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French Version

Salameh says government has to stay tough economic course (Daily Star)

Salameh says government has to stay tough economic course - "We need to cut interest rates even more, to allow the private sector to benefit" (Daily Star)

Central Bank Governor Riad Salameh urged the government on Monday to stick to its political and economic agenda to ward off any possible fallout from the war in Iraq.

Speaking to members of the Rotary club at the Bristol Hotel, Salameh made it very clear that political detente and economic reforms are inseparable.

"The strong foreign currency reserves and the high surplus in the balance of payments have kept us immune from any likely negative effects of the war,” he said.
But Salameh also stressed that the government must implement privatization and other reforms to keep the economy sturdy.

He said the gross foreign currency reserves of the Central Bank exceed $10 billion while the balance of payments surplus reached $2 billion in the first semester of this year. The rise in the currency reserves was mainly attributed to the $2.2 billion soft loan injection from donor states that took part in “Paris II” conference in November 2002. The donor states and international organizations have pledged $4.4 billion in soft loans, $1.3 billion of which will be used for development projects.

Bankers and brokers said the dollar depreciated against the pound in the past few days, demonstrating that investors have more confidence in the Lebanese markets. The pound is currently traded at LL1,510-LL1,512 against the dollar.

Salameh said he noticed that deposits grow by 10-11 percent annually. Total bank deposits have reached $45 billion, 68 percent of which are in foreign currencies. He added that the 5 percent tax on interest on deposits did not affect the size of assets.

Interest rates on dollar- and Lebanese pound-denominated loans fell to 7.75 percent and 11 percent respectively.“The situation may even improve once the military operations in Iraq are over,” he said. He added that the Treasury has no need to borrow any more money from the market because banks have sufficient liquidity.

Salameh said Lebanese banks have a golden opportunity to expand to emerging markets after a number of international banks decided to withdraw from these markets, due to the strict conditions of the Basle Commission which set new criteria for capital adequacy. But some members of the audience expressed concern over the slow economic growth despite the success of the Paris II conference.

Economist Marwan Iskander said if the banks don’t extend loans to the private sector at low interest rates, the economy will remain stagnant. He added that the private sector did not really benefit from Paris II. The government projected a growth of 2-3 percent this year after securing pledges from the donor states.

However, most economists fear that the war in Iraq and regional tensions may dampen hopes to revive the economy.
Salameh agreed that interest on loans are relatively high.“We need to cut interest rates even more, to allow the private sector to benefit from the loans,” he said.

He added that applications for banks loans have dropped recently, even though “banks will not hesitate to grant loans to any project if the feasibility study is viable.” Salameh said most of the hotels and industrial projects in Lebanon have been financed by local banks.

The government also came under sharp criticism by a number of bankers and businessmen. The chairman of the Chamber of Commerce, Adnan Qassar, said the government has not yet fulfilled its political and economic reform plans, adding that the state was still squandering money despite its pledge to carry out austerity measures.“What is even worse is that the government has failed to pay its dues to hospitals and contractors which further exacerbated the economic situation,” Qassar said. He said he was also very irritated by what he described as the slow progress in privatizing state-owned assets, one of the government’s key reform and cost-cutting priorities.

Beirut 22-04-2003
Osama Habib
The Daily Star

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