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Lebanon is heading for a haircut and nationalization of deposits

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Lebanon is heading for a haircut and nationalization of deposits

Two years after Lebanon's economic collapse, leaders in the neighboring country are proposing that depositors shoulder a heavier burden of rescuing the country's economy and financial system than banks.

The plan, a copy of which was read by Reuters, seeks to save the country's banking system, forcing depositors to cover more than half of the $ 69 billion hole, which is three times Lebanon's GDP.

According to Reuters, the plan is to convert a large part of US dollar deposits into Lebanese pounds at exchange rates that will wipe out most of their value.

On the other hand, the state, the Central Bank and the commercial banks will contribute $ 31 billion, less than half of the required amount.

The agreement on the project is considered crucial to secure support from the International Monetary Fund. The plan must be approved by the Council of Ministers.

Until now, disputes between politicians and banks over the amount of losses and who will pay them have delayed any deal.

“The victim should bear the brunt of the burden,” said Tufik Gaspard, an economist who has served as an adviser to the IMF and the Lebanese finance ministry, adding that “their logic is unacceptable.”

According to the plan, depositors with deposits under $ 150,000, amounting to about $ 25 billion, will be protected, but the money will be paid to them over a period of 15 years, while they have been frozen for two years.

Under the plan, most of the $ 104 billion dollar deposits that banks have no foreign exchange to cover will be converted into Lebanese pounds at various exchange rates, two of which are below current market levels.

The Lebanese pound has lost more than 90% of its value since the outbreak of the crisis in 2019.

Of these deposits, $ 16 billion will lose 75% of their value and $ 35 billion deposits will lose 40%.
“It's essentially a nationalization of deposits,” said Nasser Saidi, a former economy minister and central bank vice president, who blamed the central bank for accumulating huge losses on its balance sheet in an effort to support the country's currency.

“If (the plan) is accepted by Parliament, it will mean the kiss of death for a zombie banking system and it will destroy Lebanon, its economy and its people with a prolonged misery and lost decades,” Saidi added.

The previous plan was torpedoed by banks, the central bank and politicians over disagreements over how to calculate losses and share costs.

The new plan aims to create an Asset Management Company, which will invest the deposits in infrastructure projects, such as the reconstruction of the port of Beirut, which was destroyed in the huge explosion in 2020, and the power plants. This Company will be owned by the government but will be independently managed and issue asset-backed securities to repay depositors.

Also, according to the plan, the richest depositors, whose deposits amount to $ 12 billion, will see $ 12 billion of their deposits converted into shares, while banks will contribute $ 13 billion by writing off their share capital. Depositors who see their savings converted into shares will end up holding 72% of the banks' share capital, unless existing depositors put money in the banks.

The country's debt, according to some estimates, amounted to 500% of GDP in 2021.

Source: politis.com.cy

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