(Adds sources, market move)
BEIRUT, March 4 (Reuters) - A majority of Lebanese MPs oppose paying looming Eurobond maturities, even if that leads to default, Parliament Speaker Nabih Berri said on Wednesday, compounding doubts over whether the heavily indebted state will meet a March 9 repayment.
Lebanon is facing an unprecedented economic and financial crisis, which came to a head last year as capital inflows slowed and protests erupted against the ruling elite.
Its next maturity is a $1.2 billion Eurobond due on March 9.
Senior sources close to two of the main parties that back the government, the powerful Hezbollah and Berri’s Amal Movement, told Reuters the government was expected to announce a decision not to pay on Friday or Saturday and enter negotiations with bondholders.
A source close to the other main backer of the government, the Free Patriotic Movement (FPM), founded by President Michel Aoun, said such a declaration may happen unless foreign bondholders made a good offer in time.
Berri, one of Lebanon’s most influential leaders, made his comments at a weekly meeting of MPs. “We are with any measure the government takes apart from paying,” Ali Bazzi, a lawmaker from Berri’s parliamentary bloc, cited him as saying.
The March 2020 Eurobond gave up around half of its gains for the day after Berri’s remarks. The bond is still up around 12% this week at 58 cents in the dollar, according to Refinitiv data.
Lebanon hired U.S. investment bank Lazard (LAZ.N) and law firm Cleary Gottlieb Steen & Hamilton LLP last week as advisers, ahead of a widely anticipated debt restructuring.
A source close to the government said: “The government is still considering options and has not taken a decision yet. They are having meetings every day. Maybe they will find a solution between now and Saturday.”
The Finance Ministry declined to comment.
Lebanon’s long-brewing financial crisis has led to a hard currency crunch and seen the Lebanese pound lose close to 40% of its value since October. Lebanese banks have also imposed tight restrictions on access to deposits and transfers abroad.
Hezbollah, a heavily armed Shi’ite group backed by Iran and designated a terrorist group by the United States, has not declared its position on the debt.
Hezbollah and allies including the Christian FPM and Shi’ite Amal command a majority in parliament and agreed on Prime Minister Hassan Diab to lead the government in January.
Sunni politician Saad al-Hariri, a traditional ally of Gulf Arab states and the West, stayed out of the government.
Berri directed criticism at local banks which recently sold Eurobonds to foreign investors, saying they bore responsibility for diluting the local holding. Critics say this has weakened Lebanon’s position in negotiations with foreign bondholders.
“If they want to restructure (the debt) without restrictions or conditions, and without any share of the amount or interest being paid, then so be it,” Bazzi quoted Berri as saying.
The source close to the FPM said it had yet to finalise its stance but may draw the same conclusion as Berri “especially if foreign bondholders don’t cooperate at all during negotiations with regards to an orderly restructuring of the debt”.
One of the sources close to Hezbollah and Amal said contacts between Lazard and foreign bondholders had not reached any agreement, adding that foreign investors wanted their money.
“We can’t hide behind our fingers any more. We cannot pay,” the second source close to the Shi’ite parties said.
Opponents of paying say Lebanon’s dwindling foreign currency reserves represent the savings of ordinary people whose money was deposited at the central bank by commercial banks for high interest rates. They also say hard currency should be kept back for essential imports. (Reporting by Tom Perry, Ellen Francis and Laila Bassam; Additional reporting by Tom Arnold in London; Editing by John Stonestreet, Toby Chopra and Nick Macfie)