Lebanon’s economic recovery plan falls into the abyss
Lebanon’s third attempt at an economic recovery plan, crucial for addressing over $70 billion in financial losses and reforming its insolvent banking sector, is not meeting expectations, according to the National News’ report on 19th March.
This plan forms a lifeline for depositors prevented from accessing their savings – apart from a fortunate elite, most Lebanese have lost their life savings. The survival or bankruptcy of banks also hinges on this reform.
Implementing this plan is also a requirement for securing a vital $3 billion loan from the International Monetary Fund (IMF), which is essential for accessing further foreign financial assistance.
In a country where a five-year crisis has plunged 80% of the population into poverty, the plan’s failure to advance is alarming. Opposition from various sectors, including the banking industry, ministers, politicians, and economic organisations, has effectively stalled its progress prematurely.
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The Lebanese economy has been compared to a Ponzi scheme due to its reliance on new deposits to pay high interests. This culminated in the economy’s collapse in 2019 after years of fund mismanagement. Those advocating for the recovery plan are in the process of distributing the financial burden between the state, stakeholders, central bank, shareholders, and depositors. However, critics argue the responsibility lies solely with the state.
Despite these obstacles, the plan’s advocates propose that having a workable starting point for Lebanon’s economic recovery, is better than inaction. Such inaction on the part of politicians and bankers, has been critiqued as an inability to accept Lebanon’s gigantic economic losses. This resistance to reforms and delay over a concrete recovery plan has frustrated IMF representatives.
The recovery plan suggests reimbursing smaller depositors gradually and outlines a restructuring process for banks, including conversion of larger deposits into equity or other mechanisms.
Yet, resistance persists, with opponents labelling it a “deposit wipeout plan.” The banking sector, in particular, resists assuming the brunt of the state’s losses, advocating for state intervention regarding deposits. The banking sector also critiques against the plan’s distinction between “legitimate” or “illegitimate” funds. While moral in theory, in practice this distinction would be incredibly complex to carry out.
As Lebanon’s crisis deepens, the need for decisive action over an economic plan becomes ever more critical. The plan, despite its flaws and the controversy it has sparked, represents a step toward addressing Lebanon’s economic recovery. However, without consensus and a willingness to confront difficult reforms, Lebanon risks further destabilisation and hardship.
The National News
