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Month: June 2022
Lebanon Daily News Brief 06/17/2022
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This Week In Lebanon: 06/17/2022
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Small Steps to Economic Reform and Combating Corruption
In the ongoing saga of how to fix Lebanon’s economy, there are opinions on all sides of any question, especially concerning the reform of the banking sector. Disagreements between the banks and the government on that particular issue have been growing louder and moving along different vectors ever since the Diab government forfeited on Lebanon’s Eurobond obligations in 2020, precipitating both the run on the banks and the rapid devaluation of the currency.
So it’s no surprise, then, that the banks offered up some faint options, providing band-aids instead of changes leading to sustainable reforms, responding negatively to the sectoral reforms passed on the last day of the formal Mikati government,. The government’s financial plan has no serious financial or economic outcomes, rather it’s an aspirational list of results. In order to achieve a more serious and detailed strategy for reform, the IMF has assigned an in-country representative specifically to advise on meeting the conditions of the staff level agreement signed by the Mikati government. Unfortunately the same people who were against the previous proposals, such as MP Ibrahim Kanaan – re-elected to head Parliament’s Finance Committee – are back in Parliament and have to make the painful decisions necessary to moving forward.
From a small depositors point of view, the plans that tie liquidity to creating a special fund either to aggregate and mortgage state assets or future oil and gas revenues, is a non-starter. Rather than creating false promises of compensation, the government should take a two-step approach that guarantees access to deposits up to a certain amount with few conditions, and investing in the infrastructure such as high-speed internet, reliable and full-time power, and putting into place needed laws that the reforms require.
The Lebanese depositors must be wondering which weaker banks will be spared from failure and which will be among those able to survive the crisis and be responsible for bearing the burdens of restructuring the sector. It will be telling if these questions are once again addressed by Parliament’s agenda. As this restructuring takes place, revised government spending allocations should shift the focus toward supporting Lebanon’s private sector rehabilitation. This will put the economy on the right track, which will lead to hopefully more investments flowing in, unlike the past 30 years. These steps were previously proposed by Raoul Nehme, Minister of Economy and Trade under the Diab administration.
Moving Against Public Corruption
The latest Lebanon This Week from Byblos Bank noted a step forward that is hopefully not just symbolic, in the Central Bank’s Circular 163. It directs banks to monitor the accounts of public officials, such as public servants in the Lebanese Ministry of Finance, customs authority, real estate registration departments, vehicle and registration centers, in addition to, “president, members, and employees of administrative committees, as well as independent and regulatory authorities” above a certain grade.
The circular goes on to direct the banks to, “conduct enhanced due diligence on the local salary accounts of officials, “who have funds that do not originate from their work.” The article continues, if there are, “signs or indications of any corruptions-related operations,” then banks apply the anti-corruption criteria that have already been adopted. Potential signs of corruption include: having large sums in bank accounts without documents to support or justify the deposits; incompatibility of the public officials’ wealth and sources of funds with their career, experience, or age; unjustified transfer abroad of unusual and large amounts, especially to tax haven countries; and conducting large cash operations without providing supporting documentation. These criteria extend to contract and procurement policy as well as other financial transactions of government entities.
While the details are quite extensive, there is no monitoring mechanism designated or staff empowered to support these efforts, and no clear way forward on reclaiming assets lost to the country. The final section of the circular, “asked banks to conduct enhanced due diligence on all customers who conduct substantial banking operations with public officials, or operations related to the public official to verify that they are justifiable.” It is not clear if the Special Investigation Commission (SIC) of the Central Bank has been empowered to implement the circular or if this is another attempt to outwit the IMF on the conditions related to eliminating public corruption.
World Bank Recalibrates Role in Lebanon
The World Bank wants to update its Country Partnership Framework for the 2017-2022 period, extending it a year to account for additional deterioration measured by Lebanon’s socio-economic indicators, and to, “help address the economic and health crises, respond to the blast at the Port of Beirut, and to reflect the country’s protracted political and economic crisis.”
The theme of the report is that the cost of inaction has been increasing. The country has yet to embark on a comprehensive reform and recovery program. Given the coming elections for both the Prime Minister and President, the Bank fears that nothing will actually materialize until the end of the year. As the Byblos Bank report indicated, “It [The World Bank report] highlighted the urgent need for Lebanon to adopt a credible, comprehensive, and equitable macro-financial stabilization and recovery plan based on a new monetary policy framework that would regain confidence and stability in the exchange rate…”
As Parliamentary committees move ahead with their formation, the prospects of smooth banking and political reforms have become increasingly unlikely. Obstructionist personalities in the Parliament – who are known to oppose restructuring of the bank sector, changes in procurement laws, and other laws aiming to increase fiscal transparency – are retaining their leadership positions. It will be a lesson to the new members on how to wisely orient their political alignments around change that matters.
Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.
Lebanon Daily News Brief 06/16/2022
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Lebanon Daily News Brief 06/15/2022
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Lebanon Daily News Brief 06/14/2022
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Addressing The Way Forward In Lebanon
In 2019, at the onset of the thawra the two key opposition themes were combatting corruption, “kullon ya’neh kullon,” and a reversal of the economic decline of the country. That was then, and now, post-election, the themes remain the same. Protests, anger, and desperation are still rooted in the mismanagement of the country and its finances. Finally, there may be a bit of opportunity for possible change ahead.
A major breakthrough, at least with respect to addressing the financial disaster, is the advance of charges against the Central Bank governor, Riad Salameh, and others, for corruption, embezzlement, money laundering, illicit enrichment, forgery, and tax evasion. After a year-long investigation, Prosecutor Ghassan Oueidat referred the case to a Beirut court. This comes at a time when several European countries are also investigating Salameh and his younger brother for illegal enrichment and other charges. It would have been quite an embarrassment if the Europeans acted before the Lebanese judicial system.
There has been speculation that Salameh enjoys political cover from those who want his deep knowledge and embodied record of transactions within the banking sector, the Central Bank, and the government to remain obscured. It is claimed that he knows “where the bodies are buried” in relation to contacts, fund transfers, and the “infamous financial engineering” scheme that kept the Lebanese pound afloat. Just several years ago, he was still winning regional and international awards and plaudits for saving Lebanon, up until the crash of 2019.
Another reason for the longevity of his almost thirty-year tenure at the helm of Lebanon’s financial vessel is the political quagmire that surrounds questions of his successor. It is a position long coveted by Christian elites, as the position is named by the President, who is, historically, a Maronite. There have been multiple conspiracies voiced over the years as to who stands next in line, though. As a recent Reuters account noted, “Few if any top Lebanese officials have ever been convicted of crimes, despite decades of rampant corruption, high-profile assassinations, the port blast, and the country’s 2019 financial collapse, described by the World Bank as ’deliberate’ and one of the worst in modern times.” Inherent in this sentiment is the widely erratic judiciary which still does not enjoy independence from the country’s political leaders.
Nevertheless, the appointment of a resident IMF representative to advise on Lebanon’s financial recovery and report directly to the IMF Board, and the restart of the Central Bank audit and subsequent lifting of several banking secrecy laws only add to the speculation surrounding the future of the Central Bank. It currently answers to no one, as its internal monitoring and governance responsibilities actually lie in-house, with only sporadic reporting required or offered.
It is precisely this concern for the lack of accountability that several of the new members of parliament (MPs) are seeking to change. The standard Parliamentary procedures of nominating and selecting committee members exposed flaws in the system, namely secret ballots for the committee positions. The voting process also exposed the lack of a unified, or at least coordinated, strategy for nominating seats by the new group of independents who have yet to present some structure and definition to their political aims amid the multiplicity of campaign issues.
As Michael Young, a penultimate observer of Lebanon’s politics wrote, “While their motive is eminently laudable, these legislators will face major challenges in creating a space for themselves in Parliament. Not only are they a minority in a legislature under the control of the mainstream parties; not only will they have to deal on a daily basis with parties they claim to abhor; but for the moment, they are known mainly for what they oppose rather than for what they seek to achieve.”
Their lack of cohesion prevents them from mounting an effective effort to people several critical committees. Given their numbers, oppositionists have the opportunity to be the swing vote on issues but this would require a disciplined and thought-out strategy. Young writes, “If this bloc picks its fights carefully and advances specific causes that its members have long defended, and if it can position itself as a swing bloc in the event of divisions over major legislation, it could garner considerable influence.” Of course, several of the independents are initially reluctant to agree, even among themselves, on how to promote their platforms, but this will improve as they gain experience and learn how to cooperate with others who share their concerns.
Young concludes, “They will also have to ignore criticism that compromising with the major parties constitutes accepting Lebanon’s corrupt order. Bloc members did not enter Parliament to take a holier-than-thou attitude towards their peers…Nothing would be more damaging for the contestation bloc than to come out looking ineffectual because it has become a prisoner of its principles.”
It is only the beginning for this Parliament, and there is much learning to be done from all those who bear animus towards the existing order. With experience and mindfulness of national needs -instead of narrowly defined interests- there is an opportunity for oppositionists to become major players and decision-makers in the upcoming appointments of the cabinet and prime minister, as well as in the vote for the president. It is indeed a trajectory worth watching.
Disclaimer: The views and opinions expressed in these articles are those of the author and do not necessarily reflect the position of the American Task Force on Lebanon, a non-profit, nonpartisan leadership organization of Lebanese-Americans.
Lebanon Daily News Brief 06/13/2022
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This Week In Lebanon: 06/11/2022
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