April 24, 2020 / 5:35 PM / a month ago

UPDATE 1-Lebanon PM rebukes central bank governor as currency fall quickens

(Adds quotes, context)

BEIRUT, April 24 (Reuters) - Lebanese Prime Minister Hassan Diab delivered an unusually strong rebuke to central bank governor Riad Salameh on Friday, questioning his performance amid a rapid fall in the Lebanese pound and mounting losses in the banking system.

Lebanon’s pound currency has tumbled against the dollar since October, losing more than half its value as foreign inflows dried up and banks imposed strict controls to hold on to dwindling hard currency.

In a televised address Diab painted a grim picture of the central bank’s finances, pointing to data that indicated “accelerating” losses, with $7 billion gone since the start of the year and $3 billion of that in the past four weeks alone.

Diab warned that liquidity at cash-strapped banks was “beginning to run out,” with $5.7 billion in Lebanese deposits exiting the system in January and February.

Last month Lebanon defaulted on its hefty foreign debt obligations, declaring it could no longer repay creditors while preserving cash for vital imports.

“There are major gaps in the central bank: a gap in the performance, a gap in the strategy, a gap in the clarity and openness, a gap in the monetary policy, and a gap in the accounts,” said Diab.


Salameh, one of the world’s longest-serving central bank governors at around 27 years, has seen his record increasingly come under fire as the economy has nosedived.

Critics say his so-called “financial engineering”, involving siphoning dollars from local banks at high interest rates to keep public finances afloat, saddled the country with insurmountable debt and few sustainable sources of hard currency.

Defenders consider Salameh a linchpin of stability amid years of poor governance by politicians blamed for corruption and waste that has fuelled anti-government protests.

A draft economic reform plan that surfaced this month laid bare the scale of the country’s spiralling crisis, estimating about $83 billion in banking sector losses and proposing a temporary depositor contribution to fill much of the gap.

The Lebanese pound slid about 15% further against the dollar this week, prompting small protests and a call by powerful parliament speaker Nabih Berri for the government to use “legal powers” to halt its “dramatic collapse”.

“Let the central bank governor come out and honestly announce to Lebanese the facts, on why what’s happening is happening, what steps are on the horizon, and what the ceiling for the dollar’s rise is,” said Diab.

Lebanon on Friday edged further away from its long-held dollar currency peg after the central bank set an exchange rate for wire transfers 58% below the official price of 1507.5. That rate remains accessible only to importers of vital goods.

“Can the central bank governor still continue to assure (Lebanese) of the pound exchange rate as he did months ago, when suddenly these reassurances have evaporated?” said Diab.

Reporting by Laila Bassam; Writing by Eric Knecht Editing by Catherine Evans, Kirsten Donovan

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