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Due to an immense economic decline, paired with high inflation and the currency devaluating, residents in Lebanon lost their jobs, incomes, and life savings. The Lebanese government canceled a $90 billion debt payment, with the majority retained by the local banking system. Additionally, the central bank accumulated losses on foreign exchange operations. Banks became insolvent, froze deposits, and officially requested for the use of capital controls. The “Lebanese Government’s Reform Draft” has proposed a solution to the large-scale crisis. This blueprint builds on that document and aims to complement it. Key components of our proposal include:
Growth-Driven Reforms: Lebanon’s deep crisis calls for a new way to handle fiscal policy.
Currently, tax increases will lead to lower revenues and public monopolies will continue squandering borrowed money on pointless projects. High debt burdens and debt haircuts on future generations will follow. Therefore, we recommend replacing current taxes with a single, simple flat tax, similar to what several former communist countries have done. We also recommend dismantling monopolies and opening markets to competition. Due to the competitive market conditions, the government would show a decreased need to borrow and spend. Furthermore, it would substantially improve the infrastructure quality and reduce the cost, while creating a foundation for sound economic growth.
Currency Board: We expect the suggested dirty float of the exchange rate to lead to recurrent devaluations, further impoverishing the population due to the central bank’s tendency to finance fiscal deficits. To fix the currency crisis, we argue for replacing the central bank (Banque du Liban, or BDL for short) with a currency board. Unlike the dirty float, a currency board would ensure a reliable, stable, and fully convertible Lebanese pound (LBP). A currency board would also deprive the monetary authorities of the ability to finance the government and thus would impose monetary discipline that Lebanon has clearly lost since at least 2015.
Cumulative Interest: The government debt and BDL’s mismanagement should not be entirely borne by depositors. Both entities need to dismantle monopolies, liquidate their assets, and cover a portion of their losses. Rather than imposing an unfair haircut on depositors above a certain threshold, we recommend revealing cumulative interest paid by Lebanese banks to their depositors since the 2015 Ponzi scheme. This would include depositors that already transferred their money outside of Lebanon. Cumulative interest should be the second source of a bail-in, after banks’ shareholder equity. This process, used in the Bernie Madoff fraud case, allowed the conservators to preserve the initial principal invested.
Our suggested reforms would allow the government to raise more income without increasing taxes, to cut spending without discouraging investment, to stabilize the LBP without making losses on foreign exchange operations, and to restructure banks without shifting the entire burden onto depositors.
September 23, 2022September 23, 2022
ماذا يعني الصندوق السيادي؟ وهل إنشاؤه مفيدٌ للبنان؟
المصارف اليوم عاجزة عن تسديد أموال المودعين، والحكومة أمام تحدي الاتفاق مع صندوق النقد
September 19, 2022September 19, 2022
اقتحامات المصارف.. سبيل اللبنانيين لاستراد ودائعم
September 19, 2022September 19, 2022
كيف يمكن أن ينظر صندوق النقد الدولي لأزمة لبنان؟
September 15, 2022September 15, 2022
مارديني لصوت بيروت انترناشونال: موازنة غير عادلة تعمق التباطؤ الاقتصادي
September 13, 2022September 16, 2022
رفع سعر صرف السحوبات المصرفية .. هكذا يتم إنصاف المودعين!
June 5, 2019June 16, 2022
Great Lakes Economic Summit: The Road to Prosperity
June 18, 2019June 22, 2022
Foundations of a Virtuous Lebanon
June 20, 2019June 16, 2022
LIMS Pushes For a Fair Tender in Electricity
January 7, 2020September 16, 2022
Lebanese Parliament Members Meet Prof. Hanke to Discuss Currency Board Solution
March 12, 2021June 14, 2022
Townhall Meeting to Explain IMF Requested Reforms from Lebanon
November 8, 2021June 22, 2022
LIMS Meets with Joint Parliamentary Committee Over SEZs
Nazih Mazloum, Tripoli, North Lebanon
contact@limslb.com+961 6 409 305
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