Lebanon’s central bank governor, who is at the centre of the country’s worst financial crisis in three decades, denied his management of the banking system was a "Ponzi scheme" and said he would not resign as he had a plan in place to help the country out of the crisis.
“This is not a Ponzi scheme, as some have described it,” Riad Salameh said in an interview with CNBC. “We, the central bank, had injected funds not taken funds from the banking sector … We returned all the funds.”
Mr Salameh, 70, deflected criticism that the central bank’s policies and use of the reliance on the US dollar as a parallel currency to the Lebanese pound had led the country into its current crisis.
“What made the economy become dollarised is that Lebanon lived through a civil war … and dollarisation reached 90 per cent,” he said. “We brought down the interest rate in the country and dollarisation … from 90 per cent to 65 per cent.”
A massive explosion on August 4 at Beirut port that left 190 people dead, 6,500 injured and reduced large parts of the city to rubble, has compounded its economic woes. Lebanon’s economy is projected to shrink 24 per cent this year, according to the Institute of International Finance. Even before the blast, the economy was forecast to contract 15 per cent, dragged down by a financial and political crisis that began in October last year.
Mr Salameh, a former Merrill Lynch banker, who has been governor of the country’s central bank since 1993 and helped Lebanon navigate through successive conflicts with Israel, civil strife, and shielded it from the 2008 global financial crisis, said he wouldn’t resign from his position.
“I don’t want to resign because … I have in my mind a strategy to get out of this crisis and I’m sorry to disappoint [those] who are spreading rumours of my resignation every day,” he said.
Mr Salameh rejected allegations that he and the central bank are entirely responsible for the country’s crisis, economic hardship, and exodus of Lebanese.
“We didn’t create the [budget] deficit,” he said. “We have always called for a reduction in the [budget] deficit. And we didn’t create also the deficit in the current account. These two deficits over the last five years have cost the country.”
Lebanon has one of the highest debt-to-GDP ratios in the world, with its public debt climbing to $93.4 billion (Dh343bn) at the end of June.
The country defaulted on eurobonds worth $31bn in March, which led its currency – pegged to the US dollar at 1,507.5 pounds since 1997 – to lose more than 80 per cent of its value against the greenback in the black market. The default means that Lebanon is virtually cut off from international debt markets and cannot raise finances to support its economy.
“It is not the central bank that has created these two deficits … it is the duty of the central bank according to the law to do whatever is possible … to maintain the stability and the continuity in the credit market,” Mr Salameh said.
“So, what we did, our regulations … have helped maintain for 27 years this country afloat while it lived wars, assassinations, civil strife and so on. So, it is really unfair to judge Lebanon as if it was Sweden.”
Lebanon’s bank deposits declined by $31bn in one year, the loan portfolio of lenders fell by $18bn, and $7bn of cash withdrawals were made, he said.