.

‘There are other countries . that are prepared to offer more money, even though they did not contribute any at Paris II,’ Hariri told a press conference on 23 November. ‘They are, nevertheless, prepared to do so should an agreement be reached with the IMF. For its part, Lebanon is prepared to continue its negotiations and dialogue with the IMF. We are ‘open’, but it is incumbent on us to respect our traditions and make sure [we] preserve credibility and trust in our country.’