Lebanon central bank chief pledges stability amid political paralysis

Lebanon's Central Bank Governor Riad Salameh smiles during an interview with Reuters in Beirut, Lebanon November 3, 2015. REUTERS/Mohamed Azakir/File Photo
Lebanon’s Central Bank Governor Riad Salameh smiles during an interview with Reuters in Beirut, Lebanon November 3, 2015. REUTERS/Mohamed Azakir/File Photo

Lebanon’s central bank chief said he will ensure local banks comply with a US law targeting Hezbollah’s finances, weeks after a bomb attack at a major Lebanese lender that had begun closing accounts linked to the militant group.

Riad Salameh told Reuters the US law must be enforced to keep Lebanon’s banks within the global financial system and stabilise the hugely indebted economy as neighbouring Syria’s civil war hits tourism and growth.

“Of course this (law) has created a lot of tension in the country, and the tension was not good for Lebanon, but overall we have preserved the objectives that we had in mind,” he said.

Passed in December, the law threatens to bar from the US financial market any bank that knowingly engages with Hezbollah, designated a terrorist organisation by the United States. It has led to a standoff between the central bank and Hezbollah, which views it as a breach of sovereignty.

Salameh and the US Treasury have repeatedly said the Hezbollah Financing Prevention Act is not designed to hurt Lebanon’s economy or to unjustly prevent members of Lebanon’s Shiite community from accessing banking services.

Hezbollah, whose fighters played a major role in forcing Israel to withdraw from southern Lebanon in 2000, enjoys strong support among Lebanese Shiites. Its members include government ministers, MPs, and local councillors.

Salameh would not comment on how many accounts had been closed so far, or how many were under investigation.

“The process is being respected by the banks and a Special Investigations Commission is looking individually at every request to close accounts that they deem are in contradiction with the law,” Salameh said.

With government debt of 136.7 per cent of GDP in 2015, the third-highest among countries rated by Fitch, confidence in Lebanon’s central bank – seen as one of the only effective institutions in the weak state – is vitally important.

“The banking sector in Lebanon is the cornerstone of stability in the country,” said Salameh, who took office in 1993, making him currently the world’s second longest-serving central bank head after Uzbekistan.

“Lebanon is funded by its banking sector only.”

Cost of war

Battered by regional instability and a huge refugee burden Lebanon’s traditional economic resilience is being put under ever increasing strain.

Salameh forecasts growth of 1.5 to 2 per cent for 2016, in line with a World Bank projection of 1.8 per cent but far below the 8-9 per cent growth rates seen in the years before 2011.

Political paralysis that has kept the post of president vacant for over two years is also testing confidence in the country and curbing foreign direct investment (FDI).

FDI, a key source of foreign exchange, dropped to about 5 per cent of GDP in 2015, compared to 12.5 per cent of GDP in 2009, according to central bank and World Bank data.

“The Syrian presence… in terms of displaced population has created costs for Lebanon which is reflected in the economy,” Salameh said. “It has also created less consumption and investment… because many Gulf citizens don’t come anymore to shop in Beirut or to buy real estate in Lebanon due to the war in Syria.”

Fitch cut Lebanon’s credit rating to B- from B last week, citing political risks and the deepening toll Syria’s civil war is having on Lebanon’s economy and politics. It was last rated B- in 2006, during the conflict between Israel and Hezbollah.

Laws to allow oil and gas exploration, which could raise revenues to help cut the deficit, or public-private partnerships to revive crumbling public services, have been stalled by the political impasse that has also left the presidency vacant.

“Lebanon needs to put its act together (on reforms),” Salameh said. “The time we are wasting is costly.” He said the central bank will keep stabilising the economy for “as long as it takes” for the government to become more effective, pass a budget and tackle the structural deficit.

“The other scenario is not good for Lebanon and it is much more costly than the costs we are incurring as a central bank to maintain confidence of the markets.” Confidence in the central bank remains high and should ensure Lebanon can continue to fund itself, he added.

