Fears growing over who will pay for Lebanon’s bankruptcy

Special Fears growing over who will pay for Lebanon’s bankruptcy
A man heads to the Lebanese central bank. (AP/File)
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Updated 04 April 2022

Fears growing over who will pay for Lebanon’s bankruptcy

Fears growing over who will pay for Lebanon’s bankruptcy
  • Deputy PM admits state and central bank are out of money
  • Senior World Bank official warns of ‘dire economic situation’

BEIRUT: Lebanon and its central bank are bankrupt, according to the country’s deputy prime minister.

The “state is bankrupt … so is the Banque du Liban,” Saadeh Al-Shami said on Monday, adding that “the loss has occurred, and we will seek to reduce the losses for the people.”

He said the losses would be attributed to the state, the central bank, and other lenders and depositors.

“We cannot live in a state of denial as we cannot allow withdrawals for all people who have deposits in banks,” he said.

Al-Shami’s statement came as a delegation from the International Monetary Fund is in talks with the Lebanese government on a financial recovery plan.

Economic groups in Lebanon have objected to a plan presented to the IMF that clears the state of liability and leaves depositors and banks to foot the bill. It also turns state debt into heavy losses for the Lebanese economy and society.

After a meeting with the head of the IMF mission, Ernesto Ramirez-Rigo, the groups said that depositors’ money had been squandered due to the fixing of the exchange rate, interest rate differences, and the state’s expenditure.

They objected to “easy solutions, by adopting an accounting approach that eliminates losses without any special considerations.”

They also stressed the need to preserve the rights of depositors and the continuity of the banking system.

Saroj Kumar Jha, director of the Middle East department at the World Bank, said on Monday that the “economic situation in Lebanon is dire. The size of the economic downturn has reached about 60 percent since 2021.”

He was speaking at the fourth meeting of Lebanon’s Reform, Recovery and Reconstruction Framework with Lebanese Prime Minister Najib Mikati.

Jha also warned that if “the national reform program is not implemented well, this will constitute a greater contraction of the economy and will lead to a further deterioration of economic and social conditions.”

He stressed the urgent need for “a reform plan that includes a financial program, debt repayment, restructuring the financial and banking sector and developing social protection systems.”

Amid the economic crisis, the process of registering competing electoral lists for the May 15 parliamentary elections closed at midnight on Monday.

More than 77 lists were registered and political observers are waiting to see if parliament will approve the capital control bill before the upcoming polls.

Meanwhile, the ramifications of the economic crisis are being felt far and wide. Lebanese diplomats overseas did not receive their salaries in dollars last month, while the Lebanese pound has continued to fall in value.

The Free Professions Syndicates held a solidarity rally with the professors of Lebanese University in front of the National Museum in Beirut.

One of the academics told Arab News that a university professor’s salary was now only $150, despite public education teachers getting $180, backed by foreign aid.

Similarly, the university’s budget had fallen to about $17 million, from $240 million in the past, the person said.

As a result of strikes by professors and other employees over the loss of social and health insurance due to the collapse of the national currency and dollarization of the hospital sector, educational activity at the university has been halted for the past three weeks.

The professors also complained about the blatant interference of politicians in appointing the university’s deans according to sectarian and political quotas.

Another manifestation of the state’s bankruptcy are the mounting piles of trash in many areas around Beirut as a result of a strike by workers at the City Blue company.

The industrial action followed a delay to wage payments after the Bank of Lebanon stopped paying the company’s dues last year.

The wife of one of the strikers said on social media that the workers were unable to provide for their families.

Several municipalities in southern Beirut have sought help from Hezbollah to remove trash from the streets.