Lebanon's Central Bank Deputies Face Unenviable Challenge Amidst Crisis

The central bank deputies in Lebanon are facing an extremely unenviable situation. Today, they are confronted with one of the biggest challenges since the start of the crisis: to continue providing the government with the minimum required amount of dollars to meet urgent needs for specific public services by the end of the current month, without waiting for legal coverage or carrying out the threat of cutting off the supply, pending the approval of a loan bill in the parliament that secures coverage for the officials if they spend the remaining mandatory reserves, i.e., the depositors' money.

Informed sources have confirmed that around 50 million dollars are essential for the needs of the army, security forces, subsidized medications for the poor, and fuel for OGERO to maintain the power supply to its facilities and prevent network outages. 

 

This as sources told Nidaa al-Watan that the borrowing contract is not completely open-ended. Instead, it contains a clause that allows the central bank officials or the central council of the bank to halt the transfer of dollars to the government if the conditions specified in the contract are not met. Therefore, it is required to follow a clear timeline to implement the conditions, and any delay will prompt the central bank deputies to resort to the "stop-transfer card" concerning the loan transfers. For instance, what is required in the current month of August is the approval of the loan law, along with the capital control bill and the 2023 budget.

Questions in need of answers:

Do MPs realize their responsibilities, or are they indifferent to the security, the poor, and the internet network, facing a crisis related to the expenses of the security forces, medications, and communication networks?

Are they the ones who have turned a blind eye to the actions of Riad Salameh and are now only dreaming of seeking revenge from his deputies, trying to present themselves as more concerned about the depositors' money, despite belonging to political blocs that have thrived at the expense of those deposits?

Are they not concerned about the remaining hope in this country that is failing more and more with each passing day?

Sources indicate that the central bank deputies bear their responsibilities, as they are spending the millions required to be returned to the reserves later. Can the parliamentarians bear their historical responsibilities?

Will they seize the opportunity of this challenge to pass a series of reform laws included among the conditions set by the central bank officials, such as capital controls, bank restructuring, addressing the financial gap, and preparing the 2024 budget before the end of the year? These conditions are crucial and necessary to reach a final agreement with the International Monetary Fund and start implementing a rescue plan for Lebanon.

 

The sources clarify that what parliamentary blocs and political forces have failed to impose through their conflicts and obstruction of reform laws might be achievable by the central bank deputies if there is a reformist awakening and a moment of conscience before it's too late. Otherwise, there is a danger that the central council may witness resignations by the end of this month or the next if the government forces the central bank to spend the reserves without a law.

Even Wissam Mansouri, who currently plays the role of the governor, may resort to the threat of resignation, leaving a void in the position of the monetary authority, thereby putting politicians once again in front of this dangerous challenge.

This as sources ask, why not initiate an open and continuous governmental-parliamentary workshop to propose solutions and suggest ways out of this pressing crisis? Have everyone resigned from their roles, leaving only the deputies of the Central Bank of Lebanon? Is the goal collective suicide, or does national interest require moving forward with what must be done, seizing a historic opportunity that may not repeat?

Provocative Proposals

On the other hand, some are provoking the deputies, saying that they are the advocates of the slogans "deposits are sacred," "deposits are protected," and "opposed to haircuts on deposits." Today, they are facing a real test, with the first deputy governor of the Central Bank of Lebanon, Wissam Mansouri, emphasizing that he will not sign any payment to fund the government outside of his convictions and outside the legal framework.

He stated that "a comprehensive legal cooperation between the government, parliament, and the central bank is required as part of a comprehensive plan to ensure that the money is returned."

He also added, "We are looking at a short transitional period that allows the state to be funded under the law."

As a result, the parliament, which has obstructed the required reform laws since the start of the crisis in 2019 until today, citing various slogans and reasons, will be faced with two options: either legislate officially to tap into the mandatory reserves, i.e., the remaining depositors' money, to continue financing the state's deficit. This action would expose it to confrontations with depositors, Eurobondholders, and representatives of the International Monetary Fund. Alternatively, it could face public pressure, which might manifest in protests and sit-ins by public sector employees protesting the lack of salary payments. In such a scenario, social unrest may escalate with the instigation of political leaders to justify their move towards approving a law to borrow $1.2 billion from depositors' money to contain the security chaos.

