The country has had no president since November and the government is unable to push laws through parliament. Its debt totals more than $41 billion, according to the Economist Intelligence Unit, or 190 percent of gross domestic product.
``The objective of the government was to generate deposits from Saudi Arabia and other friendly countries so that the balance sheet of the bank remains strong,'' Salameh said in an interview in Beirut yesterday. The government ``cannot issue new debt and therefore meet foreign currency obligations without recourse to the reserves of the central bank.''
Lebanon needs the money to finance a fiscal deficit that reached 10 percent of GDP last year. It also needs to guarantee a currency peg that ensures confidence in the banking system and enables the country to attract billions of dollars from the Lebanese community living abroad. For the moment, all the government can do is roll over its existing debt.
On Feb. 8, Aref al-Abed, spokesman for Prime Minister Fouad Siniora, said in an interview that Saudi Arabia may deposit $1 billion in Lebanon's central bank to shore up the country's financial system. Salameh said Siniora was also talking to Kuwait and the United Arab Emirates about deposits.
Saudi Arabia deposited $1 billion and Kuwait $500 million in Banque du Liban during the 2006 war with Israel, when the country's exchange-rate peg to the dollar came under pressure.
Political Crisis
Lebanon has been without a head of state since Nov. 23, when Syrian-backed Emile Lahoud left office at the end of his term. Lawmakers have failed to elect a new president on 15 occasions.
``The key factor for the resilience of the Lebanese financial and monetary system is the stability of the Lebanese currency,'' said Nassib Ghobril, head of research at Byblos Bank. ``Going to the Gulf countries is a preventive measure in case there is any pressure on the currency and it helps the government meet its financing needs in the absence of privatization and a functioning parliament.''
Lebanon has $12.6 billion in foreign currency reserves, Salameh said, compared with the record $13 billion they had in March of last year.
The currency peg helps ensure that many of the 12 million Lebanese living abroad deposit part of their savings in local banks. Deposits grew last year by more than 10 percent, or about $6 billion, Salameh said.
Economic progress in the country has been hurt by the political stalemate between the ruling pro-Western governing coalition and the Syrian-backed opposition.
Last month Lebanon's government postponed the auction of two mobile-phone companies, which it hopes will raise more than $7 billion, because of a political stalemate.
Sources: Bloomberg
Tags: Arab World, bonds, Business, deficit, financials, Lebanese Economy, Riad Salameh
