Beirut, Lebanon – Lebanon’s council of ministers has elected Karim Souaid as central financial institution governor – a candidate backed by the nation’s financial institution foyer and a businessman who many say is emblematic of the malaise Lebanon is struggling.
Simply out of a brutal struggle with Israel, Lebanon is in dire want of reconstruction and restoration cash. Since 2019, Lebanon has suffered by considered one of trendy historical past’s worst financial crises. State companies have been battered, together with the electrical energy sector, leaving those that can afford the associated fee to depend on non-public mills.
The World Financial institution estimates $11bn is required for the job, and the subsequent governor is essential for unlocking funds from the Worldwide Financial Fund (IMF) that may encourage extra help from the worldwide neighborhood.
On Wednesday, Lebanese media studies marked Souaid, the founding father of Bahrain-based non-public funding agency Growthgate Companions, because the frontrunner.
Sources informed Al Jazeera that whereas the IMF didn’t touch upon candidates, Souaid’s proposed insurance policies don’t match the required reforms.
‘One other Riad Salame’
Two camps had emerged in response to Souaid’s candidacy.
On one facet have been the banks, banking foyer, a lot of the vital conventional events – together with ideological adversaries like Hezbollah and the Lebanese forces – and President Joseph Aoun, whose financial adviser, Varouj Nerguizian, is a board member of Souaid’s funding agency.
On the opposite facet have been some reformist ministers, impartial MPs, reform-minded NGOs, and sceptics, together with Prime Minister Nawaf Salam.
After Souaid was voted in, Salam delivered a speech admitting he and different ministers had reservations concerning the new appointment.
“Any governor should abide by the monetary coverage of our reformist authorities as expressed by the ministerial assertion [that includes] a brand new programme with the Worldwide Financial Fund, restructuring banks, and devising a whole plan in keeping with the very best worldwide requirements to protect depositors’ rights,” Salam mentioned.
Souaid has but to touch upon what his plan for the central financial institution can be.
However these against Souaid say he’s too near energy and his insurance policies overwhelmingly favour the banking foyer. Former Prime Minister Najib Mikati’s son Maher can also be a board member of Souaid’s funding agency.
“They’re attempting to usher in one other Riad Salameh,” mentioned Mohammad Farida, financial adviser for the Depositors Union, an NGO that argues that banks and never depositors needs to be held accountable for the 2019 monetary disaster.
Salameh is the previous central financial institution governor who was arrested in September for monetary crimes in Lebanon and is the topic of quite a few monetary investigations in 5 totally different European international locations.
Each minister will likely be ‘held accountable’
Lebanon is coming into the sixth yr of a devastating financial disaster and badly wants reduction funds from the IMF, which has laid out a number of reforms Lebanon wants to use to obtain these funds.
A parallel battle for accountability for the tens of billions in financial losses has been at an deadlock for 5 years because the political class, backed by the banking foyer, centered on scuttling any effort at passing reforms the IMF deems important to unlock $3bn in reduction funds.
The battle basically comes all the way down to who ought to bear accountability for the 2019 financial collapse and bear the losses.
The professional-banker facet believes the state is primarily answerable for the collapse after defaulting on eurobonds. To recuperate depositors’ cash, they are saying, the state ought to pay the banks again by actions like promoting off state belongings. That is the facet supporting Souaid.
Souaid’s concepts for the state are considered outlined in a 2023 paper, financed by his funding agency, that recommends haircuts of as much as 90 %, which might fall on depositors.
Critics say this could permit bankers and the politicians who backed and profited from them to flee accountability.
“It will principally incentivise them to take the identical behaviour [that caused the economic and banking crisis] with the identical dangers,” Walid Marrouch, an economics professor on the Lebanese American College, mentioned.
The professional-reform facet, which incorporates the Depositors Union, says piling the losses on the state will bankrupt it and damage residents who did nothing improper, so the business banks ought to foot the losses to repay depositors.
These reforms would hit financial institution house owners the toughest, forcing some banks to merge or shut completely.
At an emergency information convention referred to as by the Depositors’ Union on Wednesday to oppose Souaid’s choice, Halime Kaakour, considered one of 13 Lebanese MPs elected in 2022 on a post-revolution sentiment demanding reform, acknowledged: “We are going to maintain every minister accountable who nominates a central financial institution governor that may burden the state with $76bn in losses.”
The $76bn determine is an estimate, as the precise determine is unknown. In the course of the disaster, many depositors withdrew their cash whereas the Lebanese lira was plummeting, whereas a number of the nation’s wealthiest moved their cash overseas.
‘It’s a mafia’
In 2020, the Hassan Diab authorities proposed an answer that specialists informed Al Jazeera would have met the IMF’s specs. However the answer was derailed by political impasse, and depositors suffered.
As banks locked down and residents have been unable to withdraw their cash, the trade price devalued by greater than 95 %. Earlier than the disaster, the lira stood at 1,500 to the US greenback – at this time, $1 is the same as 89,000 lira.
With most of the nation’s former center class thrust into poverty, some residents have been pressured to hold up banks to withdraw their cash.
After the huge destruction brought on by Israel’s newest struggle on Lebanon, the necessity for reconstruction cash is more and more urgent. As this stress elevated, so too did the battle over who would lead Lebanon’s central financial institution since this determine will deeply have an effect on Lebanon’s financial and banking agenda over the approaching years.
The banks’ facet, which helps Souaid, has been spearheaded by Antoun Sehnaoui, the chairman of the board of the SGBL Group.
Sehnaoui additionally funds Lebanese media shops and is believed to be near many politicians. He’s broadly believed to again the Troopers of God (Jnoud el-Rab), a gang of males who quote Christian scripture and gained notoriety for focusing on Lebanon’s LGBTQ neighborhood with violence.
Within the run-up to the vote for central financial institution governor, media shops Megaphone and Daraj reported that Sehnaoui had filed lawsuits in opposition to them.
The deeply rooted affect bankers like Sehnaoui have over the Lebanese system is basically why the state struggles to serve its residents, critics say.
“It’s a mafia and [the bankers] are the oligarchs,” Fouad Debs, a lawyer and member of the Depositors Union, informed Al Jazeera.
Debs mentioned Souaid’s affirmation was a setback for a simply answer to Lebanon’s financial disaster and it’ll deeply have an effect on depositors and the state.
“The appointment of Souaid is disastrous,” he mentioned, including that the state is more likely to tackle the tens of billions of {dollars} in debt as a substitute of the banks.
Critics like Debs say, as a result of many politicians are funded by bankers or are shareholders in banks themselves, they attempt to deliver Lebanon’s financial coverage consistent with the banks’ pursuits even when it contradicts the general public curiosity.
For years, the banks have benefitted from banking secrecy legal guidelines that reformists and the IMF say want to alter.
Opponents to the brand new central financial institution governor will now push to attempt to give you a restoration plan they really feel is honest to depositors, however it will likely be an uphill battle after Souaid’s appointment.
“They’re turning the nation into a personal firm for perhaps just a few thousand people who will actually have management over a lot of the wealth within the nation,” Debs mentioned.
“It’s very harmful and the nation will change fully.”
