Beirut, Lebanon – A judge in Lebanon has suspended a decision by a financial prosecutor to freeze the assets of 20 banks and their chairmen and boards of directors
The judge, Ghassan Oueidat, said late on Thursday he has issued a stay of the prosecutor’s order so he could study its effects on the country’s monetary situation, bank transactions, depositors’ money, and economic security.
The prosecutor, Judge Ali Ibrahim, earlier on Thursday ordered the assets of the banks, their executives and boards of directors to be frozen as part of an investigation into billions of dollars transferred out of the cash-strapped nation.
Ibrahim’s order came amid a worsening economic and financial spiral that has Lebanon staring down the barrel of defaulting on a Eurobond repayment due next week.
An acute foreign currency shortage has seen the Lebanese pound devalue on parallel markets to lows unprecedented since it was pegged to the US dollar in 1993.
Lebanon’s economy is dependent on inflows of foreign currency from its large diaspora, but they have dried up as the country descends deeper into a crisis rooted in corruption, government mismanagement, a dilapidated power sector that bleeds billions and the civil war next door in Syria.
The dollar shortage has made the scenario of a default on the country’s enormous $87bn public debt – the third highest in the world compared with its gross domestic product (GDP) – increasingly likely.
The cabinet will meet on Saturday to decide whether to make good on a much-anticipated $1.2bn Eurobond repayment due on March 9.
“Given the negotiations on the Eurobonds with the banks, [Ibrahim’s] decision can be seen as a pressure tool on them to accept government conditions,” Jad Chaaban, an associate professor of economics at the American University of Beirut, told Al Jazeera.
A senior banking source told Al Jazeera that they view the decision as a further attempt by politicians to shift blame for the country’s dire situation onto banks and away from a political class that has ruled Lebanon since its 1975-90 civil war.
“There is political pressure on the judge to do this. It’s as if we are the ones who stole money and hired thousands of people, and wrecked the electricity sector and wasted money on deals. It’s a scapegoat,” the source said.
The source said Ibrahim’s decision may mean the banks will not be able to open. “If all our assets are frozen it means we can’t access our accounts, which means we can’t open.”
Chaaban said such a decision should be seen as the latest escalation in a tug-of-war between banks and politicians. “I am sure the banks will retaliate with some form to put pressure back [like close down],” he said.
Ibrahim’s decision is officially tied to severe, informal capital controls that banks have put in place since November, following a two-week closure as anti-establishment protests swept the nation.
Despite controls that have limited transfers of money abroad to “urgent matters” and withdrawals of foreign currency to between $100 and $1,000 every two weeks, billions of dollars have been transferred out of the country.
Allegations have swirled that the lion’s share of those transfers was made by politicians, those with connections, and bank executives themselves.
Ibrahim’s decision includes top-tier Lebanese banks such as Bank Audi, BLOM Bank, Bank Med and Byblos Bank.
He had called in the heads of 14 banks on Monday for questioning over the transfers of money out of Lebanon, in addition to a mass sell-off of Eurobonds by local banks, as the prospect of default looms.
Ibrahim is set to hear testimony from a number of other top bank executives in the coming days.
Salim Sfeir, the head of the Association of Banks in Lebanon, said they had sold off Eurobonds to gain much-needed liquidity. However, the added liquidity has not translated into depositors being allowed greater access to their foreign currency-denominated accounts.
“Why have people not felt any difference?” Lebanese journalist Hussein Noureddine tweeted on Thursday. “Is this liquidity for the family?”
Popular anger continues to grow as people are forced to queue for hours simply to retrieve just a few hundred dollars in a country where the local currency and the greenback were formerly used interchangeably.
On Thursday, the glass facade of CreditBank north of Beirut was destroyed, reportedly by a depositor who was barred access to his cash.
The government has promised to uphold the rights of depositors and hold corrupt officials accountable.
On Thursday, the Lebanese cabinet also approved a law to lift the “bank secrecy” of public sector officials. It is unclear exactly how the law would do this, and it will still require the approval of parliament.