Experts voice mixed opinions on Lebanese cabinet’s unveiled economic plan


by Dana Halawi

Economic experts have voiced mixed opinions on the long-awaited economic plan approved by the Lebanese government on Thursday, which involves restructuring Lebanon’s public debt, attracting funds from the International Monetary Fund (IMF), and implementing a comprehensive reform program to save the country from the ongoing financial crisis.

Steve Hanke, a professor of applied economics at the John Hopkins University, told Xinhua that the plan makes sense as it focuses on debt restructuring which is a must.

However, the plan does not highlight the necessity to fix the currency through creating a currency board and not through pegging the Lebanese pound to the U.S. dollar as what the Central Bank of Lebanon has been doing over the past years.

Lebanon’s central bank has, over the past years, injected dollars in the market to stabilize the price of the pound and protect the local currency’s peg to the dollar.

However, this policy has failed recently after big deposits were transferred to foreign countries ahead of the nationwide protests on Oct. 17 last year, depleting the central bank’s foreign reserves and its capacity of controlling the exchange rate of the Lebanese pound against the dollar.

For the time being, the central bank has no solution but to print more money to fund the government, which will lead to further weakening of the Lebanese pound versus the U.S. dollar.

In fact, the cabinet’s economic plan has mentioned its plan to unpeg the Lebanese pound to the U.S. dollar but it will also adopts a managed floating rate, which according to Hanke, won’t work in Lebanon because there is no fiscal discipline in the country and the central bank has the right to issue credit to the government or banks.

He suggested the creation of a currency board responsible for issuing the Lebanese pound and trading the pound at an absolutely fixed exchange rate with the U.S. dollar.

A lot of Lebanese expats would then invest in this currency board to secure risk-free interest rates while the government would be responsible for its financing and banks have to generate their own revenues, Hanke explained.

Habib Zoghbi, president of the Harvard Business School Club in Lebanon, told Xinhua that the cabinet’s economic plan is comprehensive as it tackles every problem in the country with the aim of finding serious solutions.

According to Zoghbi, the plan is consistent with the IMF’s requests as it emphasizes the need to boost productive sectors in Lebanon and reduce money squandering.

However, Zoghbi criticized the plan for imposing haircut by giving depositors with more than 500,000 dollars in their bank accounts only two percent shares in banks rather than allowing them to withdraw their money.

“Depositors must have the chance to choose if they want this solution or not because banks are currently losing and they have not yet been restructured,” he explained.

Zoghbi also opposes the creation of a fund, as stated by the plan, that covers all governmental institutions.

“We do not know if the government will be able to manage these institutions because it failed in the past,” he noted. Enditem

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