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Two months have gone by, and vice-governors, or interim governor, are still at the helm. It might be too early to provide a comprehensive evaluation, especially in a country that seems to be undergoing a somewhat slow and uneventful spell. Nonetheless, let’s try to dig deeper and guesstimate what the future might have in store.
– Before the transfer of power, there were hints of a potential collective resignation if a new governor for the Lebanese Central Bank was not appointed. Especially since Nabih Berri was reluctant to have a Shiite, with whom he has a close connection, bear the brunt of the situation. Unfortunately, these warnings were widely dismissed, and the vacancy incurred.
– Wassim Mansouri, feeling that his time in the spotlight was getting close, was meanwhile working on reassuring the Americans that he is not a staunch Shiite, but rather a light version thereof. At which point Nabih Berri might have understood that he should refrain from interfering in his work, or at the very least, do so as little as possible, which must be quite frustrating.
– Right after the transfer of power, we witnessed a muscle-flexing session by the entire “vice” team, firmly voicing common demands, namely to pass a set of laws. The same tune over and over again. In addition to which they added some deadlines: before the end of August, the end of September, or the end of the year. Yet again, no one really cared. Summer is at its peak and the whole country is focused on the expat flows.
– Once these performances ended, and Wassim Mansouri was firmly in control, he started sending clear signals about his monetary policy, with a resolute tone, as well as in substance. He initially stated that to preserve what little is left of the currency reserves, he no longer planned to allocate any loans to the government, “unless Parliament enacts a law to that effect.” In other words, he is willing to deplete a part of the depositors’ funds at Banque du Liban if others bear the responsibility.
– The endless “not one cent to the State” catchphrase, reiterated in his subsequent statements, must however be taken cautiously: the BDL (in lieu of the government) continues to subsidize certain medicines, along with other necessities for the industry and agriculture, and helps civil servants through Sayrafa.
– Furthermore, the BDL does not falter to renew the State’s debts once they mature. It is the case with Treasury Bonds, the securities debts (in Lebanese pounds) that the government issues on a regular basis. The BDL already owns two-thirds of these bonds, and its share keeps on increasing since, on a weekly basis, the Ministry of Finance issues new Treasury Bonds to replace the ones that have matured or to fund its operations. And, since banks are not eager to have them, the BDL ends up acquiring them all.
– However, it has been recently observed that the BDL is subscribing to these Treasury Bonds less than it used to, resulting in a gap between the matured bonds and the newly issued ones. If this gap persists or if the governor plans on sticking to his promise, a government shutdown or administrative deadlock will become inevitable: the ministry will no longer have the liquidity to pay its employees because, in essence, the State’s budget is in deficit. Instead, it would be necessary to print Lebanese pounds, which Wassim Mansouri also claims to reject. The vice governor has aimed very high, and upholding his expectations won’t be an easy task.
– On the other hand, the IMF endorses this restrictive policy, and gives it a high rating. However, the IMF also emphasizes that the work is not merely done. More progress needs to be made regarding the exchange rate unification, and most importantly on the legislative and executive fronts, which fall outside the purview of the BDL.
– The capital market has also responded positively to Mansouri’s policy, as reflected in the prices of Eurobonds in the market. For months, their prices had been around 6%, meaning one could buy a bond worth $100,000 for only $6,000. Then, over the past two months, the rate has shifted to reach 8% last week. It’s still pitiful (the worst performance in the world), but less so than our previous pitiful record.
– On to the next topic. The Sayrafa platform is supposed to hand over its operations to Bloomberg. The aim is to enhance transparency and provide a higher level of professionalism and perhaps, ultimately, unify exchange rates. But the question remains: will the BDL intervene in the foreign exchange market if the dollar takes an unexpected turn? Wassim Mansouri foresees a targeted intervention when required. However, we do not know for sure the extent to which he would use this tactic.
– Meanwhile, the governor is being extremely stingy, at the expense of depositors. Circular 158, which provides a meager lifeline of $400, has decreased the allocated amount. Nearly 181,000 individuals benefited from the circular, but 87,000 have already exhausted their prerogative. The BDL is no longer helping those looking to renew the operation, even if their accounts were replenished meanwhile. Those who did not previously benefit from Circular 158 can access it but will only receive $300 per month.
– In other words, the governor, who is refusing to allocate funds to the government stating that they belong to the depositors, is also unwilling to let depositors benefit from their own money. However, the data favors the depositors. Since the publication of this circular (June 2021), the BDL has only spent $890 million (and so did the banks). A trivial amount considering that the heist of the century, known as the ‘subsidization of essential goods,’ drained $8 billion and enriched everyone in power up to the fourth generation.
In sum, and as we have been persistently repeating from the get go, a central bank cannot solve our financial crisis on its own. However, we live in a country where those in power need to shine at any cost.
