On June 4th, Banque Du Liban (BDL) announced Circular 158 which obliges all banks to pay small deposit accounts opened before October 2019, $400 in fresh dollars and another $400 to be paid in lira at a rate set by BDL’s currency exchange platform, Sayrafa. This rate is always subject to change as it is based on the fluctuations of the black market rate.
Riad Salameh, Lebanon’s central bank governor estimated that this decision would include over 800,000 accounts or roughly 70% of the depositors’ accounts. In order to achieve this, BDL has reduced its foreign mandatory reserves by 1%. According to L’Orient-Le Jour’s Omar Tamo, $1 billion will be released into the banking sector, which could have been used to finance imports of subsidized goods like wheat, gasoline, and medication. This comes at a time where depositors are forced to withdraw their foreign currency deposits in Lebanese Liras at the 3900LL rate (lollars) set by BDL while the market rate soars above 17,000LL.
The details of the circular are as follows: all depositor accounts that contain less than $50,000 made before October 2019 will be eligible to withdraw $400 in hard currency, whereas the other $400 will be distributed in lira payments on the condition that it should be spent in card transactions. In addition, all depositors who opt to use this option will no longer be eligible to benefit from the 3900LL rate set by BDL.
Several banks have already begun with the implementation of this circular by taking requests from eligible depositors and plan on fully implementing it by mid-July.
Depositors must not be blinded by the fresh dollars that the banks are offering, since the devil is in the details. For instance, one of many flaws in BDL’s latest circular is that all individual accounts and joint accounts for those who wish to benefit from this decision are no longer subject to bank secrecy and are merged into one account. All outstanding fees in accounts that contain less than $50,000 are subject to be automatically paid back at the official exchange rate. In addition, the circular raises several questions on its continuity. As of this moment, there are no details on whether or not the circular will be extendable for future years. In fact, the only category that this circular properly serves are accounts that have a maximum ceiling of $10,000, with no outstanding loans to repay the bank. Additionally, all depositors must sign a quittance to the bank which forbids them from raising any judicial claims against the banks.
This is nowhere near sustainable as it only provides the ruling class and the banking sector a temporary solution to silence the majority of depositors in light of the upcoming parliamentary elections that are set to take place in May 2022. Without the proper economic reforms, the amount being provided by BDL will be insufficient to cover the basic necessities such as gasoline, electricity, and food bills. This can be observed on a daily basis. During the end of June, Caretaker Prime Minister Hassan Diab announced that he has agreed to partially lift subsidies on gasoline and price them at the electronic bank rate of 3900LL. This caused a 65% spike in the price of a tank of gas; an increase from 43,000LL per tank to 72,000LL. As a result, electricity bills, food, and the price of transportation through taxis and Uber has increased drastically.
Over the last few weeks, Lebanon has witnessed an extreme shortage of crucial medications in pharmacies and extremely long lines at gas stations to partially fill up their tanks. This is a result of BDL’s refusal to extend lines of credit for the importation of such necessities at the subsidized rate. The Central Bank is not solely to blame regarding the shortages. Over the past few years, smuggling operations of essential goods such as subsidized medications, petrol, and subsidized foods have increased at a drastic rate through the assistance of several political parties. These goods are being transported through official and unofficial passages to Syria where they are sold for profit in fresh dollars. The Internal Security Forces’ neglect in the seizing of the smugglers has caused the country to seem dysfunctional to say the least.
Currently, citizens in Lebanon are held hostages at the hands of the ruling class and the banking sector that have continuously failed to implement the necessary reforms to help Lebanon stand on its feet. They are stripped from their right to access their deposits at the bank and their basic human rights are violated on a daily basis. The promise of providing fresh dollars at a time where the economy is collapsing is a mere distraction from the inevitable, total chaos. What Lebanon and its people need right now is proper reforms that can lead to economic growth; only then will all depositors be able to access their bank deposits with minimal restrictions on withdrawals.
Edited by Hala El Shami