B
| BEIRUT
Lebanon’s
central bank chief said he was satisfied with the country’s foreign
currency reserves, which have been boosted to record highs by months of
financial engineering, and had no plan for further operations to boost
them.
“Today we
are at a historical, record high,” Bank of Lebanon Governor Riad Salameh
told the Reuters Middle East Investment Summit.
Foreign
currency reserves excluding gold rose to $41 billion by mid-October
from around $35 billion before the financial operations involving the
Ministry of Finance, central bank and local banks began in June.
We are at a satisfactory level which
will allow the country to fund its needs for the public and the private
sector,” Salameh said. “The engineering we are talking about has
achieved its purpose and has been now ended.”
Asked if there were plans for further such operations, Salameh said: “There are no projects.”
Lebanon
is a net importer with no hydrocarbon industry and high government
debt. Its main sources of foreign currency since its 15-year civil war
ended in 1990 have been tourism, foreign investment in real estate and
remittances sent home by the huge Lebanese diaspora, based largely in
the oil-producing Gulf.
But
tourism and investment have been under pressure since 2011 when the war
in neighboring Syria began. Lebanon now relies more heavily for foreign
currency on remittances, which, although so far stable, are risk-prone
as low oil prices have hurt Gulf economies and political tensions have
caused some Lebanese workers to be expelled from Gulf states.
The
central bank’s operations aimed to preserve stability without having to
use emergency measures at the last moment, said Salameh, who took
office in 1993, making him the world’s second longest-serving central
bank head, after Uzbekistan’s.
“In
the whole region the liquidity in foreign currency is low. You can see
that from the situation in other Arab countries. Most of them are having
to recourse to the IMF (International Monetary Fund) to support the
foreign currency situation,” Salameh said.
LOCAL LENDING
The financial
operations carried out between June and August brought dollar liquidity
into the central bank from local banks and also boosted local banks’
reserves of the Lebanese pound, which is pegged to the U.S. dollar.
First,
the central bank exchanged some of its holdings of pound-denominated
debt for dollar-denominated Lebanese Eurobonds from the Ministry of
Finance, a central bank official said.
Second,
private banks were asked to transfer dollars to the central bank and in
exchange were given the Eurobonds and newly issued certificates of
deposit in dollars.
In
addition, the central bank bought pound-denominated bonds held on local
banks’ books from them for the full principal amount in addition to the
interest that the banks would have made if they had held them to
maturity, instantly boosting their local currency reserves.
“The
liquidity that came out of this engineering in Lebanese pounds has
strengthened the balance sheet of the banks to meet their future
regulatory obligations … without having to shrink their balance
sheets. So they can continue to extend credit to the economy,” Salameh
said.
He is encouraging
banks to make local currency loans, especially to technology business
start-ups, in order to stimulate the economy, which he predicts will
grow between 1.5 and 2 percent in 2016. That is well below the 8 to 9
percent growth rates seen in the years before the Syrian war.
The
war has affected Lebanon’s foreign reserves, Salameh said, partly
because the more than one million displaced Syrians in Lebanon send
dollars back to Syria.
“The
balance of payments of Lebanon turned negative with the start of the
Syrian war … A major part of it was due to this movement of funds
between here and Syria.”
However,
there has been a “drastic improvement” in Lebanon’s balance of payments
in recent months. It is now running at a positive $350 million, up from
a negative $2 billion before the operations to boost reserves, Salameh
said.
“We have witnessed
demand for Lebanese Eurobonds from foreign institutions because they are
more at ease now with Lebanese papers,” he said, adding that parliament
had approved a new $3 billion Eurobond issue which he expects to happen
next year.
Lebanon has
been without a president for more than two years, part of a political
crisis that has resulted in a breakdown in many basic services and
concern about the country’s stability.
Salameh
said confidence in the country would improve if members of parliament
chose a president at a vote on Oct. 31 in which Christian leader Michel
Aoun is expected to gain enough support to be elected president.
(Editing by Andrew Torchia)
