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French Version

Lebanon's Central Bank insists it will maintain stable pound (Daily Star)

Financial sector welcomes reassurance

Bankers and analysts welcomed a promise from Lebanon's Central Bank that it would keep the Lebanese pound stable on Thursday, a day before markets were scheduled to reopen for the first time since the brutal assassination of the country's former Prime Minister Rafik Hariri.

The Central Bank also said interest rates and discount rates would remain unchanged following the killing of Lebanon's foremost economic figure, pumping a semblance of relief into the financial sector which shut down with the rest of the country on Tuesday.

"The stability of the monetary situation is firm and secure given the size of the Lebanese banking sector and its reserves as well as the Central Bank's foreign currency reserves, which are at record highs," the Association of Banks in Lebanon said in a statement.

That optimism, if only fleeting, was shared by a number of prominent industry leaders and analysts.

"I think it was very important that this release came out before markets open tomorrow," said Shadi Karam, chairman and general manager of Lebanon's BLC Bank. "This decision shows that, despite the enormous drama we have lived through this week, it will be business as usual."

Playing down fears over fluctuations in the bond market, Karam said he had kept close contact with large international banks holding Lebanese Treasury Bills.

"We are confident today that no major selling movements have surfaced. Actually the prices that we are seeing today - in the grey market so to speak, because the markets are still closed - is that the long bond with 2016 maturity has not been affected by more than 1-1.5 percent, which can be considered completely negligible," he said.

Jill James, the chief analyst for Standard and Chartered bank in Asia and the Middle East, dubbed the Central Bank's communique as "an appropriate response" though she warned of potential uncertainties in defending the pound in the weeks ahead.

"I think we just don't know at this stage," she said. "They have ample reserves and have been very successful at defending the currency in the past during periods of instability. There is no knowing what going to happen in the longer term."

James toyed with the possibility of a fresh financial start for Lebanon, suggesting the government may finally be able to move ahead with aging plans to cut costs by liberalizing the economy and privatizing key public sectors. Hariri's controversial drive to reconstruct Lebanon after 15 years of civil war is largely seen as the main factor behind the country's $33 billion public debt, which at 185 percent of GDP, stands as one of the highest in the world.

"I think the government could use this as a new start. It could be a trigger to move forward on reform," she said.

Political maneuvering has often prevented the passage of economic programs in Lebanon, and perhaps now more than ever, investors will be closely eying the interplay between the pro-Syrian government and Hariri's allies in the opposition, who blame both the government and Syria for his killing.

Lebanon's future may likely hinge on the perception of Gulf investors, who are the source for much of the cash that has rebuilt Beirut. Edward O'Sullivan, the editor of Dubai-based Middle East Economic Digest said Gulf investors will be looking for swift action.

"If in six months time, [Lebanese] authorities are saying we don't know who did it, than that is really going to damage attitudes in the Gulf," he said. "People will not believe that people do not know, that the authorities in Lebanon are incapable of laying hands on some of the perpetrators."

The style of Hariri's assassination - a massive explosion that ripped apart his motorcade - could breed fear among tourists from the Arab Gulf countries, whose spending also accounts for a majority of Lebanon's vital tourism industry.

"If somebody who should be untouchable can be so cruelly obliterated in a public street, in the middle of the day, in the center of the capital of the country he governed, then who is safe," O'Sullivan asked.

The Lebanese government needs to act fast to provide the assurances that investors and tourists are looking for, according to Joe Sarrouh, an adviser at Beirut's Fransabank.

"We need action, we need to issue loud practical signs to investors, visitors, people inside and outside of the country that the future of Lebanon is not in any doubt," he said, praising the Central Bank's move as "a step in the right direction."

"I think the Central Bank will be able to deal with the situation. If we go back to 1993, one of the only things people in the country have agreed upon is maintaining the currency stability policy. And that policy has sustained many threats in the past."

"We owe it to him," said Karam of BLC Bank in an emotional reference to Hariri. "We owe it to him to be behind our desks and to make our businesses run as usual in the efficient and high performing fashion he would have wanted."

Beirut 21-02-2005
Habib Battah
The Daily Star

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