Ali Zein Al-Din – Middle East
The fate of the deposits is postponed… due to the dispute!
The proposals amending the provisions of the banking reform law in Lebanon have reached the final drafting station at the Parliamentary Finance and Budget Committee, in preparation for their complete approval in the middle of next week, and their referral to the General Assembly of the Council, amid prior and broad parliamentary consensus participating in the committee, which guarantees the approval of the legislation in the event that the date of the session is set, which is expected before the end of this month. While the enforcement of the law remains linked to the approval of the Financial Regulation and Deposit Recovery Law, which constitutes the focus of the dispute over the “financial gap.”
The immediate impact of this “achievement,” according to a concerned official and participant, is limited to the repeated response to the conditions of the International Fund, with a relative margin of adaptation to the concept of legislative sovereignty and the powers of local authorities, especially in terms of taking into account the texts of the laws in force, which stipulate the independence of the Central Bank, the powers of the Governor and the Central Council, and their pivotal and exclusive tasks in managing monetary policy and the financial sector.
Central bank demands
In summary of the conclusion, the contents of which were disclosed by the Chairman of the Finance and Budget Committee, Ibrahim Kanaan, there was a lengthy discussion regarding the Central Bank’s request to include the phrase “taking into account the provisions of Article 70 of the Money and Credit Law” into Article 3 of the Banking Reform Law, so that the government expressed through the Minister of Finance, Yassin Jaber, that “it has no objection to the amendment.” Therefore, it was agreed to amend Articles 3 and 13, in a manner consistent with removing ambiguity in the text regarding the independence of the Central Bank and the role of the Central Council in it. However, there is a need for the approval and agreement of the IMF.
Divergence in the “gap”
With the prior suspension of the entry into force of the law by approving and publishing the Financial Regulatory and Deposit Recovery Law, the tripartite legislative journey, which also includes the Banking Secrecy Amendments Law, remains hostage to the most difficult agreement on the pending project, which has been called the “Gap Law,” due to the clear and sharp divergence in approaches to concepts and basics, starting with determining the size of losses, and ending with distributing burdens according to responsibilities, in preparation for adopting appropriate mechanisms to restore “as much as possible” of the rights of depositors whose hopes are fading. In turn, after a long and painful wait, he is approaching the end of his seventh year.
Thus, the financial and monetary landscape continues, in a state of “uncertainty”, full of ambiguities that border on ongoing dilemmas, in a “reproduced” deficit by adopting a unified and integrated local approach, aimed at rescue and recovery. “Delivering” to all the demands of the International Monetary Fund, which the government team is leaning towards, according to the financial official, will inevitably lead to the “failure” of most of the operating banks, and consequently the ignorance of the fate of the restrictions of rights holders, while no one guarantees that adhering to the conditions of “sustainability of public debt” to obtain the promised financing will return the country to international credit markets without an active banking system, and powers deducted from the governance of the Central Bank.
Waiting for government amendments
Pending the government’s return with its renewed amendments, after it restored the basic project previously referred to the Parliament, concerns are rising, according to the same official, regarding the oscillation in the vicious circle of debates between the IMF’s strict requirement to limit “the use of public funds” in reforming the conditions of the banks, and the reality of the state’s attempt to withdraw overdrawn financing from the Central Bank, with a total of no less than $60 billion. While these amounts are essentially classified, with a total of approximately $80 billion; Deposits and investment certificates of commercial banks, and by extension, “depositors’ money.”
Definition of crisis…an ongoing dispute
In essence, the dispute has not been completely resolved over the “definition” of the crisis, according to the financial official, despite his priority in determining responsibilities and distributions of losses between the state trio, the central bank, and the banks, leading to the return of depositors’ funds in proportion to the availability of flows and according to various means and clear timetables that receive conditional approval from the majority of rights holders, with an objective assessment of what they have suffered in the past years, and will continue in subsequent years, in terms of heavy deductions, investment losses (zero returns) and witnessed deficits in the past years. Meet urgent financial needs.
Despite the ambiguity in descriptions adopted by the government, the Governor of the Central Bank, Karim Saeed, declares that the financial and banking crisis in Lebanon is a “systemic crisis” in every sense of the word, from a technical standpoint. It has been described in this way by many experts locally and internationally, and was recently recognized by the International Monetary Fund. By inference, the issue “is not related to the default of one bank, or even a number of banks; Rather, there is a simultaneous collapse of the state’s financial capacity, the financial position of the central bank, the liquidity of the banking sector, and the confidence of citizens, so that all these elements feed into each other, leading to a comprehensive collapse.
Facts… regarding the “Central Bank”
In justifying this description, and enhancing its validity and solidity, the Central Bank cites a set of basic facts, which do not tolerate any embellishment, the most important of which is that about $80 billion in losses in the banking sector, most of which were deposited by the banks with the Bank of Lebanon. Consequently, the state defaulted on repaying Eurobonds in the spring of 2020, in parallel with the collapse of the value of treasury bonds in the national currency, which were worth twice the value of Eurobonds. As a result, the exchange rate of the national currency collapsed by more than 98 percent, and the emergence of parallel markets operating outside legal frameworks.
Likewise, the Association of Banks did not hesitate to convey its concerns to senior state officials, despite the insistence on practically excluding it from government discussions, and in its latest developments, what the President of the Republic heard from the Board of Directors headed by Salim Sfeir, that “the current proposal to address the financial crisis seems unfair to the banking sector, and that its application in its current form is not practically implementable,” indicating the banking system’s aspiration for effective partnership in the path of the required reforms, and its commitment to playing its role in supporting the recovery process and contributing to rebuilding confidence. In the Lebanese economy.
The law does not write off deposits
In turn, the head of the Parliamentary Finance Committee confirmed that the previously referred draft “gap” law is subject to reconsideration of some of its articles by the government, “and what we want is a law to recover deposits, not to write them off.” From this standpoint, the government is reconsidering some provisions to secure the desired result assumed by the objective of the law. We do not get confidence from the IMF externally only, but internal confidence is also important through the Lebanese depositor and investor, who will not put a penny in Lebanon if he does not feel that it is guaranteed.”
