Lebanon is close to renewing its initial understanding with the International Monetary Fund, about four years after the agreement that did not turn into a final program, in a new attempt to put the banking crisis on the path to treatment and restore financial order. However, the current round of negotiations in Beirut presents a remarkable paradox. The fate of about $80 billion in bank deposits and investments is being investigated, and responsibilities for the losses are being determined, in the absence of representatives of the banks and depositors, who are the two parties most affected by the solutions proposed. While the government is counting on completing a preliminary agreement with the mission by the end of the week, the transition to a final program remains linked to the approval of the “financial gap” law and the completion of legislative reforms, amid unresolved disagreements regarding the arrangement for bearing the losses and the state’s share of them.
The new round of negotiations began in Beirut, on Tuesday, with a meeting that brought together the International Monetary Fund mission, headed by Ernesto Ramirez Rigo, with the Lebanese side, which included the relevant ministerial team and the Governor of the Bank of Lebanon, Karim Said, along with representatives of the Presidencies of the Republic and the Government, experts and advisors. This round comes amid expectations that a preliminary agreement will be reached at the staff level by the end of the week, renewing the understanding that Najib Mikati’s government concluded with the Fund in the spring of 2022, and it has not yet completed its path to a final financing program.
Renewing the understanding does not mean overcoming the obstacles that prevented the transition to a final agreement, as this is still conditional on completing the required legislative reforms, most notably the approval of the draft law to restore financial order and recover deposits, known as the “financial gap” law, to join the law amending banking secrecy and the banking sector reform law. It also requires progress in resolving disputes related to the arrangement for bearing losses and responsibilities between the state, the Bank of Lebanon, banks, and depositors.
According to Asharq Al-Awsat monitoring, the positive start of the discussions was not without ambiguous signs, which lie in the non-participation of representatives of two main parties in the meetings, that is, the banks and depositors, as they are most affected by the outcome of adopting the approaches proposed to address the outstanding rights within the crisis quadrant, along with the state, the central bank, and its solid core, in order to decide the fate of about 80 billion dollars, which represents, in approximately the same number, the mass of banks’ investments at the Bank of Lebanon, and the total depositors’ savings.
According to a concerned official who spoke to Asharq Al-Awsat, the absence of both parties is expected to cast a shadow on the upcoming discussions of the “financial gap” draft law in the parliamentary committees, especially the Finance and Budget Committee, which may delay its approval. In this context, the firm positions of prominent parliamentary blocs and representatives emerge, insisting on holding the state primary responsibility for returning the funds that were withdrawn from the Bank of Lebanon, and giving priority to its recapitalization, before taking any measures to distribute losses to the Central Bank, banks, and depositors.
The first session of negotiations was held with the Fund’s delegation, headed by Ramirez, in the Ministry of Finance, on Tuesday, and the Lebanese side was chaired by the Minister of Finance, Yassine Jaber, with the participation of the Minister of Economy and Trade, Amer Al-Bassat, the Governor of the Central Bank of Lebanon, Karim Said, and representatives of the Presidencies of the Republic and the Government, in addition to the team of experts and advisors, to continue later at the international team’s residence in the Phenicia Hotel, downtown Beirut.
In the initial briefing after the meeting, Jaber spoke about “reaching, during the current week, a preliminary agreement with the Fund, which will put the treatment of the banking crisis on the path of implementation,” noting that the current government “did not cause the banking crisis, but is working with all its effort to find a solution to it,” stressing that “Lebanon is in dire need of ending this crisis, and restoring an effective banking sector that provides financing and loans, and contributes to moving the national economy, as the country cannot continue to rely on the economy.” “Cash.”
In a remarkable indication, Jaber confirmed the existence of an agreement to implement international principles and standards related to the hierarchy of bearing losses, so that “the state and the Bank of Lebanon bear the losses first, followed by the banking sector, and the depositor is the last to bear them,” explaining that the approval of the financial gap law constitutes the gateway to starting to address the “banking crisis,” and concluding a program agreement with the Fund, stressing “the existence of close coordination between the government and the Bank of Lebanon to unify the position, whether in negotiations with the Fund, or in discussing the draft law that the government referred to the House of Representatives.”
The Minister of Finance’s announcement also pointed out that “the state will bear what its ability allows, while taking into account the sustainability of public debt, and taking into account the issue of Eurobond holders, which it must also address.” He stressed “the understanding on the responsibility of the Bank of Lebanon in managing the issue of addressing the banking crisis, and the need to support it to enable it to succeed in this mission,” saying: “There is no fundamental disagreement, but rather calculations are made to determine each party’s ability to bear.”
Regarding the practical steps that depositors can expect, he explained that “the path begins with approving the law, then reforming the banking sector and implementing the program agreed upon to repay depositors’ money.” He pointed out that “the Bank of Lebanon is doing what it can within the available capabilities,” pointing to the recent increase in the amounts paid to depositors, and we know that “every depositor aspires to recover his money in full, but we are facing a crisis that has been going on for seven years without a solution.”
Regarding the expected deadline for approving the financial gap law, Jaber indicated that “the Finance and Budget Committee continues to study the budget, with the effort after its completion focusing on studying the draft law.” He expressed his hope that it would be completed as quickly as possible, no later than next March, while stressing that the matter would ultimately be up to the House of Representatives.
While the Central Bank was keen, in an official statement, to confirm that “it will not issue, throughout the period of these consultations, any statements, statements or media briefings, and will not provide any media outlet with any information about the progress or content of the consultations,” the minister stressed that the exchange rate of the lira is stable, and the policy followed is based on good liquidity management, to prevent speculation on the dollar and manipulation of the currency. The state pays the dues on time and in full, and we will not allow liquidity to be exploited for speculation and to harm the Lebanese economy, as happened in the past.
