Central Bank Governor Hits back; Mediation Underway?

Riad Salameh said the Bank of Lebanon is taking all necessary measures to attenuate financial risks, while sources say his dismissal has been frozen and his ties with the government are be-ing normalized by Major General Abbas Ibrahim.

This image grab taken from a video published by Lebanon's Central Bank on April 29, 2020 shows Central Bank chief Riad Salameh giving a televised speech in Beirut. Lebanon's under-fire central bank governor blamed a lack of government reforms for a worsening economic crisis that has seen protesters spill back into the streets despite a coronavirus lockdown. AFP PHOTO /LEBANON'S CENTRAL BANK

Central Bank Governor Riad Salameh, a favorite target of protestors' ire since the October 17 Revolution, broke his silence to hit back on those blaming him for the country's unprecedented financial meltdown.

Salameh's hour-long video conference on Wednesday came after Prime Minister Hassan Diab held him responsible for the downward spiral, criticizing the central bank performance that led to the crash of the Lebanese pound and saying that an international firm had been tasked with auditing its books. Diab's sharp and public criticism of Salameh fueled reports that the gover-nor's days are numbered and that he will be forced to leave his job. Not yet as many of Sala-meh's traditional defenders, Maronite Patriach Bechara Al-Rai and even House Speaker Nabih Berri voiced support of the long-serving central bank governor, each for his own reasons, and dismissed Diab's attack against him as unacceptable. As for Hezbollah and the Free Patriotic Movement, Salameh was to be blamed but not alone. It was also leaked that Major General Abbas Ibrahim, the head of the Public Security, was reportedly mediating to end the conflict between the Prime Minister and the central bank governor.

In his rare TV appearance on Wednesday, Salameh defended his record, rejecting Diab's criti-cism and a “systematic campaign” against him to hold him responsible for the country’s recent financial crisis. While he assured the Lebanese that there is no need for a haircut, he put the blame on the politicians and successive governments for failing to adopt well-needed econom-ic reforms to save the country.

Salameh emphasized that the central bank is taking all necessary measures to treat the coun-try’s financial ills and that reforms by the government are indispensable to bring economic conditions back to normal.

“Some parties are deluding the public through wrong information,” he added, arguing that there is a “systematic campaign against the central bank and its governor.” He did not name his critics, but he said some of Diab’s advisors seemed to provide the prime minister with wrong reports without getting back first to the Bank of Lebanon (BOL).

While Diab tasked auditors to look into BOL’s finances, Salameh said the organization’s opera-tions are supervised by the Finance Ministry, adding that audited reports of these operations were being handed to the prime minister. Both moves were governed by the Code of Money and Credit.

“Usable BOL liquidity is equal to $20.9 billion, while all gains made by BOL were transferred to the government and helped lower its deficits,” Salameh said. Referring to the widely-criticized financial engineering, which encouraged the banking sector to bring into the country large sums of foreign currencies in return for hefty interests, he said the move was necessary to give Lebanon time to introduce reforms. “If the government failed to introduce these reforms, this is not the central bank’s responsibility.”

Salameh, who was appointed governor in 1993, reassured the Lebanese that their bank deposits were safe, blaming the illiquidity crisis on the balance of payments being negative for several years, unrestrained spending by the government and consecutive political crises. He also said he opposed any “haircut” to any bank deposits, arguing that raising this possibility was alarming to depositors by itself, stressing his belief in the government’s policy, in place since 1992, to sustain a fixed exchange rate for the national currency.

The BOL governor promised to sustain the low official exchange rate (LL1,515 to the dollar, compared to LL4,000 in the black market) for key imports, such as wheat, oil derivatives and medications. “We are doing our best at the BOL to lower the exchange rate offered by money-changers,” he added, citing several measures the central bank has taken in recent months.

While he stressed that he will continue to cooperate with the government and will not be "a tool for destabilizing" the country, Salameh said the central bank "is independent according to the Code of Money and Credit,” which regulates its operations.

Meanwhile, OLJ correspondent Houda Chedid quoted “informed sources” as saying that Major General Abbas Ibrahim, who had mediated many political and security issues, is paving the way to ease tensions between Diab and Salameh. A meeting between the two officials was to take place after the governor's speech. The sources said Ibrahim, who is keeping President Michel Aoun informed about his efforts, has so far met the prime minister twice and "contacts are un-derway to solve the crisis."

Diab’s last week attack against Salameh, unprecedented by a prime minister against the BOL’s governor, questioned in particular what Diab described as the central bank’s lack of transpar-ency. It sparked an outcry within the opposition, mainly the Future Movement and the Socialist Progressive Party, and denunciation by the Maronite Patriarchate and visitors of Dar al-Fatwa, the topmost religious authority of Lebanese Sunnites.

Ministers close to Parliament Speaker Nabih Berri firmly rejected any “hasty” decision concern-ing the dismissal of Salameh. Such a move is made moreover difficult by the Code of Money and Credit, which prerequisites a need to demonstrate serious misconduct in the governor’s performance of his duties or an act of high treason he committed against the country.

Accused of seeking to protect Salameh, Berri defended himself by means of a press release published by Kabalan Kabalan, member of the command of Berry’s Amal movement. “The truth is that US Ambassador Dorothy Shea, who met with the leader of the Free Patriotic Movement (FPM) Gebran Bassil and asked him to convey to the president and prime minister that if Sala-meh is dismissed, that would result in freezing Lebanon’s assets and its gold reserves in the United States, estimated at $20 billion. This is the reason why they (Diab and Bassil) will not dare to dismiss him,” Kabalan said last week.

In the evening, Berri told the website of the daily an-Nahar that it is not Salameh he meant to defend, but Lebanon. “If the central bank is torpedoed, the Lebanese deposits will be gone for-ever,” said Berri. However, an FPM source denied to L’Orient-Le Jour that the ambassador made such remarks and stressed that the FPM supported “change in policy and in people at the central bank.”

According to several sources, Bassil, Aoun’s son-in-law and a key powerbroker in the govern-ment, have actually received “advice” from the US ambassador, and even from French Ambas-sador Bruno Foucher, who met with him last Saturday. Both said they were against the decision to dismiss the governor “not so much because they support him but out of concern to save the country from further turbulence, especially since an alternative to Salameh is not always easy to find.”

Moreover, Bassil’s televised speech last Sunday was interpreted by some analysts as “a notice-able retreat from his initial position” with regard to Salameh. “The central bank has a big re-sponsibility for the losses it suffers and the lack of transparency of the figures, but it is unrea-sonable to say that the BOL is solely responsible. Parliament and the government are also re-sponsible for allowing these mistakes to be made without correcting them,” said Bassil, who himself was a member of several governments.

Jeanine JALKH contributed to this report

Central Bank Governor Riad Salameh, a favorite target of protestors' ire since the October 17 Revolution, broke his silence to hit back on those blaming him for the country's unprecedented financial meltdown.

Salameh's hour-long video conference on Wednesday came after Prime Minister Hassan Diab held him responsible for the downward spiral, criticizing the central bank performance that led to...

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