Lebanon's 'scapegoated' governor welcomes conditional IMF deal but says $15bn is goal

Central bank has more than $17bn in gold at current market prices

Lebanon's Central Bank Governor Riad Salameh believes the IMF's backing can help usher additional funds from international donors. Reuters

Lebanon's Central Bank Governor Riad Salameh welcomed the conditional deal struck with the International Monetary Fund that will extend $3 billion to the country over a four-year period as part of a comprehensive economic reform programme, but he said the country needs five times more for it to come out of its economic crisis.

“The staff agreement with the IMF is an important step towards restoring confidence and reconnecting Lebanon with the international financial markets,” Mr Salameh, 71, told The National.

“Negotiations to solve the issue of default is fundamental, without the IMF on board the negotiations to exit the default situation would be very difficult,” said the governor, who has been at the helm of the central bank since 1993.

Lebanon's economy collapsed after it defaulted on about $31bn of Eurobonds in March 2020, with its currency sinking more than 90 per cent against the dollar on the black market and inflation rising to triple digits.

Lebanese authorities must enact a list of reforms before the IMF's board approves the $3bn facility and a series of other measures once the programme is in place. Those measures include the government's approval of a bank restructuring strategy, reforming the bank secrecy law, and endorsing a medium-term fiscal and debt restructuring strategy.

Once the IMF programme is in place, Lebanon's government will need to make other changes that include a single exchange rate and capital controls, reforming state-owned enterprises, and strengthening governance and fiscal reforms.

On Thursday, Prime Minister Najib Mikati told The National he was optimistic Parliament would endorse the necessary measures to secure the IMF's backing.

Still, "$3bn is not enough but a programme with the IMF might attract donors, the level of comfort is $15bn”, Mr Salameh said when asked if he thought the fund's proposal was enough to lift the country out of its state of paralysis.

Lebanon is saddled with debt, high unemployment, hyperinflation and rising poverty.

The country's economy contracted about 58 per cent between 2019 and 2021, with the gross domestic product plummeting to $21.8bn in 2021 from about $52bn in 2019, the World Bank said. That is the largest contraction on a list of 193 countries.

Its public debt increased to $100bn, or about 212 per cent of GDP, in 2021, giving Lebanon the fourth highest debt-to-GDP ratio in the world, surpassed only by Japan, Sudan and Greece, World Bank figures show.

If Parliament and the government enact the reforms and secure the IMF funding, the country could unlock $11bn in aid that was pledged by international donors at a Paris conference in 2018. Those funds are also conditional on similar reforms prescribed by the IMF.

“The political environment is important for initiating confidence,” Mr Salameh said.

In times of crisis that preceded the collapse of the economy, Lebanon’s economic stability has customarily hinged on the wisdom and foresight of Mr Salameh, who was hailed more than once as central banker of the year globally and regionally.

He protected the economy and its currency during several military conflicts with Israel and shielded its banking system from the 2008-2009 global financial crisis by banning investment in subprime products.

But for distraught citizens, Mr Salameh and the banking industry are viewed as an extension of a political system marred by corruption, greed and nepotism.

To some, Mr Salameh, a 20-year veteran of Merrill Lynch and former private banker to the late Prime Minister Rafik Hariri, is a casualty of Lebanon’s fractious political landscape. Fringe elements of the far left who want to nationalise banks as well as supporters of parties that control the state today see him as an easy target.

“During the period 2010 to 2021, the government used more than $65bn of the central bank, using existing laws and voting other laws,” Mr Salameh said.

“We are going to vote, as per the IMF requirement, a law forbidding the government to borrow from Banque du Liban (BdL) in the future. This will ensure a better future for the currency. It should have been initiated before. BdL should have pushed for that.”

Lebanon's central bank has a stock of gold valued at more than $17bn at current market prices, Mr Salameh said.

“Yes I was used as a scapegoat,” Mr Salameh said when asked if he was being targeted for the economic meltdown of the country. “It was well planned and executed.”

Updated: April 08, 2022, 6:09 PM
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