The measure was discussed during a meeting between bankers and the public prosecutor last week/Bloomberg
by Kudakwashe MuzoriwaLebanon is considering a move to allow holders of dollar accounts at banks to withdraw money in pounds at a weaker rate than the official peg, nearing a milestone decision on devaluation after opting to default on its Eurobond due this month.
Under the proposal, clients with US currency accounts would withdraw funds at the rate of LBP 2,000 per dollar, compared with the decades-old fixed-exchange regime of LBP 1,508.
The measure was discussed during a meeting between bankers and the public prosecutor last week after the two sides approved a set of decisions to ease banking restrictions.
The public prosecutor has been probing banks over three cases including their months-long restrictions on the movement of capital that were seen as illegal. Lebanese banks agreed with the judiciary to ease curbs on pound withdrawals and allow some transfers abroad and discussed potentially changing the rate for dollar accounts.
Lebanon is at another turning point after announcing this month that it will not pay a maturing Eurobond in what would the first default in its history. The country went into lockdown this week, further paralysing an economy disrupted since protests against corruption erupted last year.
As the government now looks to restructure $90 billion in debt, dismantling the peg is likely to be among the centrepieces of an economic programme meant to contain a financial meltdown.
Finance Minister Ghazi Wazni told reporters that the government would like to keep the peg to control inflation but that it would later consider a flexible policy.
Moody’s said that the pressure on the Lebanese pound’s currency peg is acute, pointing to a possible abrupt and very large change in the exchange rate.
“An exchange-rate adjustment could form part of a comprehensive economic adjustment plan,” said Moody’s.
The government is soon expected to finalise a draft law that would enshrine the informal capital controls jointly imposed by lenders to prevent a run on deposits amid nationwide protests in October 2019.
The government’s economic plan will likely be presented to the International Monetary Fund (IMF), whose experts recently held meetings in Beirut. Wazni said last week that the cabinet is open to an aid programme from the IMF if it’s not tied to austerity measures or political conditions.
Iran-backed Hezbollah, which holds great influence in government and parliament, said that it had no problem with IMF help as long as the programme does not undermine the sovereignty of the country or impose unreasonable demands.
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