Samia Nakhoul and Tom Perry by Timour Azhari

DUBAI/BEIRUT, (Reuters) – Two years after an economic collapse the World Bank calls one of the most severe, the rulers of Lebanon have suggested a solution: the money will be paid by savers and not the banks or state.

Reuters has seen the plan and it aims to revitalize the bank system. Depositors will be required to cover half of the gap at $69 billion, three times as large as Lebanon’s.

The conversion involves converting large portions of your dollar deposits to Lebanese dollars at rates which wipe out a significant amount of their value.

A total of $31 billion will be contributed by the state, central banks, and commercial banks, which is less than half.

For the International Monetary Fund to bail out the nation and set the nation on the path of recovery, it is essential that there be agreement on a course of action. Cabinet approval will be required to approve the plan.

Up to now, any deal has been blocked by disagreements between politicians and bankers about loss amounts and payment. IMF must approve of this new plan. The IMF will be silent on the issue of ordinary Lebanese. Many have been forced into poverty.

Toufic Gaspard (an economist who advised the IMF as well as the Lebanese Finance Ministry) stated that “it is the victim that must bear most of this burden.” Their logic is incompatible with any logic standard anywhere on the planet.

Savers were subject to ‘haircuts in other crises all over the world. However, small depositors usually have their rights protected.

Lebanon’s savers with assets less than $150,000 can have their dollars saved – approximately $25 billion. But, just like all depositors, they will get the money over 15 years. Their accounts have been in large part frozen for at least two years.

But the magnitude of Lebanon’s current crisis is far greater than any other worldwide examples. Some estimates put that the Lebanese’s government debt was 500% of their gross domestic product in 2021. Yet, those same religious leaders, who drove Lebanon into disaster, still hold a lot of power.

There is still a little money left

“There is just too little money. Accountability is crucial. “The political leadership wants to change the page, close that chapter,” Mike Azar, an expert in crisis management, said.

Emails seeking comment from the government, central bank or banking association were not returned by either party.

According to the plan, $104 trillion in dollar deposits will be converted to Lebanese Pounds. Two of these rates are well below market level.

Since the 2019 crisis, more than 90% has been lost in value for the pound of Lebanon.

These deposits are likely to lose $75%, $35Billion and $16Billion respectively.

Nasser Saidi (a former minister of economy and vice-governor at the Central Bank), said that “it is an effective nationalisation” of deposits. He blamed the central bank for creating “massive losses in balance sheets” to protect an overvalued currency.

The Lebanese pounds, before the crisis it was valued at 1,500 dollars, is now worth around 20,000.

The latest proposal was rejected by the parliament. He stated that it “would be the kiss to death for a near zombie banking system” and would lead to long-term misery in Lebanon.

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The banks, the central banking and leading politicians toppled a 2020 plan. They had concerns about the calculation and distribution of losses. IMF talks collapsed.

This new plan will create an Asset Management Company to hold deposits to fund projects, such as the rebuilding of Beirut port (which was hit by a large blast in 2020) and power stations.

AMC is to be controlled by the state, but will also issue assets-backed securities. This plan aims to create value.

Talal F. Salman (a former official in the Finance Ministry) stated, “A top governance framework must be created to manage all these assets without corruption.”

There is not any indication of political reform in Lebanon, which would alter the leaders who are often blamed by many for hindering donor-funded reforms.

For decades, the power-sharing between Christian and Muslim sects in Lebanon has allowed for the consolidation of the control of certain individuals, families, groups and families. Hezbollah is the powerful, heavily-armed Shi’ite Muslim Shi’ite organization that Iran supports.

The plan would allow the $22 billion in savings to be converted into $12 billion worth of Lebanese bank shares. A $5 billion perpetual bond would be awarded to them.

To plug the gap, $13 Billion would be contributed by banks. This was mainly through writing down shareholder capital.

If shareholders aren’t willing to inject new cash, wealthy depositors may end up holding 72% capital in Lebanese bank capital.

Azar stated that there is no clawback for dividends or management compensation imposed upon banks and bank managers, which Azar claimed was a glaring injustice to depositors.