Lebanon sets record in size of deposits and foreign currency reserves

By Malek Mohammed Misbah in Beirut
For Al-Shorfa.com
2010-01-21

[FILE] Lebanese Central Bank Governor Riyad Salameh

Lebanese Central Bank Governor Riyad Salameh said that Lebanon has successfully overcome the international financial crisis.

This announcement, made during an interview with AFP earlier this week, was no surprise to financial analysts, particularly given the government's monetary policy and the actions taken by the central bank. Chief among these actions was Salameh's decision in 2004 to prohibit Lebanese banks from investing in US mortgage backed securities and requiring them to keep their liquidity rate at no less than 30 %.

As a result of this monetary policy, not only did Lebanon avoid the effects of the crisis, it instead set records in terms of size of deposits and foreign currency reserves, which neared $29 billion, according to the governor.

"Trust in Lebanon increased during 2009," Salameh said." Bank deposits grew by 22 % ($4 billion at the end of November), and the balance of payment hit the highest credit to date with $7.8 billion."

He added that Banque du Liban's current reserves are the highest they have ever been at $28.6 billion, and gold reserves are estimated at $10 billion based on current market prices.

Salameh said that these factors are "elements of trust" that result in lower interest rates, which in turn help stimulate the economic situation.

"Lebanon has the ability to finance its economy, both in the public sector and the private sector during 2010, " he added. "This is attainable in light of the decline in political and security risks." He emphasized that the political agreement that appears to be in place today "is the first stepping stone for these operations".

Salameh indicated that Lebanon's relatively stable political situation made it a good time to implement pending reforms in vital economic sectors.

Responding to Salameh's statements, financial analyst Abdul Rahman Ayas told Al-Shorfa that it is true that the financial and banking situation in Lebanon is solid.

"However, the country faces major problems in critical economic sectors like manufacturing, which has witnessed a large number of plant closings in recent years," Ayas said. "Agriculture, which suffers from outdated technologies and production, has also declined, thereby forcing Lebanon to import about 80 % of its consumer goods. Added to that is the rampant corruption in public administrations."

On Salameh's call for implementing reforms, Ayas said the governor is "referring to many issues, first of which is the apparent disagreement, at least among political powers, over the reforms promised by Lebanon years ago during the Paris III Conference (in 2007) in order to receive aid from international donors, as well as the differences in opinion over privatization, some for and some against, and particularly as it relates to the electricity and cellular phones communication sectors."

"There are over 30 proposed economic and social laws before the Chamber of Deputies, as well as more than 10 proposed infrastructure or investment laws," Ayas said. "One should use this suitable political situation to speed up finalization of these laws which have become an urgent necessity."

Financial analyst Sulaiman Ouda told Al-Shorfa that "the average growth rate over the past five years reached 7.5 %. There was also significant growth in the volume of direct foreign investment flowing into Lebanon which rose from $2.6 billion in 2005 to $3.6 billion in 2008."

"Expectations for the second half of 2009 may be very promising following the conclusion of the legislative elections, formation of the government and the significant growth in tourism witnessed by Lebanon this summer, " Ouda said.

He added that Lebanon is currently entering a new phase to build upon Paris III. "This requires unity behind a single vision and a progressive plan that opens new economic horizons in the Lebanese economy."

"The opportunities must focus more on establishing an ambitious plan for the economy," Ouda added. "This must be translated into economic policies through adoption of a new agenda for growth that sets up a strategic vision for Lebanon for the next 10 years, centres on human resources, and builds stronger economic institutions in both the public and private sectors."

"Privatization is merely a means of achieving an economic objective and that it adjusts and adapts based on those needs. Privatization must not turn into a competition or goal in and of itself."

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