On April 30, 2020, Lebanon’s new Prime Minister Hassan Diab revealed the economic recovery plan, which has been crafted keeping in mind the financial crisis the country is reeling under currently. As a pre-condition for assistance, the IMF (International Monetary Fund) insisted that Lebanon needs to have a recovery plan ready. With the release of the financial recovery plan by the Prime Minister, the negotiations between the government and the IMF began.
The plan, however, did not receive a wholehearted response from the Association of Banks in Lebanon. As soon as the recovery plan was released, the ABL issued a statement in response the very next day (1st May 2020)– the statement wasn’t very much in favor of the freshly released recovery plan. Instead, the ABL’s statement had certain alarming statements, which we will be talking about in detail.
Association of Banks in Lebanon
At the very beginning of the statement, ABL mentioned that it has fiduciary duties to nearly 3 million depositors, and it can, in no way, endorse the recovery plan that the government has come up with unilaterally. This clearly shows that the ABL’s views were not taken into consideration during the formulation of the recovery plan. This is surprising, considering that ABL is one of the major parties involved in the whole financial fiasco of Lebanon.
The statement from ABL further mentioned that the ABL was neither consulted nor associated with the plan released on April 30. It, however, acknowledges the fact that it is a key part of any solution mentioned therein. It further says that the banking system is the backbone of any given economy and is the means of social inclusion and growth by providing credit to individuals and companies.
The ABL then goes on to list out the drawbacks of the plan.
It says that as laid out in the plan, the domestic restructuration will further destroy confidence in Lebanon both domestically and internationally. While essential building blocks of investor confidence (anti-corruption measures) have been laid out, the details of the same are not listed in the pLan. This further leads to questions on the precise timing of implementation of these measures. It firmly states that the recovery plan was most likely to deter investment, thereby hindering the recovery prospects.
No section of the plan mentions how it will be funded – it has been formulated assuming international financial support from the IMF and/or CEDRE. As far as the situation was concerned back then, official discussions with the IMF concerning funding were yet to start, hence, leaving no clarity.
The revenue and expenditure measures that are key criteria to acquire IMF support are vague and, yet again, not backed by a systematic implementation schedule. Furthermore, it states that the recovery plan does not explicitly address any inflationary pressures, which in turn, would lead to hyperinflation 3.
Given the fragile socio-economic situation in Lebanon, the socio-economic component of the plan needs to be described in detail. The emphasis of this component should revolve around three key factors – job retention, alleviation of poverty, and reduction of inequalities.
It further states that some of the plan’s assumptions could be challenged. These assumptions include both growth assumptions and fiscal consolidation and are listed below:
The aggressive nature of domestic debt restructuring and its limited impact.
An assessment of the unknown impact of global crises that would lead to substantially different fiscal projections.
The ABL states that banks have been portrayed as the roots of the financial crisis Lebanon is undergoing throughout the recovery plan. The plan is biased, and all remedial measures are based at the expense of banks.
The ABL says that it very well understands the political reasons for such portrayal. It intends to clarify that the banking sector provided money to the public sector as and when required. The public sector, however, decided to further allocate this money with no inputs from banks whatsoever. It says that the portrayal of banks by the Lebanese government in the plan is equivalent to a borrower accusing its lender of all the former’s failures. The punitive approach towards the banking sector is equivalent to implementing punitive measures upon millions of depositors.
It further expressed solidarity with the situation in Lebanon, calling for dialogue and unity at this critical juncture. It promises to contribute in every possible way to support the country while complying with their fiduciary duties as they have been doing in the past. It states that the government needs to take urgent measures while reaching consensus amongst all stakeholders involved in the recovery plan – if this is further postponed, the situation will worsen with every passing day.
The ABL further commits to engage with the government to arrive at and implement a consensual solution to benefit the Lebanese. Adding to this, it says that credible alternatives to the current recovery plan exist, and they would be presenting the same to the government and the stakeholders shortly.
Having said that, the ABL mentioned that most of the measures in the plan call for infringement on private-property vested rights. This goes against the fundamental rights of citizens, as mentioned in the constitution. Additionally, it states that retrospectively holding the Lebanese people accountable further adds to a breach of their rights, leading to Lebanon becoming a lawless state. It concluded its statement saying that the ABL hopes that the elected MPs reject the plan for its breach of constitutional as well as legal principles. Thanks for visiting Pierre El Sokhn Official website.