President challenges banking reform law: Lebanon's IMF talks face new test

Report by Lara El Hachem, English adaptation by Yasmine Jaroudi  

As a Lebanese delegation's visit to Washington produced positive discussions with International Monetary Fund (IMF) officials, a legal appeal filed by President Joseph Aoun against a provision of Lebanon's banking reform law has raised questions over whether the country’s negotiations with the IMF could face another setback.

Aoun appealed Article 3 of the banking reform law, which transferred part of the powers of Banque du Liban (BDL)'s Central Council to the Higher Banking Commission.
 
According to sources close to BDL, granting the Higher Banking Commission powers parallel to those of the Central Council could create an unjustified overlap between the two bodies and potentially serve as an indirect way of reducing the Central Council’s powers and weakening its institutional role.

Could this matter affect Lebanon’s negotiations with the IMF?

Sources at the Finance Ministry said the Washington meetings were very positive and that an IMF delegation is expected to visit Lebanon in November, following the fund’s meetings in Thailand in October. 

However, the sources expressed concern that the legal appeal could slow progress toward an agreement.

Meanwhile, sources familiar with President Aoun’s position said the appeal should not be interpreted as a departure from the reform process.

Rather, they said, its purpose is to ensure that the legal framework being established is coherent, sound and ultimately enforceable, given that Lebanon’s Code of Money and Credit provides the legal framework governing the country’s monetary and banking systems.

The Constitutional Council is expected to rule on the appeal within a period that should not exceed one month.

In the meantime, financial sources familiar with the negotiations said the process remains on track and that Lebanon is not wasting time.

The banking reform law is closely linked to the financial gap law, work on which is still ongoing among the relevant parties. Substantive discussions on the legislation are expected to begin within Parliament’s Finance and Budget Committee after the state budget is approved.

The latest developments have nevertheless raised questions over whether Lebanon’s complex political and legal structure could lead to another period of stagnation in negotiations with the IMF, particularly as serious work has been underway toward a possible preliminary agreement at the technical level.