Lebanon Real Estate Newsletter Vol. 3, Issue 11 - November, 2007

BEIRUT: The international rating agency Standard & Poor's (S&P) placed Lebanon's "B-" long-term sovereign foreign and local currency ratings on "Credit Watch" with negative implications on Monday, in response to the Lebanese Parliament's failure to elect a new president by the constitutional deadline.

The last time S&P placed Lebanon on "Credit Watch" with negative implications was in mid-July 2006, as a result of the war with Israel. The agency had removed Lebanon from its "Credit Watch" list in mid-September 2006.

According to the agency, Lebanon's political crisis worsened after former President Emile Lahoud put the army in charge of security and suggested that the country was in a state of emergency, while the ruling coalition disputed the constitutional legitimacy of those actions.

"The ruling coalition referred to the Constitution, which in such circumstances, provides for the prime minister to assume presidential powers," S&P said in a report carried by the Audi Bank weekly bulletin.

The agency expressed concern that the political dispute might result in the creation of parallel administrations.

"This would probably hinder policy-making, and therefore raise serious concerns over the government's administrative capacity to service its debt, which according to S&P would at least hit 173 percent of GDP by end-2007," the report said.

S&P noted that placing the country on "Credit Watch" with negative implications was not necessarily a precursor to a rating change.

"In fact, Lebanon's long-term sovereign rating is still maintained, 'B-'," the report said.