Lebanese Deputy Prime Minister Saadeh al-Shami announced on Sunday that “the state has gone bankrupt,” along with its central bank, Banque du Liban.
Al-Shami said losses from the bankruptcy would be distributed between the government, Banque du Liban, other Lebanese banks, and depositors.
“We cannot live in a state of denial as we cannot allow withdrawals for all people who have deposits in banks,” he said, alluding to strict limits on cash withdrawals imposed in October 2019 to keep the banking system liquid.
A delegation from the International Monetary Fund (IMF) is currently in Beirut to negotiate a debt relief package that might help resolve a dire financial crisis dating back to 2019.
Barbed wire blocks the vicinity of Lebanon’s central bank building in the capital Beirut on March 6, 2020. (AFP/JOSEPH EID)
The IMF is pushing for more promises of reform before signing off on the deal, while Lebanese lawmakers are threatening to block any deal they see as too restrictive. A previous Lebanese plea for IMF support in 2020 fell apart because the central bank, commercial banks, and politicians could not agree on how to distribute losses. Al-Shami made a point of saying there was no such disagreement about distribution this time.
A partial view of the neighborhoods near the area of Abou Samra in the Lebanese port city of Tripoli north of Beirut on December 13, 2021. (JOSEPH EID/AFP via Getty Images)
The World Bank estimated on Monday that Lebanon’s economy has contracted “about 60 percent since 2021.” Lebanon’s currency has lost about 90 percent of its value.
World Bank Middle Eastern director Saroj Kumar Jha called for “a reform plan that includes a financial program, debt repayment, restructuring the financial and banking sector and developing social protection systems.”
“If the national reform program is not implemented well, this will constitute a greater contraction of the economy and will lead to a further deterioration of economic and social conditions,” he warned.
Lebanese citizens say their government was already acting bankrupt long before al-Shami made his declaration on Monday. Public services, from education to trash collection, have all but halted due to unpaid salaries and strikes. Lebanese diplomats working overseas did not receive their salaries last month.
Banque du Liban Governor Riad Salameh and his brother Raja were accused of embezzlement and money laundering two weeks ago, in the latest example of the corruption blamed for destroying Lebanon’s economy. Riad Salameh is also under investigation for corruption in France, Switzerland, and Germany.
The Salameh brothers deny all the charges against them and claim they are the victims of political persecution. Lebanese Prime Minister Najib Mikati invited Riad to a Cabinet session last week in a show of support.
On Monday, Riad Salameh contradicted Deputy Prime Minister al-Shami by insisting Banque du Liban is not bankrupt and is still capable of conducting its daily business. Mikati chimed in with an enigmatic statement speculating that al-Shami was referring to “liquidity, not solvency” when he said the central bank is bankrupt.