(Credit: Lebanese Business Leaders Association (RDCL))
Your Excellency,
The board of the Lebanese Business Leaders Association (RDCL) intends to welcome the wise decision you made after taking the helm of the Central Bank. This new decision, which implies adopting a new transparent method, was shown in all the communications and timely publications of the Central Bank. In this regard, and based on the same policy, we hope that you will share any necessary additional information needed to complete the financial audit of the Central Bank, specifically the audit carried out by Alvarez and Marsal.
Along the same lines, RDCL admires your clear and firm stance on refusing to finance the state, neither by printing Lebanese currency nor by using what remains of the Central Bank’s foreign currency reserves (which belong to the depositors). RDCL also values your readiness to fully cooperate with the government and the parliament in order to enact the prerequisite laws, namely the bank restructuring law, the capital control law and the gap distribution law, in addition to all other necessary laws for the implementation of an IMF program and a restructuring of the financial system.
Furthermore, RDCL emphasizes and abides with your steady commitment to confine the monetary policy under the mandate and authority of the Central Bank, and to refrain from engaging in activities such as subventions, which exceed the scope of the Central Bank's responsibilities. Noting that such a decision caused substantial financial losses, amounting to billions of dollars for the Central Bank, the banks, as well as the depositors. In addition, it is crucial to separately allocate the tasks and tools of operations between the government and the Central Bank. That is to establish the necessary control and balancing mechanisms and to differentiate between the authorities. In this context, the government would be responsible for the fiscal policy, while the central bank would undertake the monetary policy.
RDCL wishes to re-consider the laws pertaining to the Central Bank to improve its governance, in order to avoid any similar crises in the future.
An IMF program is the way out of the crisis
RDCL believes that an IMF program is the solution to achieve macroeconomic and financial stability, and to implement the much-needed and long-awaited reforms, as well as to restructure the banking system. As a representative of the Lebanese legal private sector, we stand next to you and urge you to never succumb to political pressures. That is because we firmly believe that these pressures will increase, knowing that financing tools used in the past to buy time are no longer available following the policy you adopted. In this regard, RDCL considers that financing the government, amid the absence of reforms, is a tool used to gain time and will only delay the implementation of the necessary reforms, just for the benefit of few parties. This measure will undoubtedly increase losses.
From that perspective, RDCL strongly rejects any attempt to finance the government before carrying out with the implementation of reforms and the adoption of a clear program with the IMF. In addition, RDCL refuses any suggestion regarding this matter, even if made through a proposed law, as suggested previously. The management of public finances, as done in the past or through the proposed budgets, is a clear and undeniable proof that the funds will not and cannot be reimbursed. In fact, your firm objection to grant funds is the only way to intensify the pressure on policy makers towards implementing the necessary reforms and a restructuring plan that would aim at balancing the budget achieving macroeconomic stability. Moreover, RDCL highly appreciates and shares your views regarding the lack of transparency of the Sayrafa platform, which your promised to tackle through establishing a new transparent and accessible platform, aimed at unifying the multiple exchange rates.
The crisis is our chance to finally push for the implementation of the needed reforms, especially the ones related to the public sector, noting that its size has paralyzed the economy and state finances over the last decades. In that regard, it is imperative to reduce the public sector’s size, in order to increase its productivity and retain qualified employees. Additionally, it’s necessary to fully implement the PPP law issued in 2017, which allows the private sector to manage the state assets with clear KPIs, while keeping their ownership to the state. In addition to the aforementioned measures, it’s also vital to tackle the border control issue and the under-invoicing problems at the ports of Lebanon, as well as to fight illegal companies and tax evasion. Not to mention resuming the operations at the land registry and the vehicle registry. All these crucial procedures will increase the state’s revenues, in addition to the adoption of digital means to combat corruption. The legal private sector and all entities abiding to the applicable laws cannot afford to pay the price for the non-abiding citizens and the illegal companies, who refrain from paying taxes. In the midst of global chaos and dispersed decisions, the size of the illegal and uncompliant private sector is growing by the day.
Banking restructuring
In light of the collapsed banking sector, the cash economy is growing day by day. In fact, it has reached an estimated 46 percent of our GDP in 2022, according to the World Bank. RDCL is extremely worried about its negative repercussions on Lebanon’s economy, notably on compliance matters such as money laundering and tax evasion. In addition to its impact on the potential ratings of Lebanon and its financial system. This would have disastrous consequences on the legal private sector, if the country and its financial institutions were to be sanctioned globally. In this regard, the absence of control and the presence of illegal financial institutions working across the country constitute a very heavy burden that needs to be addressed urgently.
No economy can function without a legal banking sector. In order to restructure the banking sector, enacting comprehensive laws is much needed. In fact, it cannot be done by adopting piecemeal solutions or by following BDL’s decisions alone. Thus, a quick and effective solution must be adopted for the deposits issue. Time is a crucial factor, and the possibility of recovering bigger rates of deposits depends on it. Unfortunately, the delays and failure to implement a capital control law has placed the sector in illegal territory and has led to the unlawful and selective dilapidation of billions of liquidities in the banking sector. It is therefore imperative to enact a proper law imminently, that would preserve the freedom of transferring new funds and the free economy enriched in the Constitution. In the same vein, RDCL was quite surprised about the Article 7 of the latest draft submitted to Parliament, which mandates to make all local transactions in Lebanese Lira only. In light of the hyperinflationary environment and continuous uncontrolled devaluation of the LBP, this measure would have undoubtedly dramatic consequences on the economy. There is also utmost urgency to go forward with the banking restructuring law, as we were informed that the latest draft is still with the Central Bank. Since access to finance for the Lebanese citizens and for the private legal sector, is extremely critical for the survival of the private sector, and while we wait for a comprehensive restructuring, RDCL has prepared a law, in collaboration with the private legal sector, to ensure that any new financing or contractual obligation is settled in the same currency and same value at the time of repayment. RDCL will present you the draft of this law the soonest to receive your comments on it. At the same time, we will keep lobbying with the parliament and pressuring for the enactment of this law, in addition to other necessary laws for a comprehensive restructuring and reform program.
Vacuum in leadership and ost of time
Finally, we cannot reform, restructure, recover nor thrive, amidst the large void present in most of the state positions. Our current situation requires undertaking urgent decisions, legislations and actions. Therefore, we reiterate our call for the swift election of a president, the formation of a government and the nomination of a Central Bank governor. Noting that all of them should be dedicated to implement a comprehensive reform program for the country. Time shouldn’t be wasted, as the losses increase day by day, and lead Lebanon towards irreversible and substantial crises. The time has come to take the necessary measures. We stand by your Excellency’s side, in your capacity and powers, to take the necessary actions, decisions and positions, in order to influence and exert pressure to save our nation and the future of our children.
Nicolas Boukather
President of the Lebanese Business Leaders Association (RDCL)