In a letter sent to the International Monetary Fund (IMF) by an advisor of the Association of Banks in Lebanon (ABL) and seen by Reuters, Lebanese banks argue that Lebanon’s draft agreement with the IMF was “unlawful” and “unconstitutional.”
To help Lebanon recover from the financial crisis and the loss of more than 90% of the value of its currency, the IMF pledged $3 billion in financing over 4 years in the agreement with the country.
One condition for implementing some measures is the passage of a banking restructuring strategy that “recognizes and addresses upfront the large losses in the sector while protecting small depositors and limiting recourse to public resources,” according to the IMF.
Another condition is that Lebanon’s parliament needs to approve an emergency bank resolution law and audit the 14 biggest banks in the country.
The Lebanese banks, however, want to shift the burden of the financial sector losses, which are estimated to be above $70 billion, to the Lebanese state, stating that these losses are the result of years of unsustainable financial policies and corruption.
The letter argues that the agreement relies on “misguided ‘civil society’ talking points,” and has the potential to “unfairly disfranchise” the Association of Banks in Lebanon (ABL).
It continues on to say that “implementation of the SLA would be unlawful or, in the alternative, unconstitutional.” The letter is signed by ABL adviser Carlos Abadi.
In the Lebanese government’s financial recovery plan, adopted on May 20, commercial banks should bear the most losses, followed by the Central Bank and then public assets.
The ABL disagreed in the letter, deeming this plan to be unfair and blaming the central bank for the most financial losses.
The letter suggests that pooling state assets like buildings and land in an investment corporation would help relieve the financial crisis. It also suggests that the Central Bank uses its roughly $15 billion in gold reserves.
The letter states, “Reserves are just that: a buffer kept in reserve for a rainy day and the storm in Lebanon is of biblical proportions.”