Abu Dhabi, UAEMonday 30 November 2020

Lebanon: caretaker finance minister Ghazi Wazni warns of 'the end' of the country

He says he backs the French initiative to support Lebanon

Lebanon’s caretaker finance minister Ghazi Wazni says the country has lost faith in the banking system. AFP
Lebanon’s caretaker finance minister Ghazi Wazni says the country has lost faith in the banking system. AFP

Lebanon's caretaker finance minister Ghazi Wazni said that if the country’s political class continued to push back reforms that are crucial to unlocking foreign aid it would signal the end of Lebanon.

“Following this policy of slowness means death for the [Lebanese] people. It would really be the end,” he told The National.

Mr Wazni said he backed the initiative of French President Emmanuel Macron, who pledged international financial support to Lebanon in exchange for anti-corruption reforms. Politicians have yet to fully introduce any of them.

“President Macron said 'we’ll give you some oxygen, we’ll help you to get out of the crisis', otherwise the economic and social situation will worsen. The impact will be on the security, stability and future of the country,” Mr Wazni, 65,said.

He is a financial consultant who is reputedly close to Nabih Berri, the Parliament Speaker and a Hezbollah ally.

Mr Wazni resigned on August 10, six days after 2,750 tonnes of ammonium nitrate exploded at Beirut's port, killing at least 190 people. He was followed by Hassan Diab, who stepped down as prime minister a day later.

Negotiations with the International Monetary Fund for an economic rescue plan were suspended as a result, although contact continues, Mr Wazni said.

Mr Diab initiated the talks in late April after the state defaulted on its sovereign debt for the first time.

Mr Wazni’s concerns echoed those of President Michel Aoun, who said on September 21 that Lebanon was going “to hell” if a new government was not formed.

For the past three weeks, prime minister-designate and Saad Hariri has been negotiating with political parties about how to divide ministries among them. The process usually takes months.

Critics say that despite public statements of support for Mr Macron’s initiative and reforms, politicians have gone back to trying to secure as much influence as possible.

The population bears the brunt of their dithering. More than half the Lebanese have been pushed into poverty and 40 per cent are unemployed, said Mr Wazni. The IMF expects the economy to contract by 25 per cent this year.

The latest resistance to reforms comes from the central bank, after Mr Wazni signed contracts with three international audit companies to investigate the bank’s finances on August 31.

“We must not forget that we are going through a banking crisis and that people cannot recuperate their deposits. It’s very important to know where the money went. Secondly, the audit will reveal the real losses of the central bank and the banking sector,” he told The National.

Quantifying those losses will allow decision-makers to take action, said Mr Wazni.

But the central bank argued that most of the information requested by the company in charge of the forensic audit was covered by Lebanon’s 1956 banking secrecy law.

Mr Wazni disagrees, as does caretaker justice minister Marie-Claude Najm, who told The National that the central bank was not “above all control”.

But Mr Wazni still gave the central bank a three-month extension on November 5 to find the required documents.

“We chose a slightly long delay because first, we have to wait for government formation, and secondly, don’t forget that on December 15 the holiday season will start,” he said.

“Thirdly, in case we don’t get all the required information to start the audit, we could start working on a draft law to amend the current law.”

The delay has been criticised by some who accuse the government of playing along with the central bank’s stalling tactics.

“The central bank governor is using the banking secrecy law as a blanket excuse to avoid being held accountable and the minister of finance is playing along,” said Hicham Safieddine, author of Banking on the State: The Financial Foundations of Lebanon and an assistant professor of the history of the modern Middle East at King’s College London.

“Amending or revoking the banking secrecy law requires political consensus that is hard to come by today and is unnecessary for the audit, even if required as part of long-run reform.”

Mr Wazni said that Mr Diab suggested the government should prepare a draft law to amend the banking secrecy law.

Alternatively, he suggested authorising Alvarez & Marsal, a company in New York that is conducting the forensic audit, to access information covered by banking secrecy.

Mr Diab’s press office has not yet confirmed this, but experts gave a warning that a caretaker government could not legislate.

Mr Diab could, however, give the draft law to a MP who would present it in parliament, said Wissam Lahham, a constitutional law professor at Universite Saint Joseph in Beirut.

Some people argue that changing the law would amount to admitting that the central bank was right in arguing that information requested by Alvarez & Marsal was covered by banking secrecy.

But it is also a lengthy and difficult process.

MPs voted on a new law this summer, but only after removing a key clause that would have allowed the judiciary to lift banking secrecy.

Opposition came from MPs affiliated to Mr Berri’s Amal party and the Progressive Socialist Party led by Druze politician Walid Joumblatt, said fiscal law expert Karim Daher.

Mr Aoun sent the law back to parliament for further study.

Mr Wazni said he was aware that nearly one year after it was sworn in, the government has achieved little to improve the lives of the Lebanese.

He blamed it mostly on the several crises facing the country this year, as well as the country’s twin deficit.

“Trust in the banking sector was lost. This is a first in Lebanon’s existence. We must remember that even during the 1975-1990 civil war, banks continued functioning normally,” he said.

“Today, people’s money is blocked, and financial transactions abroad are suspended. The entire sector is paralysed.”

The coronavirus pandemic and the explosion at the port dealt the final blow to Mr Diab’s Cabinet.

“The government was not able to do everything because of the obstacles it faced, but it managed to put the country on the right track. Our approach, including negotiations with the IMF, was the right one,” said Mr Wazni.

Asked what he would say to his successor, Mr Wazni answered: “Good luck".

Updated: November 16, 2020 01:31 PM

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