The Banking Executive Magazine - January 2023 Issue

Speech of Dr. Jospeh Torbey review, add to the complexity. Seek- ing assistance from the International Monetary Fund was not a preferred option in Lebanon at any point, due to multiple considerations centered on caution regarding the Fund for various reasons. Until now, the finan- cial collapse and Lebanon's inability to pay its foreign sovereign debt and its exit from global financial markets made it impossible to return without an agreement with the IMF. Addition- ally, the difficulties faced by the IMF in Lebanon and its traditional or re- cent descriptions cannot be ignored, whether it was in terms of canceling banking secrecy, demanding the adoption of the Capital Control Law, unifying and freeing up exchange rates, controlling budget deficit, re- ducing deposits, restructuring banks, and reducing liabilities. Many parties in Lebanon doubt the validity of some of the harsh treatments and proposals included in the IMF plan. For example, some of the reforms re- quired from the IMF are considered mandatory, and were expected to occur without IMF intervention, such as the Capital Control Law, necessary upon the onset of the crisis in 2020, tax system reform, expenditure re- straint, reducing the size of the pub- lic sector, avoiding budget deficit, combating corruption, or freeing up exchange rates. The Lebanese government has reached an initial agreement with the Fund at the level of employees, re- quiring most of the agreement items to be ratified by laws in the parlia- mentary council. This has happened so far regarding the amendment of the banking secrecy law and the is- suance of the general budget law for 2022. What is being discussed today in the parliamentary council is the subject of capital control, which the Fund requires to be ratified. How- ever, this is being approached with hesitation as it imposes restrictions on the transfer of capital in a country that relies on economic freedoms and, foremost, the freedom of move- ment of capital within its banking system. The current parliamentary discus- sions reveal the existence of oppos- ing views among the majority of parliamentary blocs regarding the bailout plan for defaulting deposits. Most parliamentary tendencies seem to favor protecting depositors' funds, regardless of their size, including Arab banking institutions, investors and Arab depositors who have in- vested their funds for decades in Lebanese banks, as well as Lebanese depositors both resident and abroad. The Central Bank's proposal to con- sider the state's debt losses and its exemption from financial obligations towards the Central Bank and de- faulting billions of dollars in debt will ultimately lead to the default of de- posits, which is currently being re- jected by the parliamentary majority. Many MPs are expressing completely opposing slogans, which are gaining support among depositor organiza- tions of different affiliations, who have been called to "protect their de- posits with a sacred duty." However, it is not yet clear how these slogans will translate into action. Meanwhile, the Prime Minister, H.E. Mr. Najib Mikati, who put Lebanon on a reform path, is in line with the Fund's de- mands and has informed the parlia- mentary majority of his efforts to address this gap in the bailout plan, which involves the default of de- posits. The International Monetary Fund must deal with the factual reality that there are constitutional, legal and po- litical obstacles that prevent the state from seizing deposits. It must also not underestimate the economic and social effects of seizing deposits and its impact on recovery and restoring confidence in Lebanon and its bank- ing sector, which is of concern to the Union of Arab Banks and other ac- tive Arab organizations in the invest- ment field. Therefore, the Lebanese state must assume its responsibility for its debt and find a solution through a phased plan for returning deposits without selling its assets, and negotiate in good faith with Eu- robond creditors to restore financial legality and return to international fi- nancial markets. Those who see no other way to eliminate debt other than through seizure reject, in reality, reforms to improve public finances, stop leakages, enhance revenues and put Lebanon on the path to recovery. It is important to not overlook that a significant part of the crisis in Lebanon requires a political solution, not just an economic one. Therefore, it is necessary for constitutional insti- tutions to return to work and for the election of a president of the repub- lic, and for the parliamentary council to legislate, in order to reinforce the confidence of the international and Arab community in Lebanon and its institutions. Confidence is also restored by listen- ing to the recommendations of ex- perts who will address the issue with knowledge and understanding. We will pay attention to the experiences of other Arab countries in managing their relationships with the Interna- tional Monetary Fund, comparing the solutions adopted in each of those countries that precede Lebanon in economic reforms, which will facilitate Lebanon's rela- tionship with the International Mon- etary Fund and the achievement of desired reforms. An agreement with the International Monetary Fund is necessary for Lebanon. In summary, reaching an agreement with the IMF is critical for Lebanon's return to international financial sta- bility. This direction appears to be generally supported in Lebanon based on current discussions in the Lebanese parliamentary council. Laws will be enacted to safeguard higher Lebanese interests. The Union of Arab Banks supports this journey. Thank you for listening. ISSUE 169 JANUARY 2023 the BANKING EXECUTIVE 17