July 10, 2019 / 9:32 AM / 10 days ago

Lebanon PM: U.S. sanctions won't affect government

BEIRUT (Reuters) - Lebanese Prime Minister Saad al-Hariri said on Wednesday that U.S. sanctions targeting Hezbollah MPs moved in a “new direction” from existing measures, but would not affect government work.

FILE PHOTO: Lebanese Prime Minister-designate Saad al-Hariri speaks during a news conference in Beirut, Lebanon, November 13, 2018. REUTERS/Mohamed Azakir/File Photo

The sanctions against two Hezbollah MPs and one of the Shi’ite Muslim movement’s top security officials widen a U.S. campaign that Washington says has designated 50 Hezbollah-linked individuals and entities since 2017.

It marks the first time the United States has targeted lawmakers in the heavily armed, Iran-backed organisation which is listed as a terrorist group by Washington but is also part of Lebanon’s coalition government.

The move weighed on Lebanese sovereign bonds on Wednesday.

“No doubt, it has taken a new direction... but this will not affect the work we are doing in parliament or the ministers,” Hariri said in a statement.

“It is a new matter that we will deal with as we see fit ... The important thing is to preserve the banking sector and the Lebanese economy and, God willing, this crisis will pass sooner or later,” he said.

The newly designated Hezbollah members are MPs Amin Sherri and Muhammad Raad and Wafiq Safa, whose role includes coordinating with Lebanon’s security agencies.

Hezbollah’s political clout in Lebanon has widened since an election last year yielded a parliamentary majority for the group and its political allies.

Speaker Nabih Berri, a Shi’ite Hezbollah ally, called it “an assault on parliament” and on all of Lebanon, while President Michel Aoun said the country ‘regrets’ the measures and will follow up with U.S. authorities.

“MEDAL OF HONOUR”

Hezbollah has not issued a formal statement about the latest sanctions. Hezbollah MP Ali Ammar told Lebanese broadcaster LBC on Wednesday the sanctions were a “medal of honour”.

“The American action is an attack on national sovereignty and it is a government duty to defend this sovereignty and protect it,” he said.

U.S. Secretary of State Mike Pompeo said the sanctions were part of efforts to counter Hezbollah’s “corrupting influence” in Lebanon. Washington has also reimposed sanctions on Iran since quitting from world powers’ nuclear deal with Tehran in 2018.

Finance Minister Ali Hassan Khalil, a senior Berri aide, said late on Tuesday the sanctions against Hezbollah were “unwarranted and do not serve financial stability”. “Lebanon and its banks are committed to all the legislation and there is no justification at all for escalating these sanctions,” he said.

Lebanon’s dollar-denominated sovereign bonds fell and the cost of insuring exposure to its debt rose on Wednesday after the sanctions move.

Meanwhile, 5-year credit default swaps (CDS) jumped 17 basis points (bps) from Tuesday’s close to 925 bps, according to IHS Markit. CDS last traded at these levels in January, when fears of a potential debt restructuring rattled Lebanon investors.

“It’s the sanctions, but the market has been a bit weaker this week. As we go into the summer holidays, liquidity is also likely to worsen so outsized moves might also occur,” said Anthony Symond at Aberdeen Standard in London.

Lebanon has one of the world’s heaviest public debt burdens. The government aims to avert a financial crisis with long-delayed reforms to put state finances on a sustainable path.

Additional reporting by Laila Bassam in Beirut, Karin Strohecker in London, Editing by Tom Perry, William Maclean

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