Depleting reserves: Salameh's controversial legacy and looming crisis

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2023-08-02 | 00:39
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Depleting reserves: Salameh's controversial legacy and looming crisis
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4min
Depleting reserves: Salameh's controversial legacy and looming crisis

"We are heading to an additional crisis," confirmed the sources of the deputy governors of Banque du Liban (BDL), because the governmental, parliamentary, and political climates "do not indicate that there is a majority in favor of the government borrowing from BDL according to the conditions enumerated by the First Deputy Governor, Wassim Mansouri.

This article was originally published in and translated from Lebanese newspaper Nidaa al-Watan.

In a bid to evade responsibility and sidestep division within the Cabinet, Caretaker Prime Minister Najib Mikati announced that the government would not submit the borrowing law to the parliament. 

Instead, he suggested that a group of deputies take the initiative to present it to the legislative body.

Adding to the intrigue, the Strong Lebanon Bloc reiterated its rejection of any expenditure from mandatory reserves if "it aims to buy time with the money of depositors to finance the state and its deficit and to stabilize the exchange rate at an exorbitant cost instead of adopting the necessary reform for monetary stability." 

The bloc links its participation in any legislative session to the condition that "the required reform laws are approved simultaneously, namely: "Capital Control," restructuring of banks and financial balance, in addition to approving a serious reform budget for 2024 to be referred to the parliament with the signature of all ministers of the caretaker government. 

The bloc looks forward with "satisfaction to what the deputy governors took in terms of stipulating the approval of reforms and not continuing with the monetary policy that Riad Salameh was pursuing, and by adopting transparency, respect for the law and commitment to independence."

Meanwhile, it is evident that a parliamentary majority to pass the urgently demanded legislation is unlikely, as the Shiite duo seeks protection for Wassim Mansouri from accountability.

Regarding exchange rate stability, financial sources told Nidaa al-Watan that Salameh depleted an additional $600 million in the latter half of last July, most of which flowed into the Sayrafa platform. 

This move drained the market of Lebanese lira, reducing the circulating monetary mass from over 80 trillion to around 60 trillion Lebanese lira.

Salameh directed the platform manager to email banks announcing a suspension of "Sayrafa" requests until further notice.

This leaves Salameh's deputies facing a dilemma: either continue with the Sayrafa platform or risk a potential currency market crisis. 

Sources told Nidaa al-Watan that soon, the deputy governors will reveal more figures to depict the reality of the remaining mandatory reserves, estimated at $8.7 billion, possibly less if unfulfilled commitments by Salameh before his departure come to light.

The upcoming period is expected to bring a series of surprises, the most prominent being a judicial decision to publish the forensic audit report prepared by "Alvarez and Marsal" on the central bank's accounts. 

A recent judicial ruling has also obligated the Ministry of Finance to provide a copy of the reports issued by "KPMG" and "Oliver Wyman" regarding the audit of the central bank's accounts to a number of summoned lawyers, in line with the Access to Information Law.

Nidaa al-Watan's sources reveal that the deputy governors are poised to collaborate in publishing necessary information in response to judicial rulings or official requests that call for more transparency regarding the central bank's operations, budget, and figures. 

As challenges continue to mount, observers advise the nation to brace for turbulent times ahead.
 

Lebanon News

Press Highlights

Lebanon

Crisis

Banque du Liban (BDL)

Reserves

Wassim Mansouri

Riad Salameh

Strong Lebanon Bloc

Sayrafa

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