On Savings and Rainy Days
Today, Lebanon’s banks have an obligation to inform their depositors of the main reasons behind the liquidity crisis and to reassure them as to the future of their deposits. It is also necessary to emphasize the importance of the freedom of the private sector, as set out in the Lebanese Constitution, and its essential role for the country’s revival.
First and foremost, the banks apologize for giving customers their deposits in dribs and drabs over the past five months, at a time when they needed them the most. They acknowledge their rightful resentment at having to beg for what is theirs, an unacceptable situation which is a direct result of the government’s inability to pay its debts.
The banks lent the government funds that were intended to support the implementation of structural reforms in the public sector, develop the capabilities of the private sector and improve the living standards of the Lebanese people through job opportunities and development. It is a matter of great regret that consecutive governments, after a long string of broken promises, have failed to take responsibility for squandering these funds and letting down the people of Lebanon.
The situation is grave. The government is incapable of paying its debts, so the prudence of citizens in “saving for a rainy day” has been betrayed. It is the rainiest day in decades, and they cannot access their savings.
On Responsibility
The government claims that public funds have been wasted because of banks’ profits. The truth is that in the last 30 years, more than 75% of those profits have been reinvested to build up the capital of a sector that is the backbone of any healthy economy.
The government accuses the banks of high interest rates and even usury. But it is common knowledge that interest rates, for both depositors and debtors, always fall in good times. The high levels seen in Lebanon are the result of the government’s failure to tackle the country’s levels of instability and risk.
It is the government that has squandered the money lent by the banks, and that is thereby endangering citizens’ deposits. By blackening the banks’ name, they are attempting to escape blame for defaulting on their responsibilities, and this is being done at depositors’ expense.
It is the good functioning of the banks, and not the government, that has supported Lebanon’s financial, economic and social stability over the last three decades. Otherwise, the country would not have made it so far.
It is the banking sector that, despite all the obstacles, earned the trust of Lebanese, regional and international depositors, in order to attract investment and provide liquidity for the benefit of the private sector, the government and the people of this country for several decades.li>
On Priorities
The immediate priority is to address the severe liquidity crisis that Lebanon is going through by implementing policies that will allow banks to reestablish confidence.
The second, crucial step is to establish accountability. Anyone who has ordered, authorized, executed or facilitated violations, major or minor, must see the consequences of their actions, and this must happen on a solid legal basis.
Instead of attempting to seize depositors’ property, decision makers must initiate a dialogue with depositors and the banks entrusted with those deposits. All parties need to work together for a solution that safeguards depositors’ rights – for example, by providing profitable public institutions as a guarantee for those investments.
There can be no free economy without a free private sector, and there can be no free private sector without a strong banking sector as its cornerstone. Those who would exploit the liquidity crisis to impose government control over the banks would alter Lebanon’s economic identity irreparably, and this would be directly contrary to the national interest.
A glance at the sectors of the economy currently run by the government – at the soaring costs, low productivity and mismanagement – should be warning enough against bringing the banking sector under any kind of state control, however this is presented. The banks, the country’s backbone, would become Lebanon’s chronic weakness. This kind of meddling would deal a deadly blow both to the economy and to the future of those working in it.
All components of the private sector and civil society must unite in the face of any attempt to turn Lebanon’s free economy into a command economy dominated by a failing government.
The Lebanese banking sector does not belong to its shareholders alone. It belongs to the depositors who put their trust in it. It belongs to the 28,000 employees working in it across Lebanon, and to the families they support. And it belongs to the national economy as a whole. The sector has been a driver of prosperity in Lebanon for over half a century. Both banks and citizens have a duty to ensure this does not change.
On Solutions
The banks reiterate their determination to protect all bank deposits, which is a right consecrated in the Constitution for all depositors.
As to the question of removing the restrictions and conditions on these deposits, this is related to the core of the problem. This is that the political authority needs to offer guarantees for government debt, as well as delivering on its promises to begin reforms and conduct a radical restructuring of the public sector.
The first step is to implement the laws already in place and empower the judiciary, so that a suitable environment is created that encourages the private sector to take the initiative and invest again. These reforms must be conducted in a transparent and civilized manner, away from the damaging political bickering that has been going on so far.
The political authority must reform itself before attempting to reform others. Practical and concrete actions to this end – instead of empty speeches – would begin to restore the trust of depositors and investors. Despite the current, temporary restrictions, deposits are safer where they are now than they would be in the hands of a public sector that can be considered, to say the least, primitive and deeply corrupt. This crisis is proof enough.
The solution to the severe liquidity crisis – like its cause – is first of all political. It is therefore irrational for the government (which is itself the source of the problem) to attempt to evade responsibility through an unconstitutional law that might benefit it for a few days, but would also change the face of the free economic system and annihilate any potential prosperity for the generations to come.
We must all set our differences aside and work wholeheartedly to reach the best solutions, and these must be implemented as quickly as possible. The banks are ready to reach out and help the current government to develop solutions that are in line with the Constitution, as well as with Lebanon’s international standing, the interests of its citizens and the trust of its investors, in order to build a better tomorrow.
This is not the first time that the Lebanese, bankers included, stand in the eye of the storm, though this is the most severe and problematic storm of all. We will be standing alongside citizens in the front line to fight and to support all those who need it. The Lebanese people did not get to this point through a lack of hard work, but rather through a deficit of accountability. If we learn our lesson well, this alone will be a great source of hope for a better future.
We will be supporting the people, every step of the way. We will also support them when the time comes that they rise up again. That time will come, inevitably.
Last but not least, with an open heart that worries about our nation in crisis, we ask this government to initiate a dialogue with our Association and with all economic stakeholders, in order to find a solution that will safeguard the depositors’ funds entrusted to us and ensure that Lebanon remains a beacon of financial, economic, and cultural innovation.
Association of Banks in Lebanon