An adviser of Lebanon’s Association of Banks send a letter to the IMF on behalf of the banks in the country. It used words like ‘unconstitutional’ and ‘unlawful’ to refer to the draft agreement that the International Monetary Fund has made with Lebanon.
The IMF Agreement
Lebanon and IMF are to sign a staff-level agreement (SLA), which would provide financing worth $3 billion over a course of four years. These funds are for assisting the small Mediterranean country in recovering from a financial meltdown that has left most of its population poor and has eroded the value of its currency by almost 90%.
A final agreement has not been signed yet, as it will happen only when certain measures have been implemented. These include introducing a restructuring strategy for banking. According to the IMF, the strategy in question takes into account the fact that the sector has suffered from losses and addresses the problem, while offering protection to small depositors.
As per the draft agreement, the parliament in Lebanon also needs to give approval for a law on emergency bank resolution and auditing procedures of the 14 largest bank in the country, which represent majority of the banking sector. The losses of the financial sector are estimated to be more than $70 billion.
The banks in Lebanon have called for these losses to be borne by the state and have blamed them on decades of corruption, waste and unsustainable financial policies.
The Contents of the Letter
The letter was sent by ABL to the IMF on June 21st and it said that they have serious reservations regarding the SLA. It also added that requirement of some prior actions, along with some of the milestones specified in the agreement, could be very harmful to the Lebanese economy and damage it irreparably.
The ABL added that the agreement was not drafted with an economic vision for the country because it depends on the talking points of a misguided society in Lebanon and could be unfair to ABL as well. Carlos Abadi, who is an ABL adviser and an employee of financial advisory firm based in New York, signed the letter in question.
The financial recovery plan of the Lebanese government was adopted on May 20th. As per the plan, the pecking order for bearing the losses starts with commercial banks, followed by the country’s central bank and then finally public assets. The letter asserted that sharing losses in such a way was unfair, as commercial banks would have to bear the burden of most of the losses that the central bank incurred.
Instead, the letter proposed that the financial hole be plugged by forming an investment corporation by pooling in state assets like land and buildings. This would help generate deposits of about $30 billion that can be converted into Lebanese pounds and then returned over a decade. It would be helpful in offsetting the foreign exchange transactions that had happened back in 2019 when the crisis had first struck.