Between the reciprocal invectives, the press releases and the counter-releases, we try to scrutinize once again the triggers of the crisis and the responsibilities at this level. In the allegations that circulate, very often the same four actors indicted they are: the State, the Banque du Liban, the banks and depositors. Now is the time to discuss it in hindsight, for once without passion.
First of all the depositors. Zero responsibility. Those who claim that large depositors are sophisticated investors, who should therefore perceive the risk inherent in their investments, are not very sincere. Because a bank deposit is considered almost zero risk. That’s it almost which has escaped many. But it’s not their fault that they chose to keep their money in their country anyway!
Then theAndstate. Total responsibility. Here we are faced with systematic looting and squandering over a long period. But within this well-oiled process, the responsibilities are not the same. A culture minister is less responsible than a finance minister for 10 years (Ali Hassan Khalil) or energy ministers for 13 years (Gebran Bassil and his successors).
Then the Bdl. Here it gets more complicated. The Banque du Liban is accused of several Actions past, which we will review, each time with contradictory opinions:
– First controversy: “the Bdl should not have lent to the state”. The governor replies that these are laws passed in Parliament, which oblige him to do so. Critics argue that he may find a way to escape him. Legal opinions are not unanimous on this point. But you still have to remember the contexts. For example, it often happened that the government put the Bdl on the wall: “If we do not advance the cash, public employees will not receive the salary at the end of the month”, or “the country will not have more electricity”.
– “The Bdl should have stopped supporting the Lebanese pound when the pressure worsened, which would have saved the Treasury billions.” It is plausible. But you should also know that the fixed exchange rate was part of the declared policy of all governments. And no politician wanted to take the risk of seeing his name glued to the collapse of the local currency.
– “The Bdl has built an unsustainable Ponzi pyramid”. Such a pyramid means that we are attracting more and more money to pay off old creditors. In reality, it is rather the state that built this pyramid, with its colossal debt, its unlimited deficits and its Hezbollah that has caused repeated crises, each time causing billions of losses to the country. And the state has dragged the BDL after it.
– Finally, we must remember two facts that are often overlooked. First, the decisions of the BDL are made by the Central Council, which includes the Governor, the Vice-Governors, the Directors General of the Ministries of Finance and Economy and the Government Commissioner at the BDL. Then, it would be naïve to believe that the Banque du Liban is out of the reach of political pressure, as if it lived on an island, in a country where presidents, governments and parliaments often submit to the wishes of the Syrians, the Hezbollah, or the almighty. Nabih Berry.
Finally the banks. Amounts of grievances collide here, but we’ll unravel them.
– “Banks have neglected the private sector, preferring public investments”. False: Loans granted to this sector have reached 108% of GDP, a high rate according to international comparisons.
– “The banks should have limited their exposure to state risk as much as possible, failing to underwrite the public debt or place their liquidity in the BDL”. Quite true for the first part, but questionable for the second. Because the BDL has explicitly or implicitly attracted bank deposits, beyond the 15% reserve requirement (see Makram Sader’s article linked below).
– “The banks should have asked for guarantees from the state as they do for any borrower”. It’s silly. No bank in any country does this. A state is considered solvent.
– “Banks should have diversified their investments much more”. True, but in this case it was necessary to change the laws and regulations. There, it should be remembered that banks did not have the right to participate in any investment (industrial, tourism, etc.), or invest in foreign financial instruments. And since their financing of the private economy was nearly saturated, their only outlet for placing excess deposits was the public sector (BDL, public debt).
– “They needed to keep more of their deposits abroad (in their correspondent banks) for added security.” In fact, experts and former bankers have defended this option, which has held up. But the problem here is that the bank that would choose this option would necessarily have to lower the interest paid to its depositors, which would put it in an unsustainable position relative to its competitors and cause its depositors to flee to other banks. And the problem will remain the same.
From this pastry exhibition, there is at least one conclusion that stands out, regardless of opinions elsewhere. This is because the state’s pseudo-recovery plans inevitably want depositors to bear the most losses and the state the smallest. Quite the opposite of the scale of responsibility. Amazing? Not really. If these leaders had a coherent thought, or even a simple thought, it would be known.