A street painting depicting a hijacked 100,000 LL banknote. (Credit: PHB)
The four deputy-governors of the Banque du Liban (BDL) outlined Thursday a strategy to “rectify the country’s monetary policy” and to pave the way for the revival of the economic and financial situation.
Their plan is a major departure from the policy of Riad Salameh, who has been serving as BDL governor since 1993 and whose term of office ends late July.
The four deputy governors, namely first deputy governor Wasssim Mansouri, second deputy governor Bachir Yakzan, third deputy governor deputy Salim Chahine and fourth deputy governor Alexandre Moradian, wrote the main points of the strategy in a three-page document, which L’Orient-Le Jour obtained.
The meeting, which was attended by caretaker Deputy Prime Minister and veteran of the IMF Saade Chami, lasted three and a half hours.
Following the debates, MP Georges Adwan (LF/Mount Lebanon IV), chairman of the Administration and Justice Committee, said “the examination of the file should continue” and that a press briefing will soon be held to “clarify everything” to the public. Mansouri, for his part, insinuated that the ball is now in the court of the MPs.
The plan’s immediate objective
The deputy-governors’ strategy is focused on six months and aims to let the lira exchange rate against the US dollar float in a “controlled manner” and to be relayed on an “internationally recognized” exchange rate platform that will reflect the “real value of the lira.”
The sayrafa platform, which BDL launched in 2020, will be abandoned and replaced by a new one operated by an international actor, according to the media. The means to achieve this are in line with the reform program that the International Monetary Fund has been demanding. In April 2022, Lebanon signed a staff-level agreement with the IMF, which has yet to be implemented.
According to the deputy-governor’s strategy, the transition can be made while “ensuring social stability” and protecting the purchasing power of public servants, considered the most vulnerable.
On the other hand, this strategy implies the implementation of important reforms and measures “that will increase demand for the Lebanese lira on the market” and give some “depth” to the exchange rate platform.
Finally, the program must be launched in August and focus on three axes: the budget, financial reforms and a coordinated action by the authorities to strengthen the role of the exchange rate platform.
This cross-disciplinary measure requires Parliament to pass a legislation allowing BDL to lend “up to $200 million per month on average over six months, for a total not to exceed $1.2 billion” to the government.
This proposal seems to be designed to give the state, which has defaulted on its Eurobond payment since March 2020 and which has still not started negotiations with its creditors, the means to finance itself until the strategy begins to bear fruit.
Fiscal reforms
The deputy-governors called on parliament to vote on the 2023 budget in August and on the 2024 budget by November.
However, the Finance Ministry has just sent the 2023 draft budget to the caretaker Minister, which must approve it before sending it to Parliament for a vote. This means that the cabinet and the MPs must work hard to vote on this year’s budget, despite it being eight months late, and adopt the 2024 budget on time.
The deputy-governors further consider that revenues could be increased in the 2024 budget from the equivalent of nearly $2 billion over the year (of which 40 percent is collected in cash) to $4.5 billion, through the appropriate adjustments, which they did not specify in the document.
The deputy-governors consider that the minimum threshold should be $3 billion, or 15 percent of the GDP. The World Bank considers that below this threshold, states can neither be viable nor put their economy on the path to growth.
Financial reforms
The deputy-governors called on the cabinet to submit a capital control bill “within two weeks” for Parliament to pass before the end of August.
They also asked it to “review and approve” by the end of September the draft laws organizing the distribution of the losses accumulated by the country — more than $70 billion dollars, according to figures validated by the International Monetary Fund — as well as a draft on the restructuring of the banking sector. The cabinet will also have to “find ways to protect eligible depositors” through financial instruments.
For its part, BDL commits to adjusting the regulations to allow the introduction of a floating exchange rate by the end of September. It will continue to purchase as many dollars as possible, within the limits stipulated by the Code of Money and Credit.
It will also use an envelope approved by Parliament to stabilize “as much as possible” the future exchange rate unified with that of BDL’s Sayrafa platform (presently at LL85,500 to the US dollar).
Finally, it will use a specific feature activated on the new exchange platform to respond to speculative attacks on the currency.
Multi-stakeholder cooperation
The third axis is divided into four projects, all of which must be implemented before the end of September.
BDL will coordinate with authorized banks and financial institutions to “set new rules to ensure supply and demand on the new platform.”
The Economy Ministry will require retail businesses to sell their goods and services in lira.
Parliament will have to authorize the issuance of new lira denominations, with denominations greater than LL100,000. A draft law for this end has already been approved by parliamentary committees.
Finally, one of the provisions of the Capital Control Law that Parliament would require that all importers purchase dollars from authorized banks and financial institutions.
This ambitious project will likely be opposed by a part of the political class.
This article was originally published in French in L'Orient-Le Jour. Translation by Joelle El Khoury.