The new head of Lebanon’s central bank made a desperate plea for reform on Friday as the country slips further into economic crisis.
Wassim Mansouri became interim governor of Banque du Liban late last month after longtime Governor Riad Salameh’s term ended. Mansouri said the Lebanese state may collapse in the absence of reform.
“Every day we waste without drafting laws, losses increase as well as the possibility of a state collapse,” he was quoted as saying by the Associated Press.
Mansouri also criticized the budget passed by the government last week in his remarks, saying it has a 24% deficit and that the central bank asked for a deficit-free budget.
Mansouri said the central bank does not intend to cover the government’s deficit by lending Lebanese pounds nor US dollars, according to the official National News Agency. “Printing more Lebanese pounds to counterbalance deficit is not a strategy that will be adopted,” he said.
Why it matters: Mansouri took the helm at the central bank at a difficult time. Lebanon has been mired in an economic crisis since 2019. Since then, the Lebanese pound has lost more than 90% of its value while public debt, inflation and poverty have all skyrocketed. Most Lebanese are unable to access their savings due to widespread financial mismanagement and strict capital controls.
Salameh, who led the bank for 30 years, is under investigation in Lebanon, the United States, France and Switzerland for embezzlement and his policies have been widely linked to the current crisis. In 2016, he introduced a “financial engineering” scheme in response to a liquidity crunch brought on by declining remittances from Lebanese abroad. The scheme incentivized private banks to deposit foreign currency from remittances at the central bank with high interest. The central bank then used the deposits for government spending.
The scheme “enriched and inflated the assets of an already oversized and dominant banking sector in Lebanon on the back of the accrued state’s sovereign debt,” political risk analyst Rany Ballout wrote for The National Interest in May, adding that Salameh also “arguably prioritized safeguarding the attractiveness of local banks at the expense of the domestic economy.”
The World Bank compared Salameh’s financial engineering to a Ponzi scheme in a damning report last August. Salameh has consistently denied the misconduct and embezzlement charges against him.
Mansouri has been calling for reform since becoming head of the bank. The United States, France and the International Monetary Fund have also said they want Lebanon to enact governance and anti-corruption reforms before receiving more aid. The IMF and Lebanon reached a conditional agreement on a $3 billion bailout last year, but the funds have yet to be released due to the lack of reform.
Salameh is facing increased pressure after leaving the bank. Earlier this month, the US Treasury Department sanctioned Salameh, accusing him of using his position to enrich himself.
Know more: The US accounting firm Alvarez & Marsal finished its audit of the Lebanese central bank earlier this month. The audit, demanded by donor states, covers the years 2015 to 2020. The accounting firm found that “illegitimate commissions" of $111 million were paid from an account at the central bank and also noted poor governance and risk management at Banque du Liban, Reuters reported.