(Credit: Joseph Eid/AFP)
BEIRUT — The lira hit a new milestone low Monday, trading at LL27,400 to the US dollar on the parallel market. Losses against the US dollar since Thursday’s central bank’s decision to revise the rate at which dollar deposits in commercial banks can be withdrawn to LL8,000 are already around 10 percent.
Here’s what we know:
• The apparent reason behind the recent sell off is Thursday’s decision by the central bank to increase the “lollar” or “Lebanese dollar” withdrawal rate to LL8,000 from LL3,900. Even with the cap on withdrawals of $3,000 per month per account, analysts continue to estimate a rapid increase in the money supply, adding more downward pressure on the lira’s value.
• Analysts predict that without a comprehensive economic recovery plan, the central bank’s decision is ineffective in stabilizing the currency or restoring trust. They also worry that Banque du Liban Gov. Riad Salameh’s unilateral decision will create a vicious cycle, in which further lira depreciation will prompt further increases to the lollar’s withdrawal rate — a scenario that will likely keep repeating if the government takes no action.
• In a recent interview aired by OTV, Deputy Prime Minister Saade Chami said he was surprised by the central bank’s decision to increase the lollar’s withdrawal rate. Chami also, for the first time since Najib Mikati’s government took office, provided the public with an estimate of the financial sector losses, which he pinned at $68-69 billion. Differences around this number between the International Monetary Fund, the Lebanese government and several MPs are what led to the breakdown in financial rescue negotiations with the IMF last year.
• Discussions around a proposed capital control law, which is one of the IMF’s prerequisites for unlocking a bailout, seem to be on hold and any potential progress is pending further clues from the government about the economic plan. In last week’s session, the heads of the joint parliamentary committee dealing with the proposal, MP Ibrahim Kanaan (FPM/Metn) and MP Georges Adwan (LF/Chouf), sharply criticized the latest iteration of the draft law as presented by MP Nicholas Nahas (Azm Movement bloc/Tripoli).
• According to some money exchangers L’Orient Today spoke to, lollar checks are being exchanged for “fresh” US dollars at a rate of 21 percent to 22 percent. This means that a check of $1,000 lollars would change hands for $210 to $220 fresh US dollars. Excluding any other fees, the rate implies a parallel market rate of around LL36,000.