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Leading banker warns of impending disaster - Byblos bank chairman lays blame on politicians (Daily Star)

Avoiding financial collapse is linked to both economic and political reform

Francois Bassil, the chairman of Byblos Bank and former president of the Association of Banks in Lebanon, has warned that the country is on the brink of disaster if politicians do not seriously address economic and political problems.

“Politicians running the country have let us down many times. The situation is getting worse in all aspects,” he told The Daily Star. “We need radical changes or else the country will continue to slide into more problems.” He was alluding to continuous differences between members of the ruling class over economic and political issues.

Bankers have been the strongest supporters of successive governments since the 1990 Taif Accord that ended the bloody 15-year civil war. Apart from holding the bulk of the government’s Treasury bills and eurobonds, bankers made many initiatives to ease the government’s financial burdens.

The latest gesture of good will was using 10 percent of total deposits to buy two-year T-bills at zero percent interest. This step allowed the government to reduce debt servicing by $400 million.

Bankers said this step was in response to the pledge by the government to reduce the deficit by 25 percent at the end of this year; however, many leading financiers are beginning to feel that politicians are not up to the challenge.

The government, after direct intervention from Syria, finally endorsed the 2004 draft budget last Wednesday, which included an additional LL120 billion in spending, raising the projected deficit to 32 percent from 30.8 percent as set by the original draft of Finance Minister Fouad Siniora.

Most bankers and investors rejected the budget proposal because it did not contain any reforms or privatization.

Bassil urged the government to adopt shock therapy to change the course of events.“We need to reduce the public debt by at least $10 billion. One way to do this is by issuing zero coupon T-bills over a 30-year period.” He added that this approach would have a positive impact on the economy.

The chairman said one of the first outcomes of this step would be a sharp drop in interest rates.“I don’t see anything wrong if interest rates ... fell to reasonable levels because this would encourage businessmen to make bigger investments in the country.”
He said high interest rates on deposits have made many Lebanese lazy because they count on easy money.

Bassil said the banks and the international community kept their commitment to the government. France, Saudi Arabia, Malaysia, Kuwait, UAE and other countries gave Lebanon $2.5 billion in soft loans to allow the government to reduce debt servicing while Italy, Canada and Bahrain have yet to pay a $600 million soft loan to the government.

The soft loans pledged by countries participating in the “Pairs II” conference were aimed at giving Lebanon more breathing space to implement necessary reforms.“However, the government failed to carry out … its pledges, such as privatization and economic reforms,” Bassil said.

He added that the Central Bank was forced to issue new T-bills to finance the public debt due to the endless bickering between politicians.“Politicians should be candid with the people. They should tell them that we are heading to a disaster if we don’t do something drastic,” he said. In Bassil’s opinion, privatization and financial reforms would not have any positive results if they were not matched with political reforms.

Among these reforms was a new election law that would allow people to elect their representatives freely.“Politicians should not think about their sects, parties and regional areas. Instead, these politicians should only consider the welfare of Lebanon,” he said.

Bassil remarked that if the country collapsed, a new breed of politicians would emerge who would run Lebanon in a more responsible manner. He added that the current politicians have ruined most public and private establishments.“Corruption is rife and our public establishments are in total disarray,” Bassil said.

He indicated that political intervention has crippled Electricite de Liban and all its publicly run departments. Bassil also asked about government promises to cut spending in the public department.

He said the public sector is not capable of carrying out its duties, adding that the private sector should play a bigger role in shaping the policies of the government, especially when it comes to the economy.
Expressing his views about privatization, he said: “The privatized state owned companies should be listed in the stock exchange so the public can buy shares in these entities.”

He added that it is more intelligent and rewarding for the public to buy stocks in the privatized companies instead of collecting interest from deposits.

Bassil argued that the lack of proper projects and incentives has prompted many people to put their money in banks.
He also questioned why the government is dolling out large sums of money each year to pay the salaries of more than 200,000 public employees.

Bassil also mentioned the judicial system: “One of the first things we should do is make the justice department free from political intervention,” which would help address corruption by holding officials accountable for their transgressions.

Beirut 10-11-2003
Osama Habib
The Daily Star



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