Death Threats Against Central Bank Governor
Runaway inflation, frozen bank accounts and state bankruptcy. The Lebanese have begun to hate Riad Salameh, head of the country’s national bank, who has subsidised the import of foreign goods for decades, while leaving the domestic economy to rot.
Lebanon is one of the few countries where even graffiti artists can spell the name of the central bank governor. Which is not the best of news for him.
“Execute Riad Salameh!” is sprayed on a house wall in the capital, Beirut, while demonstrators in the second biggest city, Tripoli, set fire to a branch of the bank last week.
Their anger is due to runaway inflation, which is expected push 60% of the population below the poverty line this year. And according to certain critics, the problem is the direct result of the monetary policy Salameh has pursued since he became head of the Banque du Liban nearly 30 years ago.
Officially, one US dollar has been worth exactly 1,507.50 Lebanese pounds since 1997. An artificially low price which has made it cheap to import everything from food to cars.
In reality then, the central bank has financed over-consumption in which the middle class and the wealthy have lived above their means for many years. On the other hand, the fixed exchange rate policy has contributed strongly to driving the real economy into the dirt, because the high price of the Lebanese point has made it extremely difficult to export.
Accrued a massive deficit
To keep the exchange rate with the dollar low, the central bank has consistently had to buy up the local currency on a massive scale, but to do so, dollars have had to be obtained.
They were acquired by offering foreign investors and ex-pat Lebanese highly attractive interest rates, typically around 20% on dollar accounts in commercial banks, or 40% on Lebanese government bonds.
Such ‘financial engineering’ has cost the central bank $44 billion over the last three years alone on trading in foreign currencies, according to recent statistics from the authorities, while the commercial banks stand to make a loss of $83 billion dollars.
Since last summer, the fixed exchange rate system has begun to collapse in line with the central bank no longer being able to get its hands on enough dollars.
The price of a dollar first rose from the official 1,507.50 pounds to around 2,000 pounds.
That caused panic-stricken savers to withdraw billions of dollars from the banks, whereupon the banks closed their doors for two weeks. When they reopened, severe withdrawal restrictions were in place, along with a ban on sending money out of the country. Deposits in dollar accounts were also force-converted to Lebanese pounds.
In spring, the price of a US dollar on the black market rose to around 4,000 pounds, and a new round of massive daily protests exploded on Thursday, after rumours began to circulate on the social media of a sudden rise in exchange rates to 7,000 pounds.
Exchange rate chaos
President Michel Aoun called in the country's security council yesterday to “study the security situation in the light of recent developments”, and the central bank tried to lower the dollar exchange rate by “releasing dollars into the market”.
But the fact is that there is not just one, but a whole range of exchange rates, with enormous importance for the population, because most goods – including basic foodstuffs – are imported.
The central bank's exchange rate of 1,507.50 points per dollar can now only be used for importing grain, medicines and fuel. The association of currency exchangers has set its exchange rate at 4,000 pounds, but many exchange bureaux remain closed because of strikes in protest against the different rates.
Private banks were thus ordered to sell dollars at just 3,000 pounds, or at least until Friday morning, when, according to the Financial Times, they were instructed by the central bank to raise the exchange rate to the same as the currency exchange bureaux.
Then of course, there is the black market rate, which is generally much higher and moves in line with the growing panic amongst the population. The black market is generally open 24/7, at filling stations for example.
Formerly enormously popular
While much of the population are roundly cursing Salameh, he used to be enormously popular in Lebanon and abroad, where he was crowned ‘Central Bank Governor of the Year’ by Euromoney and ‘Central Banker of the Year/Middle East’ by The Banker.
He has frequently appeared on talk shows on local TV, where he has been allowed to dictate composition of the studio audience.
He boasts of having foreseen the finance crisis, and was praised by the International Monetary Fund (IMF). “I saw the crisis coming, and said in 2007 to the commercial banks that they should get out of all international investments on the international markets,” he claimed once in an interview with the BBC.
Journalists are now finding it increasingly difficult to talk to him, but the central bank took to the social media on Thursday with an attack on “baseless information on “exchange rates far from reality, that are misleading the public.”
Blames the politicians
So far, Salameh has survived ten different governments in this troubled country, and despite massive protests and the disastrous situation, apparently has no plans to resign before his current mandate expires in 2023.
But parts of the current government which took office late last year have become more critical.
Naim Kassem, Deputy Leader of the Hezbollah movement that supports the government, says that the economic meltdown (which resulted in Lebanon going into bankruptcy in real terms in March, when the country missed a repayment on a government bond for the first time) is “the result of accumulated errors on the part of the central bank”.
The 69-year-old central bank governor rejected any criticism in a recent TV interview, and blamed the politicians. “Yes, the central bank financed the state, but it was not the bank that spent the money,” was Salameh’s defence.