Lebanon central bank says no currency float before IMF agreement

BEIRUT (Reuters) - Lebanon’s central bank governor Riad Salameh told Reuters on Friday the country’s currency would not be floated unless an agreement with the International Monetary Fund was reached.

FILE PHOTO: Lebanese pound banknotes are seen at a currency exchange shop in Beirut, Lebanon June 15, 2020. REUTERS/Mohamed Azakir/File Photo

Asked whether the currency price would be determined by the market - after remarks made in an interview with France24 where he said the era of the dollar peg was finished - Salameh said the matter was dependent on negotiations with the IMF.

“It is all contingent to the IMF,” he said.

The admission of the currency peg’s demise was a first from the central bank governor, who had spent years upholding the rate that crashed in 2019 by 80% on the parallel market.

But Salameh said floating the currency would have to be accompanied by many other reforms.

“The departure from the peg to a floating system should come within a general programme enhancing confidence and under the agreement with the IMF,” he said.

Reforms including budget deficit reduction and negotiations with creditors after the country’s default to reassure markets with confidence and fresh liquidity were necessary, he added.

Lebanon is grappling with a deep economic and financial crisis that has hammered the currency, spread poverty and prompted a sovereign debt default.

An insolvent banking system, which had lent more than two-thirds of its assets to the central bank and state, has shut out all depositors from their dollar accounts.

Talks with the IMF stalled last year when Lebanese government officials, bankers and political parties could not agree over how big the losses were in the financial system and who should bear them.

The IMF said in December it was committed to helping Lebanon, but that the country was in need of a coherent fiscal framework and a credible strategy to rehabilitate its banking sector.

Reporting By Laila Bassam, Ellen Francis and Maha El Dahan; Editing by Rosalba O’Brien and Alex Richardson