The Lebanese Economic Organizations (LEO), a group representing the private sector including the Association of Banks in Lebanon (ABL) and led by former Telecommunications Minister Mohammad Choucair, lambasted on Monday the recovery plan adopted last week by the government of Prime Minister Hassan Diab. The group’s statement, issued after a meeting on the government’s proposed measures, included arguments already made in recent weeks by other private sector representative bodies.
In addition to the ABL, the Lebanese International Finance Executives (LIFE), an association of expatriate finance entrepreneurs; the Association of Lebanese Business People in the World (RDCL World, led by Fouad Zmokhol); and the Lebanese Businessmen Association (RDCL Lebanon, a separate entity chaired by Fouad Rahmé) have been expressing their respective concerns since April. Like the ABL, the LEO mainly criticized the government for not having consulted with it while it was developing the plan, which has been leaked to the press in various drafts since early April. The group boasted that it “has always been able to provide an objective opin-ion that serves the interests of the country.”
“Destroying” the Economy
The LEO also accused the government of putting together a plan that includes many measures that are “destructive to the economy” and affecting particularly the private ownership and the “liberal economic system” protected by the Constitution, while government policies and officials were cleared “of all responsibility.” It argued that the plan lacks “vision” to re-launch the economy and improve the business environment, and plans to impose new taxes and “confiscate some of the assets owned by the Lebanese people.” The only positive point noted by LEO is that the government has decided to seek assistance from the International Monetary Fund (IMF). A formal request for financial assistance and a copy of the plan were sent to the institution this weekend.
In conclusion, the LEO called on the government to take its comments into account ahead of its upcoming negotiations with the IMF and urged lawmakers to block all “destructive measures to the economy” that the government will put to their vote as part of the implementation of its recovery plan. Lebanon is facing its worst economic and financial crisis in 30 years, which has affected the private sector as a whole.
Without constituting a strategy for exiting the crisis, the government’s plan lays the foundation for a roadmap that aims to get the country back on track within five years and then to continue on this new path. In addition to the reforms that have been considered for many years (targeting the electricity sector and civil service, combating corruption, etc.), the plan was exceptional for establishing an assessment of the losses accumulated by banks and the central bank over the years, totaling tens of billions of dollars, and for offering a series of remedies.
While the proposed solutions for the banking sector – which must fill a hole of more than $80 billion – are not final, the range of options available, excluding government bailout or a first-resort infringement on small depositors, is very limited. Bank shareholders and managers are to bear the brunt of the crisis. As if this is not sufficient, a contribution from some of the depositors through a bail-in (the conversion of part of their funds into the capital of their bank) is part of the other measures envisaged.
These options were rejected by the LEO, led by the ABL, and also by the RDCL World, which attacked these measures in a press release issued on Monday, promising that its members will use all legal means to protect themselves. The LEO also feared that the adoption of this part of the plan would ultimately promote the development of the black market. A few weeks ago, LIFE admitted that the plan was successful at several levels, but advised the government to consider the bail-in as a last resort measure to be adopted after guarantees of transparency and efficiency are given to the depositors involved. In April, the RDCL Lebanon maintained, among other arguments, that “those who must pay are those who benefited” from a system that enabled some to get richer at the expense of public debt.
While it has not yet responded directly to private sector organizations, the government presented its final plan on Monday to lawmakers who met upon the invitation of the parliament’s Finance and Budget Committee. They grilled Finance Minister Ghazi Wazni and Economy and Trade Minister Raoul Nehmeh. At the end of the meeting, the committee’s chairman and Free Patriotic Movement lawmaker, Ibrahim Kanaan, said that some of the plan’s figures should be clarified, and that the implementation of the plan required the vote on “a dozen of laws.” The committee also planned to meet fairly quickly with the LEO to continue the debate on the plan.
But the IMF’s opinion should be decisive to settle the debate. According to a source close to the matter, the government has indeed finalized its plan while taking into account comments made along the way by the Bretton Woods institutions (World Bank and IMF). The probability that the IMF approves the government’s plan is “high,” and the organization’s signals so far about unlocking an assistance program are “positive,” even if nothing is official yet, the source said.
Moreover, the tax measures provided for in the plan should apply “only once growth has been restored,” that is, in 2022 at the earliest, according to the plan’s projections, the source added. This makes one of the arguments put forward by the LEO questionable. The Bank of Lebanon audit that the state wants to entrust to KPMG, Oliver Wyman and Kroll is expected to begin soon, according to the source. Negotiations between the government and these three international companies have reached the “final stage.” The absence of a detailed plan in the final document for reforming the electricity sector is due to the fact that the Ministry of Energy and Water is continuing its discussions with two of the companies still competing for the construction of new power plants, the source explained. These are the German Siemens and the US General Electric.
(This article was originally published in French in L'Orient-Le Jour on the 5th of May)
The Lebanese Economic Organizations (LEO), a group representing the private sector including the Association of Banks in Lebanon (ABL) and led by former Telecommunications Minister Mohammad Choucair, lambasted on Monday the recovery plan adopted last week by the government of Prime Minister Hassan Diab. The group’s statement, issued after a meeting on the government’s proposed measures,...