Beirut

- The statements of HE Deputy Prime Minister Al-Shami sparked a wide debate in the Lebanese public opinion by declaring that the state and the Central Bank of Lebanon are insolvent.

Despite his subsequent clarifications and the accompanying corrective clarifications for the Presidency of the Government and the Central Bank, economic experts found that there is a message that the political and monetary authorities fear frankly with the Lebanese, which is: We are unable as a state and a central bank to pay the entirety of depositors’ money withheld in the Lebanese banking system.

Repercussions of the official position

In practice, the historical collapse in Lebanon is a fait accompli since the crisis erupted in the fall of 2019, and commercial banks, at the behest of CBE circulars, began to take illegal measures that led to the detention of depositors' funds.

Accordingly, depositors accumulate huge losses in the value of their money, due to restrictions on withdrawals and the plurality of exchange rates in banks and circulars issued by the Central Bank, and this was accompanied by a resounding and dramatic fall of the lira, and finally reached the black market that controls the actual value of the national currency 24 thousand against the dollar (the official exchange rate 1507 liras).

The head of the Lebanon Committee for Negotiating with the International Monetary Fund, His Excellency Al-Shami, had previously announced in December 2021 the losses of the banking system by about 70 billion dollars, but what he said recently and as an official official from his sensitive position internally and internationally prompted the question about the reality of bankruptcy in Lebanon.

Al-Shami said in a television interview on Sunday that the state and the Central Bank of Lebanon are bankrupt, and that the losses will be distributed to the state, the central bank, commercial banks and depositors.

After popular and official responses - specifically Prime Minister Najib Mikati's saying that Al-Shami's statements about Lebanon's bankruptcy were cut off, then Central Governor Riad Salameh denied the bankruptcy of the Banque du Liban - Al-Shami returned and explained yesterday, Monday, that "the state and the Banque du Liban cannot help greatly because there are no liquidity capabilities even contribute to making up for the losses.

Perhaps the most important phrase in clarifying Salama is his saying that “the Central Bank is still exercising its role entrusted to it by law, and what is being circulated about the bank’s bankruptcy is incorrect.”

What is the reality of bankruptcy?

From the point of view of the expert and legal researcher in banking, Dr. Sabine El-Kik, His Excellency Al-Shami failed a lot in his statements, which indicates - in her opinion - a great confusion from his sensitive position, whether in terms of misuse of legal terms - financial and banking - or in terms of contradictions in the content of the statements.

For example, Al-Shami says that there are efforts to distribute losses among the four stakeholders (the state, the central bank, banks and depositors), while Cakes indicates that legally there are no "concerned parties", but rather parties with duties and others with rights.

She said that "the relationship between creditors (depositors) and debtors (banks) is not equal," and she wonders: How will the losses be distributed in return for declaring the bankruptcy of two parties, the state and the Central Bank?

And legally - Cake indicates to Al Jazeera Net - that bankruptcy as a legal case has conditions, including disability, financial stumbling and the inability to practice the basic functional activity, provided that it is declared judicially, not assessed.

In the case of countries, they do not go bankrupt in the literal sense, but rather default on their sovereign debts, which is the case in Lebanon.

As a reminder, in March 2020 Lebanon announced for the first time in its history that it had failed to pay its “Eurobonds” issues and had not paid its dues estimated at $1.2 billion, which is part of the value of foreign currency debt bonds, numbering about 27 issues, with a total value More than $31 billion, the last bond payment is due in 2037.

Accordingly, Lebanon legally defaults on paying its sovereign debts, according to the cake. As for the central bank’s case, the expert states that what he describes as exercising its natural role is practically exercising powers outside the law in the absence of financial auditing of the central accounts.

She said that the search for sources of bankruptcy is by placing the Central Bank in the focus of effective and serious monitoring due to its inability, its use of illegal techniques to hide financial facts, the acute shortage of foreign liquidity, and its failure to provide an official figure on what remained of the mandatory reserve, which has become a rule less than 10 billion dollars.

His Excellency Al-Shami, Deputy Prime Minister of Lebanon, stated that the state and the Central Bank of Lebanon are bankrupt (Reuters)

Bankruptcy and prejudice to depositors

In mid-February 2022, the Lebanese government approved the draft budget, and its deficit reached 17%, while it may reach 29% with the electricity loan and the plan to address it.

In the time course, the bankruptcy debate comes after the intensification of the judicial battle against the commercial banks and the Central Bank accompanied by a political struggle around them, the latest of which was the succession of local judicial procedures at an accelerating pace against banks and bankers and the governance of the Central, and the arrest of Raja Salama, brother of the Central Governor, in parallel with international judicial movements based on the lawsuits filed Depositors and associations against Lebanese personalities and banks.

Hence, writer and researcher in economic affairs, Munir Younes, considers that using the expression bankruptcy and then retracting it in euphemistic terms without denying its effects carries a two-way message:

  • The state, which is not bankrupt in the legal and international sense, and which borrowed money from the Central Bank, cannot in return contribute to repaying depositors’ money, amounting to about $100 billion, which led to an estimate of the gap in the banking system at $70 billion.

  • In order for the country to reintegrate into international markets and repay its sovereign debt, the country needs urgent assistance from the International Monetary Fund.

bear the loss

Younis told Al Jazeera Net that the authorities go directly to the depositors by hinting that they must accept the full resounding loss, and link the successive clarifications to the fear of popular reactions at a distance of a month from the parliamentary elections, and what confirms sending the message to depositors exclusively in his opinion that the state authorities do not go to the employees because they pay Their salaries are in pounds, which have lost their value, and do not go to external creditors because they have defaulted mainly in paying their debts.

Is the Lebanese state able to pay about $100 billion to depositors?

Yunus asks in the negative, recalling that the state will not be able to contribute to this unless it resorts to the option of selling from its assets, which is the subject of a major political debate between those who support and those who refuse to liquidate or sell some of the state's assets.

Yunus mentions that even the central bank does not go bankrupt in the literal sense, because it has the magic solution by printing currency, and despite its losses and stumbling, it can print the lira.

The expert adds that the dispute over the criminal audit of the Central Bank accounts is what hinders the process of determining responsibilities by wasting tens of billions of dollars without knowing their destination.

For its part, Cake expresses its lack of confidence in all the figures received from the monetary and political authorities in Lebanon, noting that the International Monetary Fund has repeatedly called for financial audits in the Central Bank’s accounts on the one hand, and the Electricité du Liban on the other, because they are Lebanon’s black box in which billions of dollars were lost.

As for the solution, in her opinion, it only begins with a financial structure for the Central Bank, and consequently the restructuring of the banking sector instead of leaving the sector to correct itself randomly so that it can perform its normal services, most notably saving and paying depositors’ money in full and in the currency in which they were deposited.