Lebanon IMF deal could derail due to deadlock with banks
Banks have said that the state should privatize public assets to foot the bill for the losses
By News Desk - April 27 2022
Photo Credit: The Cradle

On 27 April, Lebanon’s Economy Minister Amin Salam revealed that the country’s efforts to secure $3 billion in International Monetary Fund (IMF) support could be undermined by divisions over how to deal with massive losses in the financial sector, according to sources who spoke with Reuters.

“We will not be able to secure a full IMF deal without restructuring our banking system. This requires major prior actions … You need the government, the central bank and the banking sector to be on the same page. You cannot do that if no-one is on the same page,” Salam said.

Over the weekend, the Association of the Banks of Lebanon (ABL) said that it had turned down the latest draft of the government’s recovery plan, which seeks to establish exceptional and temporary controls on bank transfers and cash withdrawals, and requests bank shareholders to inject new capital.

The ABL has labeled the government’s recovery plan as “disastrous” and said it would leave depositors and banks holding a majority of the $72 billion in losses.

On 26 April, dozens of Lebanese citizens protested in front of the parliament building in the capital Beirut against the capital control bill that was to be debated.

The demonstrators held banners condemning what they called “the corrupt political, financial and banking class.”

The parliamentary session for debating the bill was not held due to a lack of quorum, as several parliamentary blocs rejected the law.

Protesters said that parliament was “legislating theft” by seeking to protect banks through the Capital Control Law.

They fear that the bill would prevent the transfer of funds, shield banks from lawsuits, and restrict withdrawals.

On 7 April, Lebanon reached an agreement with the IMF on a set of economic reforms that could result in a $3 billion grant to aid the crisis-hit nation.

The reforms include the restructuring of the country’s banking sector, including reforms within the Central Bank itself, and the stabilization of the Lebanese pound’s fluctuating exchange rates.

Deputy Prime Minister Saadeh Al-Shami said he was hopeful that Lebanon would be able to successfully implement the required reforms to ensure IMF support.

On 14 March, the Lebanese judiciary froze the assets of seven major banks, and issued travel bans for their executives.

The asset freeze also targeted the board members of Bank of Beirut, Bank Audi, SGBL, Blom Bank, and Bankmed.

The banks are under investigation for their dealings with the Central Bank of Lebanon, which involve the illicit transfer of billions of dollars abroad during the Lebanese financial collapse, which started in late 2019.

Since Lebanon’s economic meltdown began in 2019, banks have imposed harsh capital controls, illegally preventing depositors from accessing their savings.

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