Banque du Liban: No funding to rationalize subsidies

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The Banque du Liban is no longer able to continue the current subsidy policy and is no longer even able to continue any form of support without prejudice to the mandatory foreign currency reserves, even if the subsidy is rationalized as the government intends to do and has not done so for more than 6 months.
The Banque du Liban had previously warned the government, since July 2020, of the need to rationalize the support in order to ensure its continuity for a longer period and not to deplete the hard currency reserves, but this decision did not dare to take it and the current support policy continued to exist with a value of more than 6 billion dollars annually, which made the Central Bank of Lebanon Approaching, by a few millions of dollars, the reserve requirements of the banks.

After that, the Governor of the Banque du Liban, Riad Salameh, sent a new letter yesterday to the Minister of Finance in the caretaker government, Ghazi Wazni, in which he indicated that “the Banque du Liban believes that it has become urgent for the government, and quickly, to formulate a clear vision of the subsidy policy that it wants to adopt in order to develop An end to the waste that occurs and within limits and controls that allow preserving the assets of the Central Bank of Lebanon in foreign currencies, and work to contribute to securing imports in hard currencies to cover the cost of support, and negotiate with the Bar Association in Beirut regarding the lawsuits that the President declared that he will file in order to avoid any legal and realistic risks May result from it ».

He said, “Given the seriousness of the situation and the economic and social impacts that may result from the delay in deciding on the aforementioned, we wish you to give us clear and frank answers as soon as possible.”

A source in the Banque du Liban told Al-Jumhuriya in this context that the Banque du Liban no longer has the means to continue support or even finance any new support policy if it is rationalized, which, according to the best proposed scenarios, could reach $ 3 billion annually. Consequently, rationing no longer works today.

He added: This failed ruling caused this, after we have repeatedly called on since July 2020 to rationalize the support in order to prolong its period, but no one moved a finger and the government did not introduce any policy to rationalize the subsidy, which negatively affects the Central Bank’s foreign currency reserves. .

The source stressed that the mandatory reserve for banks is a trust deposited with the Banque du Liban that cannot be violated. “We have received warnings from the Banks Association and the Bar Association about the possibility of misusing this trust. Consequently, the Banque du Liban cannot bear this responsibility alone and expose itself to legal risks in order to finance the government’s policies. Rather, the political community and the Council of Ministers must bear this responsibility and negotiate with the Bar Association in judicial matters, and this is what was mentioned in the book of the Banque du Liban yesterday.

As for whether the government has reached a new policy to rationalize subsidies and reduce its cost to 3 billion dollars, for example, the source stressed that the government, in agreement with the Central Bank, must develop a clear policy to deal with the mandatory reserve and secure foreign currencies to finance the new policy of support, “and in the event that The government has requested the use of the compulsory reserve to finance the subsidy. It must negotiate with the Bar Association because the Banque du Liban will not bear the legal risks resulting from that, and the difficult decision will be taken to stop financing the subsidy when it reaches the mandatory reserve ceiling, in the event that the government does not establish a clear policy for continuing the subsidy that legally protects the bank. Lebanon”.

Can the government force the Banque du Liban to use the reserve requirement?
From a legal point of view, and in the event that the government decides to force the Banque du Liban to use the mandatory reserve to continue support, the head of the Justicia human rights organization, Lawyer Paul Morcos, explained that the mandatory reserve deposited by banks at the Banque du Liban is what remains of the depositors ’money, and it is one of the mandatory standards in banking risks. And those stipulated in the Banque du Liban circular based on the Monetary and Credit Law, and it is not permissible to dispose of these funds except through the issuance of a law by the Council of Representatives.

He added: Even if a law is passed authorizing the use of mandatory reserves, it will be considered unconstitutional. Rather, its unconstitutionality ceases to be challenged before the Constitutional Council by 10 deputies or by the authorities that have the right to appeal, that is, the president of the republic, the speaker of the parliament, religious authorities, and others.

He said that if the law is not challenged, or if it is challenged and not revoked by the Constitutional Council, then it becomes a fait accompli law, but it will absolutely not carry a constitutional, legality and legal character as it does not take into account banking principles of risk or even ethical principles.

Lebanese consumption book
In the book directed to Luzni, it was stated: Kindly to our books addressed to you during the past eight months, in which we confirmed the inability to continue this policy due to its ineffectiveness and the great waste resulting from the inability to pursue manipulators and smugglers of subsidized materials,

In view of the continuous decline in the assets of the Banque du Liban in foreign currencies, as a result of the interruption of the flow of foreign currencies on the one hand, and the failure of the government on the other hand any policy to rationalize subsidies, which negatively affects the possibility of the BDL continuing to support the current policy of government

And based on the letter directed by the President of the Bar, in which he requested the «Association of Banks and Banks to immediately do all that is necessary, in Lebanon and abroad with the correspondents of the Banque du Liban, to protect the compulsory reserve, as it constitutes the last remaining of the depositors’ money », and in it it was explicitly considered that« The compulsory reserve is a trust with banks and the Banque du Liban, and violating it in any way, especially to finance the bankrupt public sector … The Syndicate will be forced to take all measures against the perpetrators “represents a breach of trust

Whereas, regardless of the Bank of Lebanon’s position on the aforementioned book, and given the importance of the legal website of the Bar Association, this situation will lead to placing the Bank of Lebanon responsible for legal and judicial responsibilities and thus threatening the possibility of the bank continuing to cooperate with the government’s requests, as well as harm to the relations of the Banque du Liban with correspondent banks in the outside”.





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