REPORT: Lebanon’s central bank chief pledges stability amid political paralysis

Lea Fayad Author: Lea Fayad
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2016-07-20 | 09:08
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REPORT: Lebanon’s central bank chief pledges stability amid political paralysis
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5min
REPORT: Lebanon’s central bank chief pledges stability amid political paralysis

Lebanon's central bank chief Riad Salameh told Reuters the US law must be enforced to keep Lebanon's banks within the global financial system and stabilize the hugely indebted economy as neighboring Syria's civil war hits tourism and growth.

 

“Of course this (law) has created a lot of tension in the country, and the tension was not good for Lebanon, but overall we have preserved the objectives that we had in mind,” he said.

 

Passed in December, the law threatens to bar from the US financial market any bank that knowingly engages with Hezbollah, designated a terrorist organization by the United States.

 

It has led to a standoff between the central bank and Hezbollah, which views it as a breach of sovereignty.

 

Salameh and the US Treasury have repeatedly said the Hezbollah Financing Prevention Act is not designed to hurt Lebanon's economy or to unjustly prevent members of Lebanon's Shi'ite community from accessing banking services.

 

Salameh would not comment on how many accounts had been closed so far, or how many were under investigation but said the process is being respected by the banks and a Special Investigations Commission is looking individually at every request to close accounts that they deem are in contradiction with the law.

 

“We are looking, with the Agency for Combating Money Laundering, at files individually, and decisions are taken to respect on one side the foreign laws, and on another side to stay fair with those dealing with the Lebanese banking sector,” Salameh said.

 

With a government debt of 136.7 percent of GDP in 2015, the third-highest among countries rated by Fitch, confidence in Lebanon's central bank - seen as one of the only effective institutions in the weak state - is vitally important.

 

“The banking sector in Lebanon is the cornerstone of stability in the country. As you know, Lebanon is funded by its banking sector only, so, whether its private sector or public sector, so what we are doing is to preserve confidence and I think that this confidence has been preserved because we didn't see a pressure to change from the Lebanese pound to foreign currencies,” said Salameh, who took office in 1993, making him currently the world's second longest-serving central bank head after Uzbekistan.

 

Battered by regional instability and a huge refugee burden Lebanon's traditional economic resilience is being put under ever increasing strain.

 

Salameh forecasts growth of 1.5 to 2 percent for 2016, in line with a World Bank projection of 1.8 percent but far below the 8-9 percent growth rates seen in the years before 2011.

  

Political paralysis that has kept the post of president vacant for over two years is also testing confidence in the country and curbing foreign direct investment (FDI).

 

FDI, a key source of foreign exchange, dropped to about 5 percent of GDP in 2015, compared to 12.5 percent of GDP in 2009, according to central bank and World Bank data.

 

Fitch cut Lebanon's credit rating to B- from B last week, citing political risks and the deepening toll Syria's civil war is having on Lebanon's economy and politics. It was last rated B- in 2006, during the conflict between Israel and Hezbollah.

 

Laws to allow oil and gas exploration, which could raise revenues to help cut the deficit, or public-private partnerships to revive crumbling public services, have been stalled by the political impasse that has also left the presidency vacant.

 

Salameh said the central bank will keep stabilizing the economy for “as long as it takes” for the government to become more effective, pass a budget and tackle the structural deficit.

 

Confidence in the central bank remains high and should ensure Lebanon can continue to fund itself, Salameh added.

                       

 

REUTERS

For more watch the full report in the video above

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