They will cover half of the $69 billion in losses
Depositors in Lebanon bear the brunt of a new rescue plan
The Lebanese pound has lost 90% of its value.
Reuters
An automated teller machine that was destroyed by depositors who were unable to recover their money from Lebanese banks.
Reuters
Demonstrators block the streets to protest the deteriorating conditions.
Reuters
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Two years after an economic meltdown that the World Bank says was among the worst of its kind, Lebanon's rulers have proposed a way to plug a huge hole in the financial system they have been blamed for causing: that depositors pay most of the bill, not the banks or the state.
The plan, seen by Reuters, seeks to revive a moribund banking system by having depositors cover more than half of the $69 billion gap, which is three times the size of the Lebanese economy.
The plan includes converting a large part of dollar deposits into Lebanese pounds, at rates that erase a large part of their value.
The state, central bank and commercial banks will contribute $31 billion, or less than half.
Agreeing on an action plan is vital to ensure a bailout from the International Monetary Fund and put the country on the path to recovery, and the new plan has to be approved by the Cabinet.
quarrels
Disagreements between politicians and banks over the extent of the losses and who should pay, have prevented an agreement from being reached so far.
This latest plan should also convince the International Monetary Fund.
But ordinary Lebanese, many of whom have been pushed into poverty by the crisis, will have little or no say in the plan.
"The victim bears the greater part of the burden," said economist, Tawfiq Caspar, who worked as an advisor to the International Monetary Fund and the Lebanese Ministry of Finance.
Their reasoning is not acceptable by any standard of reasoning anywhere in the world.”
Depositors face a “retribution” of their deposits in other crises around the world, but small depositors are usually protected.
Depositors in Lebanon whose deposits are less than $150,000 will keep their entire money - up to about $25 billion - but they will get it over 15 years, like other depositors.
They were prevented from withdrawing from their accounts to a large extent two years ago.
Yet the scale of the Lebanese crisis, the worst since the 1975-90 civil war, dwarfs most other global examples.
The Lebanese government's debt is estimated to have reached 500% of GDP in 2021, while the same sectarian leaders who put the country in the predicament it faces are still exercising influence as usual.
There is only a little left
“Simply put, there is very little money left," said Mike Azar, an expert on the Lebanese crisis.
That is why the issue is so important.
The political leadership is trying to turn the page and close this chapter without holding anyone accountable.”
The government, the central bank and the Association of Banks in Lebanon did not respond to emailed requests for comment.
Under the plan, the bulk of the $104 billion in dollar deposits - which banks no longer have enough hard currency to cover - will be converted into the Lebanese pound, but at a set of exchange rates, two of which are well below current market levels.
The Lebanese pound has lost more than 90% of its value since the crisis erupted in 2019.
Of these deposits, $16 billion will lose 75% of its value, and $35 billion will lose 40%.
“It is a de facto nationalization of deposits,” said Nasser al-Saidi, who previously served as the economy minister and deputy governor of the central bank, blaming the central bank for incurring “huge balance sheet losses” to defend an overvalued currency.
The dollar is worth about 20 thousand pounds currently, compared to only 1500 before the crisis.
Saidi said of the latest plan, "If the parliament accepts it, it will be the kiss of death for a dying banking system that will condemn Lebanon, its economy and its people to long-term misery."
The well-established elite
Banks, the central bank and ruling politicians had caused the collapse of an earlier plan, drawn up in 2020, due to objections to the way losses were calculated and shared, and talks with the International Monetary Fund collapsed.
The new plan aims to create an asset management company to invest deposits in projects such as rebuilding the port of Beirut - which was destroyed by a massive explosion in 2020 - and power plants in a country that state power plants cannot light.
The plan stipulates that the asset management company, which will be owned by the state but will be managed independently of it, will issue securities secured by assets to repay depositors' money, with the aim of "creating value."
“There is a need for a high-level governance framework to manage all these assets without corruption, and the politicians who run this country are probably the worst qualified in the world to do so,” said Talal Salman, a former official in the Ministry of Finance.
But there is no sign of a change in Lebanese politics that would change officials widely blamed for blocking reforms sought by donors.
Lebanon's power-sharing system between Muslim and Christian sects has entrenched the influence of a few individuals, families, and groups over the decades, and Hezbollah is one of the most powerful Lebanese Shiite groups backed by Iran.
The plan also provides for transferring $12 billion of the deposits of the richest depositors, amounting to $22 billion, into Lebanese banking shares, and they will also receive a permanent bond worth five billion dollars.
As for the banks, they will contribute $13 billion to fill the gap, mainly by writing off shareholder capital.
Wealthy depositors may end up owning 72% of the capital in Lebanese banks, unless current shareholders inject new money.
"There is no obligation for banks and their management to distribute profits or pay financial compensation, which is a clear injustice to depositors," Azar said.
• Disagreements between politicians and banks over the extent of losses, and who should pay, is an obstacle to reaching an agreement so far.
• Under the plan, the bulk of dollar deposits amounting to 104 billion dollars will be transferred to the Lebanese pound, and 16 billion dollars will lose 75% of its value, and 35 billion 40%.
• There is no sign of a change in Lebanese politics that would change the officials widely blamed for obstructing the reforms sought by donors.
• Depositors in Lebanon whose deposits are less than $150,000 will keep their entire money - amounting to about $25 billion - but they will get it over 15 years, like other depositors. They were prevented from withdrawing from their accounts to a large extent two years ago.
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