“You can see that from the stability we are witnessing in interest rates charged on Lebanese debt that are much lower than comparable rated countries in the world,” Salameh said.

“I think this confidence has been preserved. We didn’t see pressure to change Lebanese pounds into foreign currencies. This year we expect growth in (bank) deposits by almost 5 per cent.

“Of course, we would have been much happier if there were not … these laws that create tension in our market.”




9 responses to “Lebanon central bank chief pledges stability amid political paralysis”

  1. Michaelinlondon1234 Avatar

    US Treasury have repeatedly said the Hezbollah Financing
    Prevention Act is not designed to hurt Lebanon’s economy…….a complete lie.
    unjustly prevent members of Lebanon’s Shiite community from accessing banking services……Another lie.
    “Lebanon is funded by its banking sector only.” Another lie.
    To be fair keep on concentrating on trade. Any one dealing with the US embassy charge a hefty fee. Because there is a good chance they will murder you at some stage.

    1. 5thDrawer Avatar

      For a moment I read that as “pledges stability AND political paralysis” …
      So what’s ‘The Remittance’ this year??

      1. Michaelinlondon1234 Avatar

        Something completely off track.

  2. Hind Abyad Avatar
    Hind Abyad

    Lebanese journalist Nour Samaha. July 20th, 2016

    “As Yemen War Rages, Iran-Saudi Tensions Seethe in Lebanon”
    Lebanon’s Saudi-backed Media Outlets Lash Out

    While pro-Hezbollah publications, like Al Akhbar, were attacking Saudi Arabia long before the Saudi-led intervention in Yemen, Hezbollah has been careful not to directly and publicly confront the Saudi royal family. Since the Yemen war began, however, Hezbollah has bluntly criticized Saudi Arabia for wreaking havoc on the country.”

    1. Michaelinlondon1234 Avatar

      USA ambassador and UK ambassadors to Saudi are the same 2 people who whispered sweet nothings in Assad’s ear pre conflict.
      Interesting the UK guy has ties to a Christian order of Jerusalem.
      Both stood up in 2011 saying overthrow government type stuff.
      Meanwhile one of the ex leaders of NATO (British) says Russia is going to invade eastern Europe…very sad LOL. Maybe every one is doing drugs that I am not getting.
      Had conversations on the Moscow times re this years ago. conclusion sink all of the US aircraft carriers and troop carriers first with Washington and Newyork…. if any member of NATO attacks. Use Nukes with no hesitation. The USA is not a signature to the treaties on any of this stuff with Russia..
      On a nicer note

      1. Hind Abyad Avatar
        Hind Abyad

        Syria Researcher Destroys Former U.S. Ambassador And Terrorist Supporter Robert Ford On Twitter…
        (ex-Iraq ex-Libya ex-Syria ambassador)

        Disseminating Fake Information: Conversations with State Department Propagandist Robert S. Ford, Former US Ambassador to Syria

        1. Michaelinlondon1234 Avatar

          We just have to keep on batting the fantasies the US government spins at us. I am currently running foil on the efforts on Eritrea.
          I figure every one is up to speed on Syria.
          Google…funds Jigsaw. run by a Mr Cohen. Ex state department.
          Google has a lot of US government pension money invested in it.
          Jigsaw running a lot of semi fantasy “documentaries” Published by vice news. Presumably will then be quoted by politicians and government funded fake NGO’s. The NGO’s then lobby government and the UN. The politicians then Lobby the government and UN.

          Like a snake eating its own tail

          1. Hind Abyad Avatar
            Hind Abyad

            That’s the routine..people live on fantasies, not knowledge.

          2. Michaelinlondon1234 Avatar

            Here is my little fantasy.
            Roman empires spent about 800 years building roads and water systems. As they rose and fell multiple times. Europe has refined and modified these over 1500 years..

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