Lebanon would have been able to begin recovering from the unprecedented socio-economic crisis had the government not defaulted on paying its foreign dues and if a government capable of implemented badly needed reforms was agreed, Central Bank Gov. Riad Salameh said Monday.
Speaking to Al Hadath, Salameh suggested there was hope for recovery and cited “harsher conditions” Lebanon had faced during the 1975-90 Civil War. “The banking sector was wiped out then, the currency devalued 1,000 times; yet, we were able to rebuild the country,” Salameh said.
Lebanon’s currency has tumbled and lost almost 90 percent of its value since nationwide anti-government protests rocked the country in October 2019. The political deadlock, coronavirus pandemic and Beirut blast have all dealt crushing blows to a country that was gripped by decades of mismanagement, corruption and sectarianism.
The Lebanese pound has been pegged to the dollar at 1,507 since 1997, but today there are multiple rates on the unregulated black market.
Depositors are unable to access their savings and a shortage of the greenback has all but dissolved international confidence in Lebanon’s banking system.
But Salameh said that the currency devaluation was acceptable, until the government decided to default on its $1.2 billion Eurobond payment for the first time in 2019.
“Indeed, before the crisis, the Lebanese pound was a strong currency, and we were emphasizing the stability of the pound’s exchange rate based on the stock of hard reserves that were available up to 2019,” Salameh said.
Salameh suggested that between the June and August 2019, two months before the nationwide protests, Lebanon’s assets in foreign currencies had risen by $2 billion dollars, with a total of $40 billion dollars.
No public records prove Salameh’s comments, and the Central Bank has not released these numbers in detail.
“We faced the crisis with all realism, and the banking system as we know it … is not effective today, but it did not collapse,” Salameh asserted.
Central bank and use of mandatory reserves
Salameh also said that the current government, which is serving in a caretaker capacity, was looking at ways to finance subsidy cards for vulnerable families to provide cash assistance to a large group of Lebanese residents.
“The Central Bank of Lebanon was able to provide US dollars at the official rate of LL1,500 to the dollar, which helped maintain the purchasing power. But we have reached a point where we are required to use the mandatory reserves to continue with this funding,” Salameh added.
The governor, formerly a Merrill Lynch investment banker, said the Central Bank considered that the use of mandatory reserves was a challenge to implement, legally or in terms of the central bank’s responsibility towards the banking sector.
Ultimately the government will decide and the Central Bank will assess these moves, Salameh said.
“We have reached a point where serious decisions should be made, and the Central Bank does not have the authority to make those decisions. We have no authority to use those mandatory reserves,” Salameh said.
Salameh confirmed that he was willing to appear before Swiss, French, and British courts, where alleged cases of corruption have been filed against him.
“I believe there is confusion, and I clarified this confusion multiple times. Before becoming the governor of the Central Bank of Lebanon, I had $23 million dollars in 1993. And if I had $23 million dollars in 1993, I definitely have more now,” Salameh added.
Salameh suggested that there was confusion due to the fact that “they [European courts] do not know what the personal situation is.”
“They did not differentiate it from my position as a governor; not the countries themselves, but the organizations that are raising the concerns. They are questioning the fact that a governor has investments and a salary from the state,” Salameh said.
Release of funds for small depositors
As for the depositors who are unable to access their US dollars in Lebanese banks, Salameh said there was a plan to start a new plan in June.
This would allow the withdrawal of $50,000 per depositor, in which $25,000 would be received in US dollar bills, and the other $25,000 would be cashed out in Lebanese pounds at the market exchange rate.
“The money will be released gradually. This will prove that foreign liquidity has started returning to banks. And this will prove that the depositor will be able to take their money, in a way that is limited today, but we consider this as just the beginning,” Salameh said.
By pursuing such a plan, Salameh believes it would help resolve issues for depositors with less than $50,000.
He said there were over 1 million accounts that would benefit.
“This confirms that the Central Bank is taking all the necessary steps to gradually restore confidence in the sector and attract the cash in the homes of the Lebanese, so that [this money] returns to external accounts which are not restricted,” Salameh added.
As for his term which was renewed in 2018, Salameh said he had the option not to renew.
“I don’t know why I did, and it is easy to say I regret it. But I took the choice to continue with my responsibilities,” he said, adding that the president, prime minister and parliament speaker all requested he stay on.
Salameh has been targeted by Hezbollah and President Michel Aoun. The pair have attacked Salameh and pushed ahead with smear campaigns, trying to blame him for the financial and economic crisis.
But it is believed that there is frustration from Hezbollah because Salameh has cooperated with and implemented US sanctions on the Iran-backed group’s alleged money laundering operations.