Clash escalates in Lebanon over banking restructuring backed by the International Monetary Fund (IMF)
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Lebanon's determination to revamp its financial system is drawing flaks from opponents of International Monetary Fund (IMF)-backed reforms, with civil society groups facing relentless attacks and legal battles. These organizations, backing IMF policies, claim they're being smeared in a smear campaign.
Media personalities and channels in Lebanon have labeled reformist policymakers, advocacy groups, and journalists investigating financial corruption as puppets in a George Soros-funded conspiracy aiming to harm Lebanon's economy. Independent media outlets have also been bombarded with multiple legal complaints, a move Human Rights Watch called a "weaponization" of criminal defamation laws.
Lebanon, plagued by a 2019 financial crisis that left the currency down 90% and bank deposits erased, with losses estimated over $70bn, has failed to implement most of the reforms demanded by the IMF. Yet, Prime Minister Nawaf Salam and President Joseph Aoun, who rose to power post-conflict with Israel, are under pressure from foreign donors to overhaul the banking sector. They vow to enact the reforms their predecessors shied away from.
Diala Shehadeh, a lawyer for one of the targeted media outlets, sees a "political campaign" aimed at defending the interests of the banking class. In a positive stride, Lebanon's parliament recently changed banking secrecy rules to advocate for increased transparency, an essential step towards holding perpetrators accountable and achieving economic reform, according to Salam.
However, the most contentious reforms lie ahead. To secure the long-awaited IMF deal, Lebanon needs to enact laws restructuring the banking sector, allocate crisis losses, and prepare plans for depositor repayment. The burning question: how fairly will the burden of these losses be distributed between the state and the banking sector?
Ayman Mhanna, executive director of the Samir Kassir Foundation, notes that "specific actors" linked to the banking sector have invested heavily in propagating a certain narrative, aiming to derail reforms. Despite this, he expects the campaign to fail in reaching its desired goals, as the reform momentum is gathering pace.
The draft banking sector restructuring law has been accepted by the cabinet, and parliament's finance committee is currently discussing it. However, legislation on distributing losses and repaying depositors is yet to be approved by either body. The Association of Banks in Lebanon seeks a "balanced approach" between banking reform and the protection of depositors' rights.
Lebanon's former central bank governor Riad Salameh, who faces charges of financial crimes, was arrested last year. Many Lebanese banks have long supported the country's television channels, whose business models rely on bankers and politicians, according to studies by The Policy Initiative, a Beirut-based think-tank.
Multiple media outlets have accused MPs advocating for reform as agents of a foreign agenda. Some of the groups named in these reports have retaliated with legal complaints alleging attempts to undermine the Lebanese state, a move Human Rights Watch describes as an effort to stifle financial corruption exposés.
Related Insights:The ongoing financial crisis in Lebanon has left banks effectively insolvent, with frozen deposits estimated between $86 billion to $93 billion across about 1.26 million accounts. Most small accounts have received partial settlements, but medium and large accounts remain largely frozen.
The nomination of Karim Soueid, supported by the banking lobby, as governor of the central bank has lowered reform expectations, highlighting the influence of entrenched power structures and internal divisions that hinder decisive action.
Delayed and partial reforms, along with a major capital injection into the banking system, are seen as essential but challenging to secure, complicating the path to financial stability and restoring depositor confidence.
- The ongoing financial crisis in Lebanon, which has left banks effectively insolvent with frozen deposits estimated between $86 billion to $93 billion, has been a source of intense debate in the general-news and finance sectors.
- Political leaders in Lebanon, under pressure from foreign donors, are seeking to overhaul the banking sector as part of the IMF-backed reforms, a move that is being met with resistance from opponents.
- The banking sector, which has been a key player in Lebanon's economy, is facing increased scrutiny due to allegations of financial corruption and a smear campaign against reformist policymakers and journalists.
- The interplay of politics, business, and finance is underscored in the ongoing disputes surrounding Lebanon's financial system, with the economy's future heavily dependent on the passage of contentious reforms, such as restructuring the banking sector, allocating crisis losses, and preparing plans for depositor repayment.
