BEIRUT: Lebanon’s attorney general has suspended an order freezing the assets of 20 banks and their directors over concerns about its impact on the country’s fragile economy, state-run media said. The order was postponed to allow for the “study of its impact on the national currency, banking transactions as well as on the money of savers and economic security”, Ghassan Oueidat said Thursday according to a statement carried by the National News Agency. “Such a measure would likely drag the country and its financial sector into chaos.”
Lebanon has been gripped by mass protests against the political class and banking sector even as it suffers its worst economic crisis in decades. Banks have imposed increasingly tight limits on dollar withdrawals and transfers abroad as part of measures to tackle a severe liquidity crisis. But bankers stand accused of having sent millions of dollars abroad despite those limitations. On Monday the prosecutor separately called in 15 banks over more than 2 billion dollars in capital flight despite the restrictions in the two months after the start of the protests.
The value of the Lebanese pound has plummeted on the black market, prices have risen, and many businesses have been forced to slash salaries, dismiss staff or close. Lebanon is one of the most indebted countries in the world, with a public debt equivalent to 150 percent of its gross domestic product (GDP). The country is now under pressure to pay a $1.2-billion Eurobond maturing on March 9, with a decision expected on whether or not to default.
Unofficial exchange rate
Meanwhile, Lebanon’s central bank is seeking to rein in exchange rates and enforce a cap on the local currency in the parallel market to contain its unofficial devaluation. Central bank chief Riad Salameh asked “all exchange offices, under pain of legal or administrative sanctions, to commit exceptionally to a maximum buying price for foreign currency in Lebanese pounds of no more than 30 percent above the exchange rate set by the central bank to deal with lenders”.
The official exchange rate has stood at 1,507 Lebanese pounds to the dollar for decades, but the value of the local currency has plummeted to more than 2,600 on the black market. Money changers in protest-hit Lebanon had agreed in January to cap the dollar exchange at 2,000 pounds, but the move has failed to stem spiraling rates. Friday’s central bank order, which reinforces the January agreement, is to apply for the next six months, according to the statement carried by state-run National News Agency.
Debt-ridden Lebanon is facing its most serious economic crisis since the end of its 1975-1990 civil war. Banks have increasingly limited dollar withdrawals and transfers abroad to stem a severe liquidity crisis, even as the tanking economy has caused businesses to slash salaries, fire staff, or close. The country has been rocked by unprecedented, nationwide protests in recent months, led by young people who blame government corruption and incompetence for the lack of jobs and basic services.
Lebanon’s top leadership opposes repaying the country’s sovereign debt, the presidency said yesterday, indicating the heavily indebted state is heading towards a default as it grapples with a major financial crisis. A default on Lebanon’s foreign currency debt will mark a new phase in the crisis that has hammered Lebanon’s economy since October, slicing around 40% off the value of the local currency and leading banks to deny savers full access to deposits.
Lebanon has a $1.2 billion Eurobond due on March 9, part of a wider portfolio of some $31 billion in dollar bonds that sources told Reuters on Friday the government would seek to restructure in negotiations with its creditors. Prime Minister Hassan Diab will address the Eurobond issue and Lebanon’s wider economic crisis in a speech to the nation at 6:30 pm. The announcement from the presidency followed a meeting attended by the president, prime minister, parliament speaker, central bank governor and head of the country’s banking association.
“The attendees decided unanimously to stand by the government in any choice it makes in terms of managing the debt, except paying the debt maturities,” the presidency said in a statement after the meeting. Sources said Lebanon was set to announce that it cannot make upcoming dollar bond payments and wants to restructure $31 billion of foreign currency debt unless a last-minute deal with creditors could be found to avoid a disorderly default.
Lebanon hired US investment bank Lazard and law firm Cleary Gottlieb Steen & Hamilton LLP last week as advisers on the widely expected restructuring. The financial crisis came to a head last year as capital inflows slowed and protests erupted over state corruption and bad governance. The import-dependent economy has shed jobs and inflation has risen as the pound has slumped, adding to grievances that have fuelled protests. – Agencies