Central Bank of Lebanon Gov. Riad Salameh gave an interview to the Arab News outlet Aug. 25, saying that depositors’ money in Lebanon was still available despite arbitrary capital controls. The governor noted that the ban on international transfers would be resolved once reforms were implemented. Experts nonetheless believe that most of the political class intends to avoid reforms at all cost, shifting instead all losses on private business and depositors to maintain its grip on the system. The resignation of the fourth Lebanese negotiator with the International Monetary Fund (IMF) is an indicator they might right. However, foreign lenders could have a better chance with an international recourse.
Lebanese bankers do not seem to all share Salameh's optimistic account. In a previous interview with Al-Monitor, a senior manager working at one of the top 10 Lebanese banks admitted, “Banks are currently operating in a situation of complete illegality in the absence of a capital control law. Clients do not have free access to their dollar deposits and can’t make international transfers, and it does not look like it’s going to change soon in the current apathy of the state.”
The Lebanese ruling elite is still bargaining over the economic reforms required by the IMF, which are also a cornerstone to any international debt restructuring. “International donors affirmed, however, that any external aid in relation to the economic crisis and tied to structural reforms would be based on an agreement with the IMF,” Nassib Ghobril, chief economist at Byblos Bank, told Al-Monitor. Yet, Talal F. Salman, an economic adviser to the Finance Ministry and lead Eurobond negotiator, submitted his resignation from the IMF talks on Aug. 30, he was the fourth to quit in the last few months.
On July 13, the IMF warned the Lebanese authorities that delaying reforms would worsen the already dire economic outlook. The gross domestic product contraction rate, which was estimated at 4% in 2019, reached 18% in July according to Ghobril. The inflation rate reached nearly 60% in May. Without a deal, banks, which are directly exposed to the Lebanese sovereign debt, will have to write off their losses from their balance sheets.
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