Economy1 hour ago (Aug 14, 2021 07:05AM ET)
© Reuters. A general view of Beirut central district, Lebanon, August 22, 2019. REUTERS/Mohamed Azakir
By Laila Bassam and Nafisa Eltahir
BEIRUT (Reuters) -Lebanon’s central bank governor said nobody was running the country as he defended his decision to halt fuel subsidies that have drained currency reserves, saying the government could resolve the problem quickly by passing necessary legislation.
In an interview broadcast on Saturday, governor Riad Salameh pressed back against government accusations that he had acted alone in declaring an end to the subsidies on Wednesday, saying everyone knew the decision was coming.
Part of Lebanon’s wider financial meltdown, the steadily worsening fuel crisis has hit a crunch point, with hospitals, bakeries and many businesses scaling back operations or shutting down completely as fuel runs dry.
Deadly violence has flared in fuel lines, protesters have blocked roads, and fuel tankers have been hijacked this week.
The central bank’s move to end subsidies, which will mean sharp price increases, is the latest turn in the financial crisis that has sunk the Lebanese pound by 90% in less than two years and pushed more than half the population into poverty.
Salameh said Lebanon could recover but could not say how long that would take. “So far you have nobody running the country,” he told Radio Free Lebanon.
The row between the government and Salameh has captured the failure of the Lebanese elite to start tackling the meltdown.
The central bank has effectively been subsidising fuel and other vital imports by providing dollars at exchange rates below the real price of the Lebanese pound – most recently at 3,900 pounds to the dollar compared to parallel market rates above 20,000 – eating into a reserve which Salameh said now stood at $14 billion.
In order to continue providing such support, the central bank has said it needs legislation to allow use of the mandatory reserve, a portion of deposits that must be preserved by law.
“We are saying to everyone: You want to spend the mandatory reserve, we are ready, give us the law. It will take five minutes,” Salameh said.
The government has said fuel prices must not change, leaving fuel importers, who say they cannot import at market rates and sell at subsidised rates, demanding clarity.
The central bank and oil authority told importers to sell their stocks at the subsidised rate of 3,900 pounds to the dollar, prioritising hospitals and other essential functions.
“HUMILIATION OF THE LEBANESE”
Critics of the subsidy scheme say it has encouraged smuggling and hoarding by selling commodities at a fraction of their real price.
Salameh said the bank had been obliged to finance traders who were not bringing product to market, and that more than $800 million spent on fuel imports in the last month should have lasted three months.
Despite an unprecedented wave of imports, Salameh noted there was no diesel, gasoline or electricity. “This is humiliation of the Lebanese,” he said.
Lebanese politicians have failed to agree on a new government since Prime Minister Hassan Diab quit last August after the Beirut port blast, since when he has continued as caretaker.
President Michel Aoun expressed optimism on the formation of be a new government, saying he hoped there would be “white smoke” soon.
Salameh said Lebanon could exit its crisis if a reform-minded government took office. The pound was “hostage to the formation of a new government and reforms”, he added.
The government has said ending subsidies must wait until prepaid cash cards for the poor are rolled out. Parliament approved these in June, with financing from the mandatory reserve, Salameh said, but they have yet to materialise.
“When is the card? Let’s assume in the best case after two or three months … we will spend $3 billion while waiting,” Salameh said.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.