Here are some facts about the issue you should be aware of (Source: Executive Magazine):
- Lebanon currently owns 9.22 million ounces of gold - which adds up to 286.8 tons
- The gold was bought mainly during the 60's and 70's
- It constitutes the largest gold reserve in the Middle East and North Africa
- Lebanon ranks 19th in the world behind countries such as the UK, which owns 311.3 tons and Austria, which owns 307.5 tons. The first place in gold tonnage goes to the US, second place to Germany and third to the IMF.
- Based on today's prices, the value of Lebanon's gold reserve is around $6.5 billion. That sum amounts to 32.5 percent of GDP and 16.25 percent of the national debt.
- The gold is stored in the Federal Reserve Bank of New York and in the Banque du Liban vaults.
Now Comes the Question: What do you do with this gold?
a. sell it?
b. maintain the status quo?
c. do something else with it?
Lebanon's Executive Magazine says sell it!
Through an article titled "Waste of Space," the Executive Magazine presented the following argument in favor of selling Lebanon's gold reserve:
The money made from selling the gold could be used to alleviate Lebanon from its debt burden. If sold at today's prices the government will save more than $650 million a year in interest payments on the debt.
This argument was supported by the following facts presented in the article:Lebanon currently manages to pull off a Primary Surplus. What does that mean? It means that if we disregard paying of interests on our debt, our government actually makes more money than it uses. Consequently, reducing our debt is now the primary means through which the government may reduce the hemorrhage we refer to as the "budget deficit."
Gold price cycles are very long. Today, they are at 25-year highs; but as soon as political tensions ease, or maybe Austria decides to sell a significant portion of its gold reserves, prices will deflate, and remain low for quite some time. Therefore, the Lebanese government should sell its reserves now, as doing so would result in a relatively profitable transaction.
The Lebanese gold simply does nothing. "Lebanon's gold reserves are sitting idly in vaults, yielding absolutely no return and costing the government in storage and safe keeping charges." A 1980's law forbids the Lebanese government from using the gold for anything. It can't be used as collateral for borrowing or as a hedging tool. In short, the initial intent for the gold to provide investors with confidence in Lebanon during tough times simply no longer exists because the gold is untouchable - it is as valuable to Lebanon as King Tutankhamen's treasure is to Egypt (actually less valuable, since the latter at least brings in tourist dollars)!
Okay... So those are the arguments presented by the Executive Magazine for selling the gold (with a little of my own salt and pepper). They seem very convincing, but I would have loved to read an article that argued for keeping the reserves in the same issue. Nevertheless, I am impressed because by publishing such an opinion, the Executive Magazine sends out a very subtle but powerful message: public opinion (or at least, the opinion of its readers) on this particular issue matters.
And who knows? Maybe if you treat the public as Citizens, and provide them with the information they need to make good decisions on important issues, they will reciprocate by making those decisions. Daily Star people (especially editorial page people); are you reading this?!?!?