Beirut, Lebanon – Nearly three years after banks in Lebanon began to block withdrawals of US dollars from bank accounts, families in the country now fear a proposed capital control law will make things worse, as they continue to struggle with the country’s booming economy. keep.
Lebanese commercial banks imposed their own capital controls by setting limits on withdrawals and transfers, after the country’s financial system crashed in late 2019.
Depositors can only withdraw their stranded United States dollars in the local currency at an inflated rate, meaning they will lose money to the bank.
Since then, 75 percent of the population has slipped into poverty, while the Lebanese pound has lost 90 percent of its value. Power cuts and skyrocketing fuel prices have paralyzed public life, while food inflation in the beleaguered country is among the highest in the world.
The Planned Capital Control Act, which is being discussed in Parliament, has sparked weekly protests outside the building, which began on April 19.
“The banks kept our deposits for almost three years, and they will now only try to have capital controls to protect them,” Christel, an unemployed mother, told Al Jazeera in one such protest on Tuesday.
Christel said the government should have implemented capital controls at the end of 2019 when the Lebanese pound began to lose its value and banks faced a dollar shortage.
The International Monetary Fund (IMF), which has been in talks with Lebanon on economic reforms since May 2020, has recommended capital controls.
Hanin, 38, a yoga instructor and mother, said the government could not be trusted, as many MPs and senior officials were shareholders and board members of the country’s commercial banks.
“When we took our money back, we lost 70 percent or more of our savings, and they were marked as a ‘loss’,” she told Al Jazeera. “Why is that? I didn’t choose to partner with them on investments. I’m a depositor, not an investor.”
Lebanon’s central bank, the Banque du Liban, has over the years bolstered its foreign exchange reserves – and enabled the government to spend more than its means – using exorbitant interest rates to entice commercial banks to lend US dollars. by paying. In return commercial banks would offer their depositors high interest rates for the abundance of dollars.
The process has been compared to a Ponzi scheme, and Lebanese officials estimate the total loss to the country’s pulverized banking sector at around $69bn.
Alain Aun, a member of parliament representing the Free Patriotic Movement, told Al Jazeera that the protesters and concerned families had misunderstood the proposed law.
“People are misunderstood about the role of capital control legislation,” Aun said. “Its role is not to define the fate of deposits.”
Hundreds of protesters have successfully prevented lawmakers from moving the law several times over the past few weeks. However, lawmakers will still pass capital control legislation, as the IMF has made it a condition of the bailout plan.
The international community and economic experts have pressured Lebanon to pass a capital control law for years, but much of Lebanon’s political leadership rejected the suggestion at the time.
Meanwhile, Alain Biffani, former director general of the Ministry of Finance, estimates that $6 billion was “smuggled” out of Lebanon between the end of 2019 and the summer of 2020.
Activist lawyer Dina Abu Zor told Al Jazeera that the capital in its current form governs the law and will also protect the country’s rulers. He said the law would set up a committee consisting of the finance minister, central bank governor and experts approved by the country’s commercial banking lobby to work together for all financial transfers.
Abu Zor said, “The fate of the depositors rests on the same circles of rulers that caused this crisis.” “And that includes central bank governors, who are being investigated locally and internationally for illegal enrichment and money laundering.”
Abu Zor, a voluntary group that provides legal aid for people stuck in the bank accounts of the Depositors’ Union, said the capital control law would eliminate the role of the judiciary in the country.
Banks have already threatened to close the accounts of Lebanese citizens abroad unless they lose their right to withdraw foreign currency.
For disgruntled depositors in Lebanon, it is unclear whether they will be allowed to withdraw their money in US dollars or Lebanese pounds.
“The law is unfair and vague, and cannot be passed,” said Abu Zor.
‘No clear exit strategy’
Lebanon reached an employee-level agreement with the IMF for a bailout program in early April, but must implement a series of reforms to finalize its program.
One of them is capital control legislation, but it must be accompanied by restructuring and auditing of the banking sector, as well as integrating the country’s multiple exchange rates.
However, this may all be in vain, as the lobby of the country’s commercial banks rejected the recovery plan approved by the IMF, two weeks after the early April agreement, and pulled up both the government and the central bank.
Experts have argued that the capital control law alone will not lead to sound policy unless it is introduced as part of a series of measures in the macroeconomic reform framework.
Aun acknowledged that the proposed legislation should be passed along with other reforms.
“It is common that capital controls should result from legislation [economic recovery] scheme and not a separate independent act,” Aun said.
However, he also said that even if the law is passed without any economic framework, it should go ahead.
Sami Zughaib, a Lebanese economic analyst at the Beirut-based think tank The Policy Initiative, said he feared that passing the capital control law in its current form would set a precedent for Lebanese authorities, and could lead to more “reforms”. that affect negatively. The people of the country
“The people negotiating with the IMF are clearly those with strong interests, who have dismantled any recovery framework with clear considerations for their personal property, security and impunity,” Zogab said.
“So you can rest assured that the IMF program will either fail miserably or have adverse social and political implications.”