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French Version

Central Bank governor : Lebanon protected from monetary crisis (Daily Star)

Central Bank governor Riad Salameh on Wednesday ruled out the possibility of an Argentine scenario in Lebanon in the future, noting that the country weathered the Asian market crisis five years ago thanks to prudent monetary policy.

The governor was alluding to the sharp economic crisis in Argentina which forced the government to devaluate its national currency.

Salameh made these comments during a lecture on banking at Haigazian University.

The governor said that Argentina faced this crisis due to the capital outflow from the country as well as a drop in foreign currency reserves.

In addition, Argentina had serious problems with the International Monetary Fund (IMF), which applied pressure on the Latin American country to float the currency and remove subsidies on most products.

Lebanon, which is struggling to cope with the massive public debt, has managed to keep the pound stable as a result of extensive intervention from the Central Bank from 1994 to 2001.

But this bleak picture radically changed in the aftermath of the "Paris II" conference, which saw the donor states pumping $2.5 billion in soft loans into Lebanon to help the government reduce the costly debt servicing.

The foreign currency reserves jumped to more than $12 billion while the balance of payments achieved a surplus of $3 billion at the end of last year.

Interest rates on dollar deposits ranged from 7 percent to 12 percent from 1993 to 2003. The interest rates on Lebanese pound loans also reached 20 percent during the same period."We have stopped intervening after Paris II because the commercial banks are flush with hard currency," Salameh told participants and students. Bank deposits rose by more than $6 billion at the end of 2003 to more than $48 billion.

Interest rates fell by more than 6 percent on both the dollar and Lebanese pound deposits, allowing the government to ease the debt servicing burden.

The governor noted that interest on loans on both currencies also fell, adding that the Central Bank is pressing the banks to reduce further the interests on these types of loans."Lebanon at one point had to finance many projects from the high yield bonds because the country did not have sufficient resources to handle the situation," Salameh said.

Commenting on the troubled Al-Madina bank, Salameh stressed that this incident did not affect the overall performance of commercial banks.

He added that the Central Bank promptly took over the management of this bank to ensure that all depositors could access their money. The Central Bank liquidated the huge assets of Al-Madina bank last year and paid back most of the money to its previous customers.

The authorities are still investigating the owners of the bank and have issued an arrest warrant for the bank's chairman.

Salameh predicted more bank consolidation in the future, noting that 16 leading banks in Lebanon control more than 80 percent of the market.

The "Basel II" accord, which requires banks to increase capital and reduce risks, will also induce the Lebanese banks to merge.

Beirut 04-05-2004
Osama Habib
The Daily Star

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