To resolve the Lebanon crisis … Demand that Lebanese banks bear the losses of the collapse

Lebanese Deputy Prime Minister HE Al-Shami called on Lebanese banks to “start first” to bear the losses due to the collapse of their capital.

In an interview with Reuters, al-Shami denied that the state relied on a sovereign fund or gold reserves to compensate depositors who lost their savings.

He added: “We will not reverse Robin Hood’s principle, and take from the poor to give to the rich – this is unacceptable,” and called on banks to “make sacrifices before any depositor be harmed. ”

Shami said the government intends to return up to $ 100,000 of depositors’ savings over time, which he said Lebanese banks have to cover foreign currency assets through “central bank reserves, banking liquidity, correspondent bank deposits and loans”. to the private sector, among others. ” “.

He could not determine whether the physical assets of the banks could contribute to this, but he denied media reports that the government had decided to use the gold reserves to reimburse depositors.

Al-Shamy said he was open to the idea of ​​creating a sovereign wealth fund to manage state assets on a large scale, but was opposed to including this revenue in the payment plan because it would not be enough to close the gap in losses. do not bridge.

Instead, he added, the government would contribute $ 2.5 billion in long-term bonds that could be added to the central bank’s balance sheet.

Al-Shamy said the change in the plan proposed by the government was “illogical” given the support it had already received from the International Monetary Fund and the international community.

This is after ministers attached to Hezbollah opposed the government plan and asked them to review it after forming a new government, so that the current government only became a successor government with the start of the new parliament’s mandate.

He added, “Based on the size of the reserves we have now, which is ten to 11 billion dollars, and assuming an average expenditure of between 400 and 500 million dollars per month … we find that the reserves may run out within a few months. ”

Shami said the only way to recover was for Lebanon’s parliament to quickly adopt a “package of laws” – including capital controls, the amended banking secrecy law and a bank restructuring plan – that would provide for funding from the International Monetary Fund.

He said he would soon begin meeting with delegates to urge them to enforce the laws quickly, adding that “idleness is no longer an option for us.”

The Association of Banks in Lebanon launched a fierce attack on the government-approved recovery plan, prompting a response from the Deputy Prime Minister.

In a statement, the association incited depositors against the state as it “canceled deposits with a dash”, contrary to what was included in the recovery plan to part of the Banque du Liban’s obligations in favor of banks to cancel. in foreign currency.

The Association of Banks renewed its rejection of the recovery plan, saying that it was “written with depositors ‘money and banks’ money, and it stands with depositors to reject this plan, which we can only promote in its name. . “

Lebanon’s economic downturn began in 2019, but accelerated in the spring of 2020 when it defaulted on $ 1.2 billion in foreign bonds. Since then, the central bank has spent about half of Lebanon’s foreign exchange reserves to support the pound and subsidize goods, including wheat and medicine, Shami said.

Response to the government’s plan

The research institute “We are all Irada” has published an economic paper on the “discussion on the distribution of losses in the financial system.

According to the institution, the Lebanese banking sector is characterized by a high concentration of deposits, with 1 percent of the population holding large deposits of more than $ 200,000. Therefore, any use of state assets to extinguish bank losses and repay deposits – in addition to neutralizing the owners of capital from losses – means the transfer of the wealth owned by the state to the narrower and richer circle of society, which ‘ an unfair move in a country characterized mainly by a high concentration of wealth.

The newspaper pointed out that more than half of society is now outside the banking system, and the use of state assets in this way deprives the local economy of many important resources that are supposed to be used for the revival of the economy as a whole , the proceeds of which are not limited to a narrow circle of beneficiaries.

The paper focused on responding to some of the inaccuracies in the government’s plan, which link losses and the government’s responsibility to compensate banks. The overwhelming majority of bank losses were linked to the operations aimed at stabilizing the exchange rate. This led to a large deficit estimated at $ 60 billion. In other words, the newspaper here seeks to distinguish between the obligations of the Lebanese government, arising from the sovereign debt that will be restructured, and the bank losses due to inter-operations that have taken place between the Banque du Liban and commercial banks .

The study found that the value of losses today exceeds $ 70 billion, while all of the state’s investment and real estate properties range in value between $ 11.6 billion and $ 21.5 billion. Precisely for this reason, there is no reason to be optimistic that the bank loss gap can be repaid, using government assets as proposed today.

The paper proposed solutions, starting first with respecting the hierarchy of the distribution of losses according to the globally recognized assets, and starting first with keeping the shareholders in the banking sector the first part of losses. For this reason, the newspaper calls on the government to adhere to this hierarchy, along any path aimed at dealing with existing budget losses. After the capital has been written off, the existing deposits are supposed to be sorted and categorized, before the way to deal with them is determined, according to categories that record deposits of individuals and companies, deposits of Lebanese and foreigners, deposits of individuals and pension funds, and so on.

After the deposits are sorted in this way, the process of filling the gap can be launched, by returning to recover the profits distributed during the previous stages, and the obscene interest previously paid. It is also possible to make direct cuts from the largest segment of the funds of large depositors, especially those belonging to the category of bank shareholders. The newspaper also proposes that limited-scale lire operations (conversion of the dollar to the pound) be carried out for part of the deposits, in addition to the transfer of the installments of some other deposits under long-term effects, and the conversion of a portion of the deposits in shares in the banking sector after the existing capital has been written off today.

In return for spreading losses in this way, the newspaper assumes that the funds of small depositors and pension funds should be guaranteed to the maximum extent, based on the resources available today, in addition to the accounting that is supposed to be any distribution of to accompany losses. , by subjecting large deposits to audits aimed at finding their source And the possibility that it involves money laundering and illegal profits. The newspaper also proposes that a comprehensive audit be done of the transfers that took place after 17 October, to identify influential depositors who have benefited from discretionary transfers.

Al-Shami is considered the mastermind of a roadmap for economic recovery approved by the Lebanese government before it became a successor government last month.

The plan includes many of the procedures required to release support funding from the International Monetary Fund.

The plan includes a full review of the central bank’s financial position by the consulting firm (KPMG) over the next two months and a subsequent write-off of a “significant portion” of its foreign currency liabilities to banks.

IMF talks

Gerry Rice, spokesman for the International Monetary Fund, said on Thursday that the fund had appointed a resident representative for Lebanon.

Rice, who did not specify who was appointed, added that the IMF would continue its talks on an economic reform program with Lebanon.

In April, the IMF reached an expert-level agreement with Lebanon on a four-year financial facility. The program is still awaiting approval by the Fund’s Executive Council, which can only take place after a series of reforms.

Deputy Prime Minister of Lebanon’s provisional government, HE Al-Shami, who has been negotiating with the IMF, praised the decision as a “good step”.

“The government agreed immediately when asked. He will meet with all officials on an almost weekly basis and report to Washington,” Al-Shamy told Reuters, without confirming the identity of the representative. He added that the representative, who arrives in Lebanon this month, will also provide technical support.

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