Deputy Prime Minister Chami: Lebanon Should Get More Serious about Agreement with IMF or Consequences are Dire

On the heels of the IMF’s Article IV Mission Statement last week, Deputy Prime Minister Saade Chami issued a statement this week reiterating the truly dangerous situation in Lebanon and the urgent need to put the deteriorating economic house in order.

Chami said if the wasting of time continues, then Lebanon will be moving towards a very tragic situation. And he is raising his voice now so that Lebanese officials heed their responsibilities and enact and implement the needed reforms as quickly as possible. He added – in a clear argument of political economy — that the political class seems to be aware of the severity of the situation but refrains from doing anything because that would jeopardize its interests. Alternatively, he said, it could be that powerful political groups are waiting till Lebanon collapses entirely, and then they would re-build it according to their own models and government systems. Either case, inaction will close the door towards the country’s salvation and extinguish all lights at the end of the tunnel!

In the case of the reforms plan, Chami said it is clear that many MPs have not reviewed it, and even if they did, they intentionally disregard it for the sake of private interest or interest-group reasons. In addition, and in the case of the pre-conditions for the agreement, the Bank Secrecy Law that Parliament had passed is inadequate, and the Capital Control law hasn’t even been passed yet. In addition, the audit of BDL’s foreign assets has been completed, but the results have not been published yet. All this seems to indicate that Lebanon is not serious about an agreement with the IMF and looks like it wants to opt out. In this context, any further delay will make reforms more costly and more difficult to implement, and will also make the IMF more stringent in case of an agreement.

In the meantime, the economy is treading on a path that would lead to hyperinflation; and BDL’s interventions in the FX market can only lead to more losses in its foreign reserves; all leading to more damage to the economy and its chances of recovery, let alone the ticking of a social time bomb.

Lastly, Chami argued, that what the country needs now are honest state-persons, who have the courage and the will to take decisions that ditch populism away and take the interests of all society into account.

To close, we list below the list of pre-conditions for an agreement that the IMF requested from Lebanon before an Executive-Board agreement can be signed. Implementing these pre-conditions and as soon as possible will indicate Lebanon’s good intent and seriousness in reaching an agreement and saving its economy:

• Cabinet approval of a bank restructuring strategy that recognizes and addresses upfront the large losses in the sector, while protecting small depositors and limiting recourse to public resources.

• Parliament approval of an appropriate emergency bank resolution legislation which is needed to implement the bank restructuring strategy and kickstart the process of restoring the financial sector to health, which is fundamental to support growth.

• Initiation of an externally assisted bank-by-bank evaluation for the 14 largest banks by signing the terms of references with a reputable international firm.

• Parliament approval of a reformed bank secrecy law to bring it in line with international standards to fight corruption and remove impediments to effective banking sector restructuring and supervision, tax administration, as well as detection and investigation of financial crimes, and asset recovery.

• Completion of the special purpose audit of the BdL’s foreign asset position, to start improving the transparency of this key institution.

• Cabinet approval of a medium-term fiscal and debt restructuring strategy, which is needed to restore debt sustainability, instill credibility in economic policies and create fiscal space for additional social and reconstruction spending.

• Parliament approval of the 2022 budget, to start regaining fiscal accountability.

• Unification by BdL of the exchange rates for authorized current account transactions, which is critical for boosting economic activity, restoring credibility and external viability, and will be supported by the implementation of formal capital controls.

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