How “Financial Engineering” Helped Push Lebanon’s Economy into Crisis
The central bank governor’s looming departure raises questions over how the country’s political and economic elite enriched themselves at the expense of the public—even as their actions helped bring about an enormous economic crisis.
Will the IMF Rescue Lebanon?
At this moment, the path out of the financial crisis itself depends in great part on the implementation of an IMF economic reform program, following a preliminary agreement reached between the IMF and the Lebanese government in April 2022. As part of the agreement, on the condition that reform measures are fulfilled, the IMF will provide a $3 billion bailout to Lebanon aimed at restoring the country’s economic and financial sustainability. The IMF reform plan primarily requires the implementation of several painstaking reforms, including the restructuring of the country's commercial banks, the abolishing of central bank financing, a capital controls law, amending the banking secrecy law to conform with international standards of fighting financial crimes, and the unification of the multiple exchange rates for the Lebanese pound, which resulted from the collapse of the stable exchange rate following the crisis. However, according to an IMF statement following a team’s mission to Lebanon in March, limited progress has been made in fulfilling comprehensive economic reforms. The statement noted the lack of action by Lebanese authorities to enact key changes, as well as the persistence of a set of financial practices harmful to the Lebanese economy.
Above all, the IMF’s proposal calls for financial sector losses to be distributed between the government, the banks, and large depositors in a manner that protects small depositors while keeping recourse to state assets to a minimum. Not surprisingly, this proposal has been largely opposed by Lebanese banks, contributing to stalling reforms.
For now, it seems, Lebanon continues to be stuck and must wait for deliverance, both political and economic/financial. Salameh’s fate may end up being a bellwether for the country’s situation: will be held for account for his numerous alleged crimes, signaling that change is at hand, or will he somehow manage to get away with all that he has done?
Rany Ballout is a New York-based political risk and due diligence analyst with extensive experience in the Middle East. He holds a master’s degree in International Studies from the University of Montreal in Canada and a bachelor’s degree in Linguistics from Uppsala University in Sweden.
Image: Shutterstock.