Monday, September 28, 2020

Lebanon arrests director at central bank over currency chaos

May 15. 2020
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By Syndication Washington Post, Bloomberg · Dana Khraiche, Youssef Diab · WORLD, MIDDLE-EAST

Lebanon's financial prosecutor ordered the detention of a director at Banque Du Liban for alleged currency manipulation, the first such move against a central bank that's been under heavy scrutiny since the start of the country's financial crisis.

Prosecutor Ali Ibrahim said Mazen Hamdan, director of the cash operations department at the central bank, bought dollars from exchange bureaus and weakened the pound on the black market, the state-run National News Agency reported. A police unit accompanied Hamdan to his office in Beirut to seize documents related to the transactions.

The central bank said it conducted its own investigation into the allegations and concluded that there was no evidence of currency manipulation, saying it sold a total of $12.7 million in the past month and only $470,000 went to exchange bureaus. Total amount of dollars bought is $11.3 million, it said.

"Evidently and after looking at the numbers and contrary to the rumors, there was no manipulation in the money exchange market as a result of the bank's operations," the central bank said in a statement. "The amounts mentioned are for a month and are small compared to the size of the price fluctuation in the same period."

Lebanon's currency peg, an anchor of financial and social stability for more than two decades, is crumbling and attempts to stabilize it have only added to the chaos. Security forces have arrested dozens of owners of exchange bureaus for violating central bank circulars and working without proper permits. Exchange offices have been shut for over a week in protest against the arrests, further reducing dollar availability and adding to the uncertainty. The central bank in April asked exchange bureaus not to sell dollars for more than 3,200 Lebanese pounds.

The pound was trading at more 4,000 per dollar on the parallel market last week, with some money changers pricing it near 4,500. The official peg, at 1,507.5 per dollar, is now effectively in place only for importers of essential goods: oil, wheat and medicines.

The government of Prime Minister Hassan Diab has blamed Central Bank Governor Riad Salameh, who's been in his post for 27 years, for the currency chaos. Salameh has pushed back against the criticism, saying the foreign currency reserves were depleted because they were used for years to finance gaping budget deficits notched up by governments that were slow to enact fiscal reforms.

As remittances from abroad gradually slowed to a trickle, Lebanon plunged into financial crisis, leading the government to default on its international debt for the first time in its history. Prices of goods have skyrocketed since October, when nationwide protests against worsening living conditions erupted.

Lebanon is in talks with the International Monetary Fund to secure a $10 billion loan program and unlock billions of dollars in donor funds held back because the government has not taken measures to reduce waste and corruption and balance its books. As part of reforms promised to the IMF, the government has said it will aim for a new exchange rate of 3,500 pounds to the dollar. The government has said it would seek to shift toward a more flexible exchange rate system if it secures external aid.

 

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