Salameh: haircuts, capital controls off the table

Though it’s still pegged at 1,500 pounds to the dollar, the Lebanese pound is trading at up to 1,900 to the dollar on the black market, a devaluation of nearly 30% from the official rate.
by Georgi Azar

11 November 2019 | 15:25

Source: by Annahar

  • by Georgi Azar
  • Source: Annahar
  • Last update: 11 November 2019 | 15:25

Lebanese clients wait outside a private bank for the opening after two weeks of closer, in Beirut, Lebanon, Friday, Nov. 1, 2019. Lebanon's private banks have reopened after a two-week closure because of anti-government protests. The reopening on Friday follows Prime Minister Saad Hariri's resignation this week, a key demand of the protesters. (AP Photo/Hussein Malla)

BEIRUT: Lebanon's Central Bank Governor Riad Salameh sought to ease concerns Monday, saying that deposits are secure and the currency peg would be preserved while no official capital controls would be implemented, although commercial banks are already adopting their own measures to limit the outflow of dollars.

In a televised news conference, Salameh maintained that both haircuts on deposits and capital controls are out of the question because "Lebanon depends on the free movement of money."

"The Central Bank cannot impose capital controls or haircuts and will not push for that," Salameh said. The Central Bank lacks the authority to implement such measures, which can only be implemented through a legislative decree issued by Parliament. 

Lebanon’s financial troubles have worsened since nationwide economically-driven protests erupted last month with banks coming under extreme pressure in recent weeks as confidence in the sector wanes. This has prompted large swathes of people to attempt to withdraw or transfer out their money, while the country’s various lenders have imposed varying capital controls that differ from bank to bank, fueling the turmoil.

A number of scuffles have broken out in certain banks, as customers were told that their money could not be completely accessed. 

In response, the Union of the Syndicates of Bank Employees declared an open-ended strike starting Tuesday until "normalcy in the sector is restored."

The statement on Monday, calling on all employees to suspend work starting Tuesday, November 12, until "calm is restored in order for the banking sector to resume normal operations."

Cash withdrawals from September till November have equaled the last three years, Salameh said, with estimates suggesting that over $1 billion is currently stashed in people's homes. To ease liquidity, the Central Bank will provide commercial banks with "dollars at an interest rate of 20 percent," Salameh said, adding that these dollars can only be used within Lebanon. 

Salameh also called on banks to reopen credit lines that were frozen and to accept LBP payments for dollar loans. The "directives were welcomed" by the Association of Banks, who reiterated the need to limit transfers abroad for "necessities and in accordance with reality and the current exceptional circumstances."

Though it’s still pegged at 1,500 pounds to the dollar, the Lebanese pound is trading at up to 1,900 to the dollar on the black market, a devaluation of nearly 30% from the official rate.

Lebanon's trade deficit has skyrocketed in recent years, reaching $1.2 billion in August 2019. This can be traced back to the "outbreak of the Syrian civil war," Salameh said, adding that the nearby conflict has also played a role in contracting Lebanon's economy, with growth now hovering near the 0 percent mark. 

-- WIth AP

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