© Reuters. Head of the International Monetary Fund’s delegation to Lebanon Ernesto Rigo, attends a news conference in Beirut, Lebanon March 23, 2023. REUTERS/Mohamed Azakir
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By Maya Gebeily
BEIRUT (Reuters) – The International Monetary Fund warned on Thursday that Lebanon was in “very peril” a year after it pledged to reform but failed to deliver it and said the government must stop borrowing from banks. center.
IMF mission chief Ernesto Rigo told a news conference in Beirut that authorities should accelerate the implementation of the conditions set out for the $3 billion bailout.
“One can expect more in terms of implementation and passage of legislation” regarding the reform, he said, noting that progress is “very slow”. “Lebanon is in a very dangerous situation,” he added, in unusually frank remarks.
Lebanon signed a staff-level agreement with the IMF nearly a year ago but has yet to meet the conditions to ensure a full program, seen as crucial to recovering from one of the worst financial crises. worst in the world.
Without swift reforms, Lebanon “will be mired in an unending crisis”, the IMF warned in a written statement following Rigo’s remarks.
The economy has been crippled by the collapse of the Lebanese currency, which has lost about 98% of its value against the US dollar since 2019, causing triple-digit inflation, widespread poverty and a migratory waves.
The crisis erupted after decades of profligate spending and corruption among the ruling elite, some of whom led state-run loan sharks.
The government estimated losses in the financial system totaling more than $70 billion, much of which accrued at the central bank.
“No more borrowing from the central bank,” said Rigo.
“Over the years, the government has borrowed from the central bank. Not only in the past (but also) over the past few months, that’s something we’ve recommended stopping.”
The IMF has called for allocating losses in the financial sector in a way that protects the rights of small depositors and limits recourse to state assets, although powerful politicians and banks have pushed back, delay recovery.
“It could be said that the loss is so great that unfortunately there will have to be a split between the government, the bank and the depositors,” added Rigo.
However, he said the IMF would “never give up” on helping a member state and there was no deadline for Lebanon to implement reforms.
SLOW TO REFORM THEM
Some observers say an IMF deal now seems more distant than ever.
Mike Azar, a financial consultant and expert on Lebanon’s financial crisis, told Reuters: “To anyone who has watched Lebanon over the past four years, the possibility of an IMF program being implemented seems like a no-brainer. as if there were none”.
“There is no urgency, no incentive and no pressure on decision-makers to implement any fundamental reforms,” he said, adding that instead, Lebanon is towards disorderly dollarization, collapsing public services and wiping out remaining deposits.
Authorities have passed a number of reform measures, such as the 2022 budget, an audit of the central bank’s foreign asset position, and an amended bank secrecy law.
However, the IMF statement on Thursday said the revised banking secrecy law needed to be revised again “to address the serious weaknesses that remain”.
Lebanon still has no capital control laws, has not passed legislation to tackle the banking crisis, and has not agreed multiple exchange rates for the Lebanese pound – all measures the IMF has requested.
Rigo said that Lebanon should move towards a market-determined exchange rate, rather than maintaining multiple rates including the central bank Sayrafa exchange rate, which is not regulated by the market.