The parliament, which has previously approved laws to grant treasury advances amounting to billions of dollars to finance the electricity deficit without any reforms in this sector, will not be hindered today from approving a law to borrow an additional $1.2 billion and record it as additional public debt, equivalent to 6% of the GDP, as mentioned by Deputy Prime Minister Souad al-Shami. He emphasized that this approach contradicts the government's plan and the recommendations of the International Monetary Fund, which stress the need to achieve debt sustainability, and it is expected that the conditions set by the central bank officials should align with these recommendations.

No to legislation until electing a president

In this context, MP Ghassan Hasbani confirmed that the position of the Lebanese Forces party regarding legislation is clear, and they reject it under any pretext before electing a president for the republic. He emphasized that convoluted solutions are rejected and relying on popular pressure to continue financing the state's deficit is unrealistic, as the financing will sooner or later stop when the central bank's reserves are depleted. He told "Nidaa Al Watan" that the request for borrowing is merely a formal request and not substantial. "Just as Riad Salameh bought time for 30 years, they will buy another 6 months, but in a legal manner."

He questioned, "If the government relies on paying back the amounts it borrows today, why hasn't it paid its debts for the past 30 years until today?"
Therefore, Hasbani considered that the state's borrowing will be akin to giving away those funds because everyone knows that the state has no ability to repay those loans within 18 months. He added, "What will happen if it borrows $1.2 billion and cannot repay it and needs continuous additional borrowing without any political solution?"

As for MP Alain Aoun, he clarified that the Free Patriotic Movement is currently discussing the approval of the borrowing law and has not yet taken a stance on it. However, he emphasized that they are not inclined towards this approach unless there are guarantees for the approval of other reform laws concurrently, i.e., the complete economic plan. He considers that the absolute reliance of the state on the central bank to finance its deficit without any efforts to increase its revenues is no longer acceptable. According to Mansouri, the state's need for financing will not end until the central bank's reserves are depleted, and therefore, continuing with the same approach that only aims to buy time for 6 months and then a year and two years until the reserves are exhausted is not feasible.

Aoun pointed out to "Nidaa al-Watan" that this dilemma will put the MPs in a confrontation with the public sector on one side and with the depositors on the other side, regardless of their decision regarding the borrowing law.
"Preventing an Increase in Poverty"

On his part, Deputy Bilal Abdallah sees that among the financially and technically sound measures and their specific economic and social repercussions, there is a significant gap that needs to be discussed and studied by the Parliament. He asked: In the event that the borrowing legislation is not enacted, the exchange rate is liberalized, banking activities are halted, and so on, leading to a collapse of the exchange rate to 500,000 pounds, who will bear that responsibility? The ruling deputies alone? This is the gap that the Parliament is obligated to discuss.

Abdallah emphasized to "Al-Nidaa al-Watan" that the primary concern for the Democratic Gathering Bloc today is to prevent an increase in the people's poverty and misery. He pointed out the necessity of a basket of measures by the government and the central bank to maintain the minimum level of monetary stability until the presidential deadline is met and an agreement is reached on the fundamental reforms that cannot be approved by a caretaker government, a deputy central bank governor, or a parliament unable to legislate due to the presence of a segment opposed to legislation.

The Great Challenge that Must Be Addressed

In turn, Deputy Fadi Alameh considered that the Parliament faces the challenge of managing state affairs and the public sector while preserving the depositors' funds, "which should be integrated within an economic and financial plan to be implemented at a specific stage." 

He pointed out to "Nidaa al-Watan" that "if the country were going through normal conditions, operating according to a clear economic plan, and generating the necessary revenues to reduce the state's deficit, and going through a growth phase, we would have agreed on borrowing for a temporary period with the commitment to return those funds. However, in the current economic recession, the banks' difficulties, and the non-implementation of the International Monetary Fund's conditions, there is a major challenge that we must address while ensuring the continuity of the public sector." Alameh emphasized that "we do not have many options ahead of us, and therefore, if we can proceed with a phased plan within a specific timeframe that includes controlling spending and increasing revenues, we can move forward with the borrowing matter."