“Lebanon Debate” – Walid Khoury
What the Governor of the Bank of Lebanon, Karim Saied, wrote in his analytical article in the Financial Times newspaper, was not just a technical economic presentation, but rather closer to a political-financial statement announcing, indirectly, a break with an entire stage that governed monetary policy in Lebanon for decades. However, this rupture, despite its theoretical clarity, still depends on one question: Can Lebanon implement what it has been unable to do since 2019?
Saeed starts from a decisive premise: the crisis is not as complex as promoted, but rather is a direct result of three interconnected elements: the absence of financial discipline, mismanagement of cash, and misuse of private sector savings. This approach in itself constitutes a reversal of the traditional discourse that characterized the Riad Salama era, where the crisis was treated as a circumstantial phenomenon that could be contained through temporary financial and monetary tools, not as an accumulated structural defect.
At the core of the comparison, the first difference appears in the approach. Riad Salama built his policy on establishing monetary stability, especially the exchange rate of the lira, by attracting financial flows at any cost, including financial engineering, which later turned into one of the most prominent causes of the collapse. As for Saied, he starts from a completely opposite point: There is no stability without acknowledging the losses, and no recovery without distributing them explicitly between the state, the Bank of Lebanon, and the commercial banks.
This shift reflects a radical difference in crisis management philosophy. Salama relied on buying time, by extending a model based on declining external flows, while Saeed rejects any compromise solutions, considering that keeping the banking system between recapitalization or downsizing will only prolong the recession. Here, the discourse shifts from managing the crisis to trying to address it radically.
In the depositors’ file, the difference becomes clearer. During recent years, depositors have borne, directly or indirectly, the bulk of the losses, whether through banking restrictions, multiple exchange rates, or unannounced deductions from deposits. As for Saeed, he places small depositors, who constitute about 90% of accounts, at the heart of his priorities, considering that protecting them is not only a social choice but an economic necessity.
But this proposal, despite its importance, opens the door to the most sensitive question: Who bears the actual cost? The article defines the principle, but it does not provide a clear implementation map for distributing losses between the state, the central bank, and the banks, and it does not answer in detail the fate of large depositors, which makes it closer to an announcement directed towards an integrated plan.
In the relationship with the banks, Saied seems to be seeking to break the equation of interference that governed the previous stage, where the interests of the state, the central bank, and commercial banks were deeply intertwined. This interference is what financed the state and accumulated bank profits, before exploding in the face of depositors. Today, Saied speaks clearly about the need to bear the banks a portion of the losses, which directly clashes with the position of the banking sector, which previously rejected any plan that does not burden the state and the Bank of Lebanon with the greatest burden.
As for the issue of transparency and accountability, Saeed goes beyond the traditional approach, speaking about supporting criminal and civil lawsuits at home and abroad against former officials and bank owners involved in systematic fraud. This reference carries a clear political connotation, especially in light of the judicial prosecutions targeting Riad Salama on charges of embezzlement and money laundering, which are still the subject of a legal dispute.
At the monetary policy level, the discourse moves from an artificial stabilization of the currency to stability conditional on confidence and reform. Salama’s model was based on a long fixation of the lira to support financial flows, while Saied proposes stability resulting from rebuilding the banking and financial system, not from financing it with debt.
In the relationship with the IMF, the shift is also clearly visible. After years of disagreement over loss figures and their responsibilities, Saied describes the IMF as the last reliable path to stabilize reforms, with an implicit acknowledgment that Lebanon does not have a wide margin to impose counterconditions, which reflects a move from a position of maneuver to a position of negotiation under pressure.
However, the most sensitive factor in the article is not related to cash or banks, but rather to security. Saeed acknowledges that war represents an element that no economic model can accommodate, because it deters investment, accelerates capital flight, and undermines any reforms. This particular point repositions the crisis in its true Lebanese context: there is no economic recovery without political and security stability.
In conclusion, Karim Said presents an approach that appears, in theory, to be the complete opposite of the Riad Salama stage: from denying the losses to acknowledging them, from postponing the crisis to trying to address it, and from bearing the cost on depositors to seeking to distribute it. But between theory and practice, there stands a fundamental dilemma: Does the political system have the ability to break the old alliance between the authorities and the banks?
So far, the answer is still open. Because what Lebanon has failed to do since 2019 is not in diagnosing the crisis, but in making a decision.
