SAWT BEIRUT INTERNATIONAL

| 13 July 2024, Saturday |

BDL Acting Governor: I will not use people’s deposits to lend to the state

It may not be fair to compare the 30 years that the former Governor of the Banque du Liban (BDL), Riad Salameh, spent in managing the country’s financial policy, with the 30 days that his deputy, Wassim Mansouri, spent in the post.

The Lebanese political forces announced their inability to appoint a successor for Salameh, who faces judicial procedures in Lebanon and Europe, as well as US sanctions, all of which pertain to his management of financial files.

But Mansouri, who came to the world of finance from a legal background, quickly began to “eradicate” the financial policies of the former governor.

He was faced with the test of controlling the exchange rate of the lira against the dollar, which seemed to have succeeded to a significant extent, with a remarkable note related to the transparency of the numbers that began to appear in the bank’s semi-monthly statements.

Contrary to warnings that the Lebanese currency would sharply collapse after Salameh’s departure, Mansouri was able to control the exchange rate. But this success is temporary and needs to be supported by governmental and parliamentary measures that contribute to restoring balance to the state’s public finances.

Mansouri is currently working on completing a new, “more transparent” platform for currency transfer. Many are optimistic about the external response to his policies, the most expressive of which is the return of many correspondent banks to dealing with the BDL, including Citibank and Morgan Stanley.

Mansouri’s first measures were against the Lebanese state, which was initially scooping money from the BDL, then from its cash reserves belonging to depositors in Lebanese banks, which caused a major financial collapse in late 2019 from which the country has not emerged until today.

In the first press conference, which Mansouri held a day before the end of Salameh’s term, he said that he was ready to give the state a grace period, so as not to cut off funding for it permanently. He proposed providing the state with its last loan for 3 or 6 months, within a defined mechanism. However, the government and political forces failed to issue the relevant laws, pushing the acting governor to resort to an alternative plan.

This month, the central bank paid public sector salaries in dollars by purchasing dollars from the market with Lebanese pounds transferred by the government for this purpose. Thus, the BDL did not print additional money, nor was it later forced to withdraw reserve funds to restore calm to the market, as was happening previously.

The idea was to cover the deficit, on the basis of giving the government time to obtain funds from the IMF or any other source suggested by the state, while the BDL ensured financial order in exchange for securing reform laws and guarantees for the depositor.

But Mansouri asserted that as long as all these demands are not met, he would not lend to anyone.

He told Asharq Al-Awsat that there was absolutely no return to the time of state funding, “because I am seeking to restore order to the state’s finances.”

“This decision is crucial and not easy, but I will not back down from it,” he said.

He went further by stressing that even if a law on borrowing was passed in Parliament, and there were no reform laws in return for it, “I will not release the money.”

“No law obliges me to pay,” he said. “There is a law that allows me to use people’s deposits to lend to the state, but… I refuse to use it for a simple reason because if it is not accompanied by reforms, it will be thrown into the air.”

In fact, it is not possible to restore order to the state’s finances without relying on external sources of financing. The problem is that in the past, the state relied on BDL funds in foreign currencies to cover the budget deficit.

The biggest problem is that the size of the credit was so large that it depleted the central bank’s hard currency reserves, reaching the people’s deposits.

The state’s general budget for 2023, up to this point, has come out with a declared deficit of LBP 46 trillion, or $500 million. Mansouri believes that the deficit will exceed this amount.

The acting governor’s visitors quote him as saying that this deficit must be covered, within the framework of a new law and a reform program with the International Monetary Fund (IMF).

Cash economy and its risks:

Since the beginning of the crisis and the freezing of depositors’ funds in banks, the Lebanese people have lost confidence in this sector and moved towards a cash economy that involves many risks.

Mansouri told Asharq Al-Awsat: “The cash economy that the country is experiencing cannot and must not continue. The central bank cannot keep buying dollars from the market indefinitely. It must verify all of its sources. In the end, the cash economy will destroy the country. We need help. But if we don’t help ourselves, who will help us?”

In an attempt to get out of this crisis, the BDL issued Circular No. 165, which allowed the opening of “fresh” accounts in dollars and pounds, to transfer the parallel market to the banking sector, allowing the bank to monitor and confirm the source of funds in the country and activate anti-money laundering procedures.

But if no radical legal solutions are implemented to allow the banking sector to work effectively, it will remain hostage to the cash economy.

All matters are interconnected. Mansouri said: “If reform laws are implemented and state finances are regulated, the depositors will know how and when they will receive their money. Thus, confidence in the banks will be restored, which will encourage people to return part of their money to the banks, allowing the central bank, as a regulator of the banking sector, to set stronger regulations to limit the cash economy.”

Foreign Relations

Mansouri underlined that Lebanon cannot thrive and develop without relations with its Arab and Gulf surroundings.

He tells his visitors: “Friendly countries call on us to find a political solution, and they will support us. This file is not in my hands, but it is my duty to call on them to implement the laws related to currency and reforms to rebuild the economy… I think that if this sector is rebuilt, the rest will be solved.”

New platform

Among Mansouri’s various policies is the suspension of work on the Sayrafa platform, and the implementation of a new transparent mechanism, in cooperation with Bloomberg.

The new trading platform will be an item at Wednesday’s Cabinet meeting for approval.

The acting governor confirmed that from a monetary standpoint and the size of the monetary mass in lira, it can be said that the exchange rate is controlled in the foreseeable future.

“As long as I control the monetary supply at the central bank, there is no fear of a fluctuation in the dollar exchange rate,” he remarked.

Mansouri’s measures to control the currency began with refraining from “excessive buying of dollars from the market, in exchange for reducing the size of the monetary supply,” which decreased from LBP 80 trillion to LBP 60 trillion on the first of August (about half a billion dollars).

The BDL also asked banks not to disburse more than LBP 50 billion per day to their customers. As for the Ministry of Finance, it does not pump liras into the market before coordinating with the central bank, noting that the minister has collected about LBP 20 trillion liras in August, including more than LBP 11 trillion in cash.

But can the government manage its affairs with the amount secured by the BDL? Mansouri replied: “Here lies the big question. If we don’t achieve reforms, we cannot maintain this situation with students returning to school and the supply of dollars in the market declining.”

He stressed, however, that the monetary situation was controlled on scientific foundations.

“What I use are traditional monetary means that do not cost the central bank a single cent, and perhaps this makes a big difference compared to what was happening before,” he noted.

In response to accusations thrown at Mansouri and the rest of the governor’s deputies, about their involvement in Salameh’s previous policies, he said that the deliberations of the BDL’s Central Council members clearly show that they were protesting against much of the spending taking place. But the law gives the governor executive authority. Thus, lending to the state continued despite their disapproval of the policies.

 

    Source:
  • Asharq Al-Awsat