Gov’t recovery plan:
Everyone opposes it

Controversy over the fate of deposits

The Financial Sector Recovery Strategy approved by the Cabinet in its last official meeting before becoming a caretaker government has been met so far by objections from the banks, business associations, experts, and political parties of different stripes. The recovery plan is part of the requirements for an IMF agreement. It still needs the approval of Parliament.

Political parties
Rival political factions, who oppose each other on almost everything else, agree on objecting to the recovery plan. From Hezbollah, Amal Movement, and the Lebanese Democratic Party to the Lebanese Forces, they all oppose making depositors bear the losses. One MP said they will not allow the recovery plan to pass because it is anticonstitutional since it tears down private property, that is, depositors’ money. He said that discriminating between small and large depositors is illegal and a desperate attempt to continue to misappropriate depositors’ funds. “The only demarcation line that must be drawn ought to be between those who had acquired their wealth in a lawful manner and those who did it illicitly. Stop underestimating the intelligence of the people who will hold you accountable,” the MP said.

Lebanese Economic Organizations
The Lebanese Economic Organizations object to the recovery plan and propose the creation of a sovereign fund whereby the private sector manages public sector entities. This will boost the revenues of the State which will then be able to compensate depositors. The Economic Organizations don’t call for selling the assets of the State or its institutions. They consider that the State is not poor and could launch projects to develop plots of land it owns which would generate substantial revenues.

Association of Banks (ABL)
The aim of the government and the Central Bank (BDL) from the recovery strategy is to evade their duty to settle the debts they owe and make the banks and depositors bear the major portion of the losses exceeding $70 billion. These losses result from squandering public money through policies adopted by successive governments and BDL. The plan wipes out the banks’ equity and the government abolishes deposits at the stroke of a pen. This is the brainchild of the genius of ‘experts’ despite the existence of well-defined alternative plans especially the one proposed by ABL which involves setting up a sovereign fund to invest in some of the State assets in order to return to depositors their rights on the medium and long terms. ABL completely rejects this disastrous plan that violates the Lebanese constitution and all regulations in force. Its legal advisors will present a range of judicial measures to preserve and recover the rights of the banks and depositors. Deputy Prime Minister Saade Chami said that the open attempt of the banks’ shareholders to link the destiny of their own wealth to that of depositors is perilous and irresponsible. Saade said that the plan came after several months of strenuous talks with the IMF and that it abides by the international principle of the hierarchy of rights in the absorption of losses. This means that deposits cannot be used before exhausting the banks’ equity, he said. According to Saade, the plan safeguards nearly 90 percent of depositors’ money. “But this does not mean that we ignore the remaining ten percent,” he said.

Ghassan Ayache former Vice Governor of BDL
This is one of the worst documents in Lebanon’s economic history. The government plan completely wipes out the rights of depositors and of the banks’ shareholders. If, God forbid, this plan is ultimately passed, foreign currency deposits will evaporate as is the case with the banks' shareholders' equity. The plan does not set a ceiling for protected deposits to reassure small depositors. It doesn't offer any guarantee for deposits in non-viable banks. As for large deposits, they are destined for a ‘Final Solution’ in a real 'holocaust'. Large depositors are told that their savings will be converted into shares or into ambiguous contributions, or will be repaid in lira over a long period of time. The holocaust doesn't spare the banks’ shareholders who are not necessarily wealthy. Dissolving the banks and writing off their equity in an arbitrary manner does not just harm the banks’ shareholders but ruins the Lebanese banking sector as a whole and prevents the creation of a new banking system.