Dr. Joseph Torbey

As the term of Central Bank Governor Riad Salameh draws to an end in July, Lebanon’s political and economic circles are cautiously anticipating the management of the transitional period.

Salameh has been in his post for 30 years and his term has been renewed five times. He declared that he would not seek another renewal.

The most recent evaluation of Lebanon with the International Monetary Fund (under Article IV) increased the general state of “uncertainty”, as it confirmed that the country was still facing an unprecedented sovereign banking and monetary crisis that erupted over three years ago.

Lebanon’s economy has witnessed a contraction of nearly 40 percent. The Lebanese pound has lost 98 percent of its value, inflation registered unprecedented rates, and the Central Bank lost two-thirds of its foreign exchange reserves.

The total hard currency reserves of the Central Bank amount to around $9.5 billion, offset by existing external liabilities of about $1.7 billion, while net bank deposits with correspondent foreign banks amount to about one billion dollars, after deducting the corresponding liabilities.

Despite all the bleak situation, Chairman of the World Union of Arab Bankers and Lebanese banker Dr. Joseph Torbey stressed the importance of the critical shift in the approach to the legal backing that was put forward by the State Shura Council, in terms of the formal acceptance of the review submitted by the Association of Banks on the government’s proposal to cancel a large part of the Central Bank’s obligations in foreign currencies towards banks.

Pending a legal and final decision on the content of the review, Torbey pledged, in an exclusive interview with Asharq Al-Awsat, that the mere involvement of the Council in this matter would guarantee the creation of an institutional atmosphere and would convey a positive message for all those concerned, especially depositors, residents or non-residents alike.

According to Torbey, the government’s approval to calculate the state’s debt losses and to exempt it from its financial obligations towards the Central Bank would cancel tens of billions of dollars in debt, and eventually translate into writing off deposits.

He stressed that this proposal has so far been rejected by parliament and by the depositors’ associations.

“Those, who do not find another way to get rid of the debt except by writing it off, in fact refuse to carry out a reform in the public finances that would stop the squandering, improve revenues, and put Lebanon on the path to recovery,” Torbey said.

The IMF must deal with this fact based on the presence of constitutional, legal and political impediments that prevent the state from writing off deposits, according to his reading.

In parallel, the senior banker noted that the Lebanese state must assume responsibility for its debts and lead a solution through a plan to gradually return deposits without any sale of its assets, as a prelude to restoring financial legitimacy and returning to the international financial markets.

He emphasized that the economic and social effects of the write-off should not be underestimated, as well as its repercussions on recovery and on restoring confidence in Lebanon’s banking sector.

“We must not lose sight of the fact that an important part of Lebanon’s crisis requires a solution through politics, not just through the economy...” Torbey stated, underlining the need to revive the work of constitutional institutions, elect a president, and form a new government.

He concluded that the agreement with the IMF was a necessary passage for Lebanon to return to international financial legitimacy.

“However, the desired progress in this path depends on an integrated rescue plan and a fair distribution of responsibilities and burdens of the financial gap,” he stated, adding that the legislative aspect should be exclusively entrusted to Parliament to enact laws that “preserve the supreme national interests of the country, its economy and citizens.”