Lebanon crisis political, not monetary: Salameh
With strong liquidity, international support, stability can prevail, BDL governor says
BEIRUT: Central Bank Governor Riad Salameh Monday reiterated that the monetary situation in Lebanon is still under control despite the resignation of Prime Minister Saad Hariri more than a week ago.
Speaking to Bloomberg TV during a visit to London, Salameh stressed that the crisis in Lebanon is political and not monetary.
He assured that Lebanon and Banque du Liban in particular have taken proactive measures to weather crises as liquidity in lira and foreign currencies is high in the banking sector and Central Bank.
“There are also positive political factors translated through the steps taken by the president of the republic to preserve Lebanon’s unity and to cooperate closely with the international community that supported Lebanon through statements issued by the United States and Europe. So thanks to the strong liquidity situation and international political support, we hope stability will prevail in Lebanon,” Salameh told Bloomberg TV.
He added that thanks to the financial engineering by the Central Bank, the foreign assets at BDL had risen to a historic record while total customer deposits in commercial banks in Lebanon increased by $11 billion last year, or 6 percent, compared to 2015.
Hariri’s statement Sunday that he plans to visit Lebanon very soon has also improved the prices of sovereign eurobonds, according to Reuters.
But this declaration did not reflect positively on the prices of Solidere shares, which fell by an average of 1.5 percent Monday.
Bankers say that the return of Hariri to Lebanon would give the market a badly needed shot of confidence and this could be translated into a better growth in deposits.
Salameh said remittances to Lebanon now total close to $8 billion a year, $1 billion of which comes from Lebanese working in the Arab Gulf states.
The Institute of International Finance also warned Hariri’s resignation may plunge Lebanon into another protracted political stalemate that could weigh on the economy.
“Foreign and local investors need a functioning government and political stability. However, the current geopolitical environment, after the defeat of ISIS [Daesh] in Syria and Iraq, may be more favorable to the Lebanese economy, IIF added.
But IIF said it has revised its growth forecast for 2018 from 2.9 percent to 1.8 percent on the belief that the Parliament and president will fail to form a unity government.
“We expect no recourse to violence between the two Muslim communities even if the collapse of the government leads to a protracted political crisis. Also, our baseline scenario assumes no war between Hezbollah and Israel,” IIF said.
Echoing the assurances of Salameh, IIF said that there is no concern that Lebanon’s national currency will be affected by the political vacuum in the country.
‘The confidence in the Lebanese pound will remain strong’
“The confidence in the Lebanese pound will remain strong and the peg to the dollar will be maintained, supported by ample international reserves, a strong banking system and loyal depositors from [the] Lebanese diaspora. Note that the Lebanese pound remained stable since 1999 and growth in deposits stayed positive during previous political episodes and security disturbances, including the assassination of Prime Minister Rafik Hariri in 2005, the war with Israel in July 2006 and the political vacuum, with no president, from May 2014 to October 2016,” IIF said.
It added that depositors’ commitment to Lebanon will remain strong, motivatedbyadeeptrustinthefinancial system and the perceived stability of the fixed exchange rate regime.
“Deposit growth may decelerate from 7.1 percent in September yearon-year to 5.2 percent at end-2017 and 4.7 percent by June 2018 … If a unity government is formed … growth in deposits will be much higher,” IIF said. –