Lebanon’s closed banks pledge to pay public sector salaries

Though shut for ninth day, financial institutions are to pay government workers, including members of security forces.

Lebanon protests banks
Lebanon's banks have said they are staying closed out of concern for the safety of customers and employees, but bankers and analysts cite widespread fears that depositors will try to take out their savings when banks reopen - further tipping the country into economic crisis [Ali Hashisho/Reuters]

Banks in Lebanon said on Monday they would ensure public sector workers were paid their salaries, even as they remain closed by a wave of protests – against politicians blamed for corruption – that has steered the country towards economic collapse.

Demonstrators set up new roadblocks early on Monday to keep the pressure up, defying security forces who tried to reopen roadways but with orders not to use force.

As the day wore on, the protests – now in their twelfth day – appeared to be smaller than in recent days.

The crisis has paralysed Lebanon, closing banks, schools and some businesses. The government has yet to indicate it would cede ground to protesters, whose demands include the resignation of current leaders.

On Monday, President Michel Aoun said he was “following developments”, and Prime Minister Saad Hariri was scheduled to hold a cabinet meeting to discuss one of the measures in an emergency reform package proposed last week.

Lebanon’s banking association said banks would remain shut on Tuesday for a tenth straight working day, but said the central bank had provided the liquidity necessary to pay out salaries for public sector workers, including members of security forces.

Banks have previously said they will ensure people receive their end-of-month salaries through ATMs. The banks have said they are staying closed out of concern for the safety of customers and employees.

Bankers and analysts have also cited widespread fears that depositors will try to take out their savings when banks reopen.

Gabriel Sterne, head of global macro research at Oxford Economics, said Lebanon is facing a “bank jog”, rather than a full-blown bank run. He added that capital controls were needed in the short term, but could also scare away investors.

The International Monetary Fund (IMF) said it was evaluating an emergency reform package, which the Lebanese government announced last week but which has failed to defuse popular anger or reassure foreign donors.

Capital inflows needed to finance government deficits and pay for imports have been slowing down, generating financial pressures not seen in decades – including the emergence of a parallel market for dollars.

While Lebanon’s pound currency is officially pegged at 1,507.50 to the dollar, parallel market rates have risen in recent months.

One market source quoted a price of 1,700 pounds to the dollar, while a second quoted 1,740 – a roughly 15 percent premium on the official rate.

As economic strains have grown in recent years, Lebanon’s central bank and its commercial banks have taken measures to encourage people to keep money in local currency, in longer-term deposits and inside the country.

While Lebanon has not imposed hard capital controls, a state prosecutor banned traders and money exchangers from taking significant amounts of physical dollar currency out the country at air and land borders, without specifying amounts.

Reform package

The leaderless protests that have gripped Lebanon for nearly two weeks have drawn people from around the country who are furious at sectarian political leaders that they see as plundering state resources for personal gain.

Lebanon is saddled with one of the world’s highest levels of government debt as a share of economic output measured by gross domestic product (GDP).

Prime Minister Hariri’s coalition government, which includes nearly all of Lebanon’s main parties, tried to appease the protesters with a set of reforms – including anti-corruption laws and long-delayed measures aimed at fixing state finances.

The plans include accelerating long-delayed steps to fix the state-run power sector, which drains $2bn from the treasury per year while failing to meet power needs for the Lebanese.

“We need to see not only what is in the package but also the timeline of the package, for a country like Lebanon that has such [a] high level of debt over GDP and high levels of twin deficits,” Jihad Azour, director of the IMF’s Middle East and Central Asia Department, told the Reuters news agency. 

“Fundamental reforms are urgently needed in Lebanon in order to restore macro-economic stability, bring confidence back, stimulate growth and provide some solutions to the issues that were raised by the street,” Azour said.  

Source: Reuters