Salameh: No Covert Spending at BDL, We Don't Have to Coordinate Every Memo with Govt.
Central Bank Governor Riad Salameh responded Wednesday to the latest criticism by Prime Minister Hassan Diab, stressing that there is no covert spending by the central bank, while noting that the law does not oblige Banque du Liban to “coordinate with the government on every circular” that it issues.
“The law does not oblige us to coordinate with the government over every circular that we issue and BDL will continue to cooperate with the government and its premier,” Salameh said in a televised address, days after Diab called on him to "come forward to announce the honest truth to Lebanese."
“We will defend the central bank's independence and our circulars are in line with the laws,” he emphasized.
Commenting on the latest Lebanese lira crash, Salameh said “the issue of controlling the dollar exchange rate is difficult amid the scarcity of dollar banknotes.”
“The issue of the rate at exchange shops is subject to demand and is affected by shocks. But we have not stood idly by and we have sought to stabilize the rate,” he added, referring to memos that he issued in which he instructed money exchange shops to buy and sell the dollar at certain rates without seeing any compliance.
As to banks, Salameh said the central bank has not allowed “the bankruptcy of any bank” in order to “protect depositors.”
Responding to Diab, the governor noted that “of the $5.9 billion that left Lebanon $3.7 billion were used to cover loans and $2.2 billion were withdrawn in the form of cash from clients' accounts.”
“We believe that there is no need for a haircut and talk of a haircut scares depositors and delays the recovery of the banking sector,” he said.
Reassuring the Lebanese that their deposits “still exist in the banking system,” Salameh noted that his past reassurances had been “honest.”
“But I stopped the reassurances after successive and destructive shocks,” he explained.
“The banking system has remained resilient despite the closure of banks, the coronavirus crisis and the Eurobond default,” Salameh pointed out.
Defending the central bank, the governor said BDL provided financing to the state's expenditure but it “was not behind the spending.”
“It does not have jurisdiction to monitor how the money is spent,” he noted.
As for his famous “financial engineering operations,” Salameh said he had been obliged to carry them out in order to “gain time and enable the state to reform itself, something that didn't happen.”
“BDL has not burdened the state with any deficit. To the contrary, it has achieved a lot of profits and has contributed through gold price gains to alleviate the state's deficit,” he boasted.
He noted that according to the bank's April report, “there is liquidity that exceeds $20 billion in our budget.”
“There are no undisclosed spending decisions at BDL, which publishes its budgets every 15 days, and I handed the PM copies of BDL's accounts on March 9,” he revealed.
Decrying that there is “a systematic campaign against the central bank,” Salameh said “someone is trying to mislead the public opinion through false information.”
“The central bank publishes its budgets every 15 days and they include notes for the sake of transparency,” he added.
Diab had said Friday that bank deposits plunged $5.7 billion in the first two months of the year despite curbs on withdrawals and a ban on transfers abroad.
Lebanon is grappling with a severe lack of liquidity and its worst economic crisis in decades, compounded since mid-March by a lockdown to stem the novel coronavirus.
Banks have gradually restricted dollar withdrawals until halting them altogether last month, and transfers abroad have been banned.
According to official estimates, $2.3 billion were transferred abroad last year after the start of mass protests on October 17 against a political class demonstrators accused of being corrupt and inept.
The Lebanese pound has been pegged to the dollar since 1997, but in recent months it has lost more than half its value on the parallel exchange market.
Diab urged the central bank governor, who has held the post since 1993, to explain his plans and when the exchange rate would stop rising.
Central bank losses from the start of the year to mid-April reached $7 billion, including $3 billion in the past four weeks alone, Diab said.
The premier said a "neutral international company" had been tasked to audit the central bank's books, without giving a name.
Salameh's supporters credit him for stabilizing the Lebanese pound for more than two decades, in the wake of the country's 1975-1990 civil war.
But his detractors accuse him of having contributed to Lebanon's endless borrowing and ballooning sovereign debt, leading to the country's first ever default in March.
In recent months, the Lebanese pound has plummeted in value from around 1,500 pounds against the U.S. dollar to almost 4,000 on the parallel market.
Economist Jad Chaaban said factors such as Lebanon's sizable informal economy and the coronavirus lockdown that has impeded the influx of dollars in cash have contributed to the crash of the pound.
He also faulted a banking control commission over its monitoring of the exchange rate.
Lebanon is one of the most indebted countries in the world, with a debt equivalent to 170 percent of its gross development product.
Source: Naharnet
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