Lebanon’s new government confronts an ongoing economic crisis, with calls for urgent reforms to restore trust and accountability. The financial sector faces an $80 billion deficit, a steep currency devaluation, and insufficient IMF support. Key priorities include an independent audit of finances, anti-money laundering measures, and eliminating sectarian quotas. Regional dynamics and international relations are pivotal for economic recovery.
Lebanon’s current government, led by Prime Minister Nawaf Salam and President Joseph Aoun, faces a critical juncture as it seeks to reverse the economic collapse that began in 2019. The financial crisis, now entering its fifth year, has caused an $80 billion deficit in the banking sector. Lebanon’s national currency has lost 90% of its value since 2019, contributing to the dire state of the economy. International Monetary Fund representatives recently deemed Lebanon’s reforms insufficient for the anticipated financial aid, highlighting a dangerous reliance on foreign reserves.
Economists stress the importance of transparency and accountability in managing Lebanon’s financial future. According to expert Jassem Ajaka, an independent audit of Lebanon’s financial sector—lacking since 2003—is essential for equitably distributing losses. Ralph Baydoun emphasizes that Lebanon’s geopolitical context directly impacts its capabilities to attract international aid and investment. Without robust reforms, regaining international trust and re-entering the global financial arena remains elusive.
Key measures have been proposed to restore confidence, including plan prioritization for anti-money laundering efforts to remove Lebanon from the Financial Action Task Force’s grey list. An independent audit of the central bank’s and commercial banks’ operations is considered a foundational step towards greater transparency and trust. Moreover, developing a sustainable growth strategy focused on tech, services, and exports is crucial for economic recovery.
The long-standing issue of sectarian quotas in financial appointments is being challenged. Salam’s pledge to eliminate these quotas reflects a significant shift toward better governance. The banking sector’s restructuring, including mergers based on economic benefits, is necessary to prioritize depositors’ interests. Experts emphasize that understanding each bank’s financial condition is crucial for determining appropriate reforms.
Depositors are currently experiencing substantial losses, while those responsible for the crisis remain unaccounted for. Advisor Farida’s proposed recovery roadmap suggests immediate financial remediation for small depositors through extensive audits and recovery of excessive payments. Plans to gradually restore larger deposits include possible banking sector bail-ins and legal actions against those who mismanaged funds.
The Depositors’ Union has welcomed reform pledges but insists on accountability, firmly opposing any plans that shift banking losses onto public assets. Calls for fair restructuring focused on protecting depositors’ rights highlight the ongoing strife for justice in banking governance. Mohammad Farida stresses that nothing will restore public trust without holding decision-makers accountable.
The political influence of Hezbollah remains a primary hurdle in achieving economic reform. For Lebanon to regain its sovereignty and international relations, significant governance reforms are necessary, coupled with the dismantling of sectarian political structures. This shift would involve appointing professionals based on merit rather than patronage to improve public services, which are currently considered luxuries.
Amid these challenges, the loss of Iranian support and war-related strains have put Hezbollah’s influence in a precarious position. Enhanced regional dynamics offer potential avenues for Lebanon to reestablish connections with Western economies. Baydoun indicates decreasing Iranian influence and the weakening of the Assad regime has opened the door for Lebanon to seek aid from Gulf Cooperation Council countries.
The ongoing humanitarian crisis exacerbates the economic downturn. The World Bank estimates that damages from the Hezbollah-Israel conflict alone amount to $8.5 billion, with a projected 10% shrinkage in the economy for 2024. Reconstructing Lebanon requires an estimated $10 billion, primarily reliant on international donor support, especially from the GCC.
To solidify reform efforts, President Aoun has indicated the new government’s priority is to draft necessary legislation addressing economic issues. Nassar emphasizes the need for tangible results to restore public faith, asserting that mere words will not suffice in restoring lost trust.
Lebanon’s new government faces significant challenges in resurrecting a shattered economy that has endured years of crisis. Key reforms, including audits of the banking sector and measures to eliminate sectarian governance, are crucial to restore public trust and ensure accountability. The international community is watching closely, with detailed expectations for tangible progress before potential financial support is extended. A comprehensive action plan that prioritizes depositor rights and fundamental economic restructuring is essential for the nation’s recovery.
Original Source: www.arabnews.com
