Lebanon central bank deputy calls for urgent replacement of departing governor

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A deputy to Lebanon’s departing central bank governor Riad Salameh has called on the government to urgently name his successor and enact reforms, or risk further destabilising the volatile currency and worsening the country’s calamitous economic crisis.

Salameh, who is wanted in Europe over corruption allegations, is due to step down at the end of this month after three decades in charge of the Banque du Liban. Prime Minister Najib Mikati said this week that one of Salameh’s four deputies would assume his duties until a permanent bank chief was found, but it is unclear if this will happen.

“How can we, the deputy governors who are going to lead monetary policy as of August 1, be able to stabilise [the pound] in the absence of any government reforms?” Salim Chahine said in an interview. “No monetary policy . . . will succeed without supportive government policies.” 

He said it was his duty as bank deputy “to stress the necessity of appointing a new governor as soon as possible . . . I owe it to the public to share my concerns.”

The indecision over Salameh’s replacement is the latest act of the chronic dysfunction that has dragged Lebanon close to the financial abyss. The country has been led by Mikati’s caretaker administration for more than a year and has been without a president for nine months.

Its financial meltdown, now in its fourth year, was triggered by decades of reckless government spending and rampant corruption by the country’s political establishment. The pound, which was for many years pegged unrealistically to the dollar, has lost more than 95 per cent of its value since the crisis began, pushing three-quarters of the population into poverty.

Lebanon’s inflation rate is in triple digits and its GDP has shrunk by 40 per cent over the same period, according to the IMF.

The country’s political elite stands accused of hampering progress on the reforms demanded by the IMF to unlock $3bn in investment and aid, including a failure to unify the country’s disparate exchange rates. 

Chahine said it was “critical for the government to start taking decisions related to the [2023] budget and to implement some — if not all — of the required reforms, not least passing a capital control law and restructuring the banking sector”.

The BdL deputy also sounded the alarm over Salameh’s use for the past year of “short-term and costly” tools to prop up the pound, namely the electronic foreign exchange platform known locally as Sayrafa.

A recent World Bank analysis said the use of Sayrafa has led to “shortlived appreciations of [the pound] at the expense of dwindling reserves and a weakened BdL balance sheet”. Salameh said in February that Lebanon’s foreign exchange reserves stood at $10bn and that its gold reserves were valued at $17bn.

Salameh, once praised for deftly steering Lebanon’s economy through years of instability, has been the subject of intensifying scrutiny since the financial collapse unfolded.

He is the subject of arrest warrants in France and Germany, the result of legal investigations at home and in at least five European countries on charges relating to money laundering and the embezzlement of public funds. He vehemently denies the charges, which have cast a shadow over his continued tenure.

Chahine last week put his name to a rare joint statement by Lebanon’s four bank deputies, in which they called on the government to fill the looming vacancy. Asked what the quartet would do if Salameh’s term was unexpectedly renewed or no successor was named, Chahine said he could resign.

He warned that failure to enact reforms would leave the central bank reliant on the existing tools that have been unable to stem the crisis. “This is like giving Panadol to a patient who is dying from cancer,” he said.