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The ABL rejects the IMF plan and presents a counter-offer (photo: ABL)
LEBANON. According to Reuters, the Association of Lebanese Banks (ABL) has declared the Lebanese government's draft agreement with the International Monetary Fund (IMF) "illegal" or "in the alternative, unconstitutional". These are the words used by Carlos Abadi, managing director of the American financial consulting firm DecisionBoundaries and adviser to this organisation created in October 1959 in Beirut, in a letter dated 21 June 2022 sent to the headquarters of the Bretton Woods institution.
The IMF has proposed a cooperation agreement to the government based on a financing of $ 3 billion over four years, under the "expanded credit facility" to help Lebanon recover from a catastrophic financial situation. The text was signed on 7 April 2022 and still needs to be approved by the IMF's management and board.
The country of 6.7 million people (including 1.5 million refugees according to the UN Refugee Agency, mostly Syrians) has been in default since March 2020. It is facing the most serious economic and social crisis in its history, one of the worst in the world since 1850, according to the World Bank. Its currency, the Lebanese pound, has lost more than 90% of its value and the social situation continues to deteriorate. According to Najat Rochdi, UN Resident and Humanitarian Coordinator in Lebanon, 2.2 million Lebanese are in dire need of urgent assistance to ensure access to food and other basic needs until the end of the year.
The IMF has proposed a cooperation agreement to the government based on a financing of $ 3 billion over four years, under the "expanded credit facility" to help Lebanon recover from a catastrophic financial situation. The text was signed on 7 April 2022 and still needs to be approved by the IMF's management and board.
The country of 6.7 million people (including 1.5 million refugees according to the UN Refugee Agency, mostly Syrians) has been in default since March 2020. It is facing the most serious economic and social crisis in its history, one of the worst in the world since 1850, according to the World Bank. Its currency, the Lebanese pound, has lost more than 90% of its value and the social situation continues to deteriorate. According to Najat Rochdi, UN Resident and Humanitarian Coordinator in Lebanon, 2.2 million Lebanese are in dire need of urgent assistance to ensure access to food and other basic needs until the end of the year.
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Carlos Abadi defends Lebanese banks (photo: DecisionBoundaries)
Banks don't want to fix the state's mismanagement
The IMF is making the release of its loan conditional on the implementation of a number of essential structural reforms: a major tax reform, a policy of budgetary rigour, the nationalisation of certain state-owned companies, the creation of a floating exchange rate system... And to adopt a bank restructuring strategy based on three principles: recognition of the sector's huge losses, protection of small depositors and limiting recourse to public resources.
The Lebanese government's financial recovery plan was adopted on 20 May 2022. It foresees that commercial banks will bear the losses first, followed by the Central Bank (BDL) and public assets. The ABL, which groups sixty-one banks, believes that the state must step in and pay for decades of unsustainable financial policies, political corruption and waste. Most of the losses, estimated at $69 billion in early 2022, were incurred by the Central Bank.
The ABL had already rejected in February 2020 the banking and debt restructuring plan presented by Prime Minister Hassan Diab. It planned to return $25bn of a total of $104bn in foreign currency to savers.
The Lebanese government's financial recovery plan was adopted on 20 May 2022. It foresees that commercial banks will bear the losses first, followed by the Central Bank (BDL) and public assets. The ABL, which groups sixty-one banks, believes that the state must step in and pay for decades of unsustainable financial policies, political corruption and waste. Most of the losses, estimated at $69 billion in early 2022, were incurred by the Central Bank.
The ABL had already rejected in February 2020 the banking and debt restructuring plan presented by Prime Minister Hassan Diab. It planned to return $25bn of a total of $104bn in foreign currency to savers.
IMF calls for bank audits
The BDL asked, in March 2022, the country's commercial banks to provide it with the names of political figures who had not complied with a circular ordering them to repatriate funds sent abroad to avoid the collapse of the country in 2019. In the same month, the Lebanese judiciary ordered the freezing of the assets of five local banks (Bank of Beirut, Bank Audi, SGBL, Blom Bank and Bankmed) which are being investigated by Ghada Aoun, prosecutor at the Mount Lebanon Court of Appeal, for suspicious transactions carried out by their institutions.
The ABL suggests pooling state assets (buildings and land) in an investment company, transforming up to $30bn of deposits into Lebanese pounds to be repaid over a ten-year period, and reversing the pound-to-dollar foreign exchange transactions that took place after the crisis began in 2019. The latter would free up $10-15bn for the Central Bank, according to the Association. Another fund that could be used is the BDL's $15bn or so in gold reserves. "The reserves are nothing more than a buffer kept in reserve for a rainy day, and the storm in Lebanon is of biblical proportions," says Abadi's report in graphic fashion.
The International Monetary Fund is also calling for audits of the country's 14 largest banks and for parliament to approve an emergency banking resolution law. Lebanese banks were one of the main lenders to the Lebanese government before the 2019 financial collapse.
"The execution of some prior actions as well as some steps of the programme are likely to further damage the Lebanese economy, probably irreparably," the ABL representative notes in his letter. He also fears that, as the finding is based on "erroneous talking points of the Lebanese civil society", the association is "unfairly deprived of its rights".
The ABL suggests pooling state assets (buildings and land) in an investment company, transforming up to $30bn of deposits into Lebanese pounds to be repaid over a ten-year period, and reversing the pound-to-dollar foreign exchange transactions that took place after the crisis began in 2019. The latter would free up $10-15bn for the Central Bank, according to the Association. Another fund that could be used is the BDL's $15bn or so in gold reserves. "The reserves are nothing more than a buffer kept in reserve for a rainy day, and the storm in Lebanon is of biblical proportions," says Abadi's report in graphic fashion.
The International Monetary Fund is also calling for audits of the country's 14 largest banks and for parliament to approve an emergency banking resolution law. Lebanese banks were one of the main lenders to the Lebanese government before the 2019 financial collapse.
"The execution of some prior actions as well as some steps of the programme are likely to further damage the Lebanese economy, probably irreparably," the ABL representative notes in his letter. He also fears that, as the finding is based on "erroneous talking points of the Lebanese civil society", the association is "unfairly deprived of its rights".
