Lebanon will receive a $77 million loan from the International Monetary Fund (IMF) this week to reduce the country's crushing public debt and inspire other Paris III donors to make good on their pledges. The loan, at 5.5 percent interest over three to five years, will most likely be used to pay down obligations with higher interest rates among the state's $41 billion mountain of debt, Economy and Trade Minister Sami Haddad said.

Apr. 10, 2007- The $77 million will do little to dent the debt, but supporters of Prime Minister Fouad Siniora say it should signify the international financial community's trust in his embattled Cabinet.

"There is a lot of symbolism and it's very important," Haddad told The Daily Star on Tuesday. "It's not the amount - this is the first time we have a formal agreement with the IMF in Lebanon's history. It will give confidence to other donors."

Donors pledged $7.6 billion at the January gathering in Paris, but so far only the United Arab Emirates have made good on their vow of $350 million to the government, while the International Finance Corporation has injected about $100 million into the private sector through domestic commercial banks.

The IMF credit, which was announced late Monday in Washington, could prod other benefactors to follow through more quickly on their promises, said Mohsin Khan, director of the IMF's Middle East and Central Asia Department.

"It's very important in that we're hoping to play a catalytic role for other donors," Khan explained. "It's part of a concerted effort by the international community.

"Our aim essentially was to support the country at a time when it is embarking on a very important reform program. This is a symbol of our confidence in the country to tackle the reform program."

The loan precedes a larger facility expected next year, but that amount, as well as many of the Paris III pledges, is conditional on the administration meeting goals set out in its five-year reform program.

To assure donors that the government is living up to its reform plan, the IMF also announced on Monday that it will issue quarterly reports on the reforms' progress.

"I expect that the donors will take our report into account in their decision as to whether to disburse or not, or when to disburse," Khan said. "This is an original request that came from the Lebanese authorities themselves."

The reform package, unveiled in the week before Paris III, aims to reduce public debt from 180 percent of GDP to 130 percent in five years. With all the contributions declared in Paris, the state can trim its arrears to 110 percent of GDP, Haddad said.

"[Lebanon] is suffering from cancer, and this cancer is eating up everything and this cancer is called debt," Haddad said.

To achieve its avowed goals from Paris, the Cabinet plans to rake in higher revenues from three main sources, Haddad said. The value added tax is slated to rise from 10 percent to 12 percent next year and to 15 percent in 2010, while the reforms also call for increases in the tax on interest income and the gasoline tax. Budget expenditures should fall under reforms at the National Social Security Fund and Electricite du Liban (EDL). In 2006, the government had to cough up about $1 billion to cover the shortfall at EDL.

Many reform steps and Paris III pledges, however, face the stumbling block of approval by Parliament, which has not met since before the summer 2006 war with Israel. Khan said Lebanese officials told him the legislature would convene to ratify Paris III agreements, but Haddad said he did not know of any such plan. The pledges have also become part of the ongoing political jousting, as many have said Paris III vows were made partly to demonstrate political support for Siniora's Western-backed government.

The opposition has also lambasted the Cabinet's reform plan, with its calls for higher taxes and privatization.