Lebanon’s Central Banker Says Worst May Be Over in Latest Crisis


By Selcuk Gokoluk and Stuart Biggs

Lebanon’s central bank Governor Riad Salameh said the country’s financial system will be able to withstand the latest political crisis with no special measures or initiatives from the regulator, adding that the level of outflows so far had “surprised positively.”

“From my experience, usually when you have a crisis in Lebanon, the hardest shock you receive is as the crisis starts,” Salameh said in an interview in London on Monday. No more than $800 million of what the regulator regards as “hot money” has been withdrawn since the sudden resignation of Prime Minister Saad Hariri on Nov. 4, a figure he said showed the resilience of financial markets. Lebanon usually has a maximum of $3 billion of so-called hot money in the system at one time, he said.

“There was no panic to get the money outside of Lebanon, and we didn’t hear from the banks that they were in need of liquidity,” he said.

Hariri’s abrupt announcement from Riyadh has raised fears that Lebanon is once again being caught between regional rivals Saudi Arabia and Iran. Lebanese Eurobonds have plunged since the crisis began, though they pared losses after Hariri said Sunday he would return to Lebanon in days. Tensions remain high, however. Saudi Arabia has advised its nationals to leave Lebanon, blaming Iran-backed Hezbollah — part of the Lebanese government — of plotting attacks against the kingdom, including from Yemen.

Key Remittances

Lebanon, one of the world’s most indebted countries with a ratio of debt-to-gross domestic product forecast by the IMF to reach 152 percent this year, relies on remittances from the Lebanese diaspora, which domestic lenders use to buy government bonds. Salameh said bank deposits were up 6 percent through September, while foreign-exchange reserves held by the central bank stood at a record of more than $43 billion.

Salameh, who has led the central bank since 1993, said the World Bank estimates that total worker remittances will reach about $8 billion this year, with $1 billion from Gulf nations.

“We did not create special incentives” since the crisis began, he said, adding that the regulator is focused on “maintaining confidence in the banking sector” so that it continues to attract remittances.

Salameh said the central bank would buy bonds if needed, though he also described the country’s Eurobonds as “undervalued,” and said the recent market reaction was on “thin volume.”

Lebanon has long been a battleground for proxy wars between Saudi Arabia and Iran. Shortly after Hariri’s speech on Saudi television, Iran-backed Houthi rebels in Yemen fired a missile at the international airport in Riyadh — an attack Saudi officials said could be an Iranian “act of war.”

Hariri stepped down at a time when Iran and its allies are widely seen to have triumphed over Sunni powers in the war in neighboring Syria. That conflict has weighed on Lebanon’s economy, cutting major trade routes and bringing more than 1 million refugees into the country.

Hosting the refugees costs Lebanon about $1 billion a year, Salameh said. A more stable Syria would be positive for the economy and reduce tensions within Lebanese politics, he said. Lebanon’s banks could play a role in reopened trade routes through Syria, though he said his country’s role in its neighbor’s economy would always remain “a modest one.”



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