Khaled Abu Chakra wrote in “The Call of the Nation”:
It is said that the International Monetary Fund does not enter any country before liberalizing its currency exchange rate. Government intervention in the exchange market and pegging the value of the currency to the US dollar, or other strong currencies, is a rejected form of support. This is because it drains public finances and covers the flaws of a failed economy. Lebanon, which has existed for more than two decades, is at the throne of this experience today, facing the bitter truth with one of the fiercest rejectors of it. Will the exchange rate be the entry point for the solution or a reason for a dispute with the “fund”?
There are many pitfalls that will hinder the negotiation process that will be officially launched today between the Lebanese side and the delegation of the “International Monetary Fund”. Perhaps the most serious of them is the problem of dealing with the exchange rate of the Lebanese pound against the US dollar. Sudden liberalization may plunge the country into a worthless lira and cause social and economic catastrophe. As for the continuation of the stabilization, it will absorb the benefits of the new borrowing and deplete the remaining foreign currency reserves in the Central Bank, and threatens with the chaos of manipulating pricing after there are more than seven exchange rates.
“The scale of the problems in Lebanon is unprecedented,” FFA Private Bank Chairman Jean Riachi comments on the controversy of liberalization or exchange rate support, saying that “the downsides of liberalization today are parallel to its positives. And any plan can fail if not studied with much precision.” And take care. ”
Maintaining the official exchange rate of 1507.5 has two benefits: The first is the ability to continue importing three major commodities (oil, wheat and medicine) at a low price. What constitutes indirect support to citizens contributes to enhancing their purchasing power.
Second, it helps individual and corporate borrowers keep their dollar-denominated installments of the banks and companies themselves, without any increase. The revaluation of loans in dollars on the free exchange rate, or even specified at 3500 in the first stage, as the government plan indicated, would be incapable of borrowers and owners of income in the Lebanese pound and would prompt them to stop by virtue of the payment of installments and thus increase the rates of bad debts in the banking sector.
Third, the liberalization of the exchange rate will force the banks to pay about $ 120 billion in pounds on the new price without any controls, which will flood the country with the Lebanese currency and lead to a wave of inflation, the collapse of the Lebanese pound, and the unprecedented loss of purchasing value and leave serious repercussions on the economic situation. And social. He will return and compel banks to restrict deposits or reduce their value via “haircut”.
On the other hand, the continuation of fixing the exchange rate and subsidizing basic commodities first allows an increase in the smuggling of subsidized goods to Syria, and this is what we are witnessing with diesel and flour, where the smuggled quantity exceeds 400 million dollars annually. Therefore, a large part of the benefits of stabilization will go to those who do not need it and to Syria, at the expense and interest of the poor and those who are in need of real support.
Second, the fixation creates multiple exchange rate rates and causes chaos in pricing and currency exchange operations.
Third, the absence of a normal exchange rate in the banking sector disrupted all commercial operations in banks, and forced the trader, importer, and industrialist to secure the dollar from the secondary market in order to finance import needs.
Fourth, and most importantly, the stabilization depletes the remaining hard currency reserves in the Banque du Liban, which are estimated, according to international authorities, to be in the range of $ 5 billion. Therefore, the continuation of this financing will expose the remaining dollar reserves to depletion soon.
Fifth, the stabilization of the exchange rate increases the absence of the serious treatment mechanisms that the government is supposed to carry out.
Based on the confusing positives and negatives, according to Riachi, it is expected that “the International Monetary Fund, which studies the file with great care and accuracy, will agree to the gradual liberalization of the exchange rate. It is not excluded that some aid will be allocated in the first stage of the Bank of Lebanon in order to help manage the exchange rate.” . It is also possible, in his view, “to lift subsidies on wheat, medicine and oil, and allocate funds to directly support the needy groups, instead of the money going to those not in need or to Syria.”
Maintaining this balance requires, in the first stage, to maintain the intervention of the Bank of Lebanon to prevent the collapse by securing the new dollar, which enters the country from remittances, exports, tourism or others and ends with a net reserve in the central that allows it to intervene to manage the exchange rate. Unifying the exchange rate first and then editing, after removing obstacles and problems, may be the most appropriate solution, according to the viewers of the file. Will the IMF take Lebanese privacy, or will it only have a point of view?