Samia Nkhoul

DUBAI, Reuters – By the end of 2015, Lebanon’s central banks had a $4.7 Billion gap in its reserves. The public was not informed about this early indicator of the financial crisis that almost wiped out millions of people’s savings.

The figure is contained in an April 2016 report drawn up for Lebanese financial authorities by the International Monetary Fund and seen by Reuters.

This confidential report is known as an “aide memoire” and stated that, while gross reserve of Banque Du Liban (BdL), was high at $36.5billion, the net reserves from the claims of commercial banks on BdL or gold was negative USD 4.7billion in December 2015.

Riad Salameh has headed the central bank of Lebanon since 1993. The bank began “financial engine” late 2016. It was meant to finance a rising fiscal deficit while keeping banks thriving by increasing dollar-interest rates.

The central bank had suffered a multipliciton of losses by the time investors confidence was lost amid the 2019 civil unrest against the ruling class.

According to three people familiar with the situation, Salameh had requested that IMF officials not publish the number because it could destabilize the financial markets.

When Salameh was asked why the figure of negative net reserves wasn’t published in the January 2017 IMF Report, the spokesperson for the central bank said that “the central bank doesn’t have the power change IMF reports”. He declined further details.

“The misrepresentation of the causes of the crisis to concentrate (blame) on the BdL is unprofessional and being used to throw responsibility onto one institution, the only civil institution still keeping the (financial) system alive despite the acute crisis,” the spokesperson added.

A spokesperson from the IMF was asked by Reuters about why that figure had not been included in the published reports. He also said that the Fund shouldn’t have been proactive and demanded remedial actions.

According to the spokesperson, “It stressed the need to decrease economic and financial risks including the reliance upon new deposit inflows for large fiscal or external deficits.” “It pointed out significant resources needed to ensure that banks remain capitalized in the case of a severe surprise.”

The banks that have many politicians shareholders closed depositors accounts when foreign currency inflows slowed in 2019. The withdrawals were limited and made mostly in Lebanese duma, which has lost 90% of its value.

CENTRAL BANCK AUDIT

According to the rescue plan that was prepared by the finance ministry for April 2015, the central bank deficit was now at $50 billion and total losses were $83 billion. These figures are not supported by the central bank or the banking association, who have neither publicly supported them.

To be eligible for an IMF urgent rescue package, Lebanon must have a forensic auditor audit its central bank. Last week, after almost a year of hiatus because of disagreements regarding access to information, audit was resumed.

While countries don’t have to publicly disclose the net reserve figure, many do. Ex-high ranking officials stated that more information about financial weakness would have prevented the debt buildup which led to the financial crisis.

According to United Nations estimates, 74% have been forced into poverty by this crisis.

According to the World Bank, April’s statement stated that there could be a catastrophic social effect. Even in the conflict between 1975-1990, banks continued to function and remain solvent.

“This lack of disclosure led us to where we are because depositors would have made different decisions had they known about the fragility and the banks’ exposure,” Henri Chaoul, a Lebanese government negotiator with the IMF and adviser to the Finance Minister until June 2020 told Reuters.

Chaoul quit after the commercial banks, the central bank and the ruling elite disputed the size of the losses in the financial system and how they would be shared, torpedoing a government rescue plan and talks with the IMF.

Chaoul’s thoughts were echoed by Toufic Gazpard, an economist who advised the IMF as well as a former finance minister.

According to him, if the 2016 report had been published, the effect of the crisis could have been less severe for depositors. He stated that policies had been needed to prevent this haemorrhage.

Nassib Gobril, the chief economist at Byblos Bank said that while the authorities were implementing reforms, the central bank was trying to keep market confidence.

According to him, the publication of $4.7Billion would not change the events. International financial institutions as well as ratings agencies have warned the authorities many times that reforms were needed.

A BUYING OF TIME

Salameh claimed repeatedly that he only acted to buy time for Lebanese politicians, so that reforms could be agreed to lower the budget deficit.

The spokesperson for IMF referred to Reuters on the transparency rules of the fund when asked if it was the duty of the IMF to take a more proactive approach in pushing the publication of the $4.7Billion negative net reserves.

According to these guidelines, countries can ask that non-public material be deleted from a report when it’s:

A spokesperson for the IMF declined to confirm whether Lebanon made such a request. He also didn’t address the question of whether there are formal limits on net reserve size.

Earlier this year, Swiss authorities launched an investigation into “aggravated money laundering in connection with possible embezzlement to the detriment of the Banque du Liban (central bank)”. Salameh denied that any wrongdoing was committed and stated the investigation is part a wider campaign against him.

Le Temps, a Swiss newspaper, reported this month for the first time that the central bank had kept key information from the general public in 2015. According to the central bank, the news report had “nothing to do with truth”.