A Lebanese man protests outside of the Central Bank building in Sidon in 2019. (Photo credit: AFP)
On 24 May, the Association of Banks in Lebanon (ABL) announced their rejection of the measures passed by the Lebanese government – touted as a financial recovery plan – before entering into a caretaker role a few days prior.
In a statement, the ABL claimed the Lebanese state had canceled the deposits of account holders “with the stroke of a pen.” They allege that the new plan places the full losses of the economic meltdown on depositors, as reported by Reuters and at greater length by the Lebanese daily Al-Akhbar.
The statement criticizes the state and the experts it sought advice from for ignoring alternative plans that would have allegedly restored the rights of depositors.
Lebanese banks have themselves imposed informal capital controls on depositors, preventing them from accessing the full balance of their bank accounts – whether in local currency or foreign currency – and allowing withdrawal of foreign currency into local currency at well below the market rate of exchange, wiping out the value of depositor savings.
One of the points of contention in the plan, passed on 20 May, was that it would cancel a large portion of the Central Bank of Lebanon’s foreign currency obligations to commercial banks.
It would also audit commercial banks to determine their assets and liquidity, and all non-viable banks thereafter would be dissolved by the end of the year.
The ABL statement comes as the Lebanese lira continues its devaluation against the US dollar, hitting 33,500 liras per dollar on 24 May, a new record high as the country faces triple-digit inflation.
The recovery plan stipulates that the exchange rate is set to be unified to replace the current system of different rates for different sectors: an official rate pegged at 1,500 Lebanese lira per dollar; a bank rate, which has changed over time; and a market rate which changes on a daily basis.
Taxes on Lebanese citizens are also set to increase. Ministers affiliated with Hezbollah and Amal voted against the series of measures.
After decades of mismanagement and corruption by the Lebanese government and the central bank, the economy and the national currency began its collapse in 2019.
This came in part due to the dwindling foreign currency reserves needed to provide necessary services like subsidies for food, fuel, electricity, and medicines.
Due to lack of domestic production in a heavily import-dependent economy, Lebanon could not bring in as much foreign currency into its coffers as it spent, resulting in a huge trade deficit.
Additionally, actions by the Central Bank and many major banks in the illicit transfer of billions of dollars abroad, further reduced the foreign currency holdings of the domestic financial system.
Central Bank Governor Riad Salameh was recently charged with illicit enrichment. Caretaker Prime Minister Najib Mikati, himself found guilty of financial crimes, expressed his support for Salameh following the charges.
The IMF has set stringent conditions on Lebanon in order to qualify for an emergency loan, with which the recent recovery plan hopes to bring Lebanon into compliance.