LEBANON RULES OUT BRINGING IN CAPITAL CONTROLS

▶ Central bank governor says $30bn can be made available if required

Lebanon’s central bank governor Riad Salameh said there are no plans to impose capital controls or a haircut on depositors as the country faces its largest economic crisis in three decades.

A haircut is a financial term used to describe a devaluation of an asset to provide a cushion to lenders.

The central bank will look “to protect depositors,” Riad Salameh said in a televised press conference at the regulator’s headquarters in Beirut as citizens protested outside. “We have taken enough measures so that depositors don’t lose money, there won’t be a haircut, and the central bank doesn’t support this.”

In 2011, bank depositors in Cyprus, exposed to the Greek debt crisis, lost as much as 60 per cent of their uninsured deposits on balances of more than €100,000 (Dh405,300). The measure was a requirement at the time for Cyprus to secure a €10 billion bailout from the EU.

In recent weeks some in Lebanon have touted the idea as the only way out of the impasse, as the country faces debt obligations maturing this month as well as next year, and its currency, pegged to the dollar since 1997, is under pressure, having lost more than 19 per cent of its value in the black market.

“The central bank is not authorised to do a haircut and it doesn’t support such a measure,” Mr Salameh said.

Mr Salameh said the central bank had instructed banks to adhere to confidence-building measures to restore stability and assure jittery citizens who have been critical of lenders for implementing curbs on withdrawals and charging fees on dollar transactions.

One of the requests was for banks to maintain the limit on credit cards and not reduce it, to resume lending to clients and facilitate trade financing, with the goal of averting a liquidity crunch. However, Mr Salameh said the transfer of money abroad will be subject to certain conditions

“Deposits are secured,” Mr Salameh said. “The measures we put in place are to protect any bank. We notified the banks that they can borrow from the central bank at 20 per cent, but the funds are not permitted to be transferred abroad.”

The governor downplayed concerns about the strength of the central bank, saying its reserves excluding gold stood at $38 billion and the regulator has the ability to use $30bn of that amount if needed immediately and will maintain the stability of the Lebanese pound.

The country’s worsening economic climate culminated in more than three weeks of protests that forced prime minister Saad Hariri to step down last month. Citizens have demanded reforms and changes in the political system that has governed the country since the end of a 15-year civil war in 1990. They blame the political elite for widespread corruption and nepotism, which they say contributed to the country accruing $86bn of public debt, equivalent to 150 per cent of gross domestic product. The central bank holds about 35 per cent of the state’s debt in Lebanese currency.

The social unrest and protests are the largest the country has experienced since the assassination of former prime minister Rafik Hariri in 2005, which forced Syria to withdraw its troops from the country after a 29-year presence there.

Lebanon registered an outflow of about $3bn in the first nine months of the year, according to the Institute of International Finance. Mr Salameh put the figure at $2bn and said about $3bn was withdrawn by depositors and stored at homes in Lebanon.

Both Moody’s Investors Service and Fitch Ratings cut the ratings of the country and its banks further into junk territory.

Deflecting public criticism waged at him by some in Lebanese media outlets, Mr Salameh said over the past 27 years the central bank adhered to policies that helped Lebanon in environments that were not conducive to the bank’s operations.

“Financial engineering allowed us to accumulate reserves which backed the Lebanese pound, and implementing international standards of the banking system, and funding the country,” he said.

Mr Salameh referred to heightened internal political tension that left the country without a president on two occasions, the sanctioning by the US of two Lebanese banks that led to their closure and regional geopolitical developments such as the war in neighbouring Syria.

“Lebanon today is living in a historic time – our view is that the government’s budget should not have a deficit. We also hope there are essential reforms and that the private sector is reenergised,” Mr Salameh said.