Wissam Mansouri stepped into the role of Acting Governor of Lebanon’s Central Bank (BDL) on July 31, and the early days of his tenure have been marked by a flurry of statements and bold positions in the face of Lebanon’s intricate financial system and its fractured political landscape. At the top of his “To-Do” list was the restoration of trust in the financial system, with the decommissioning of the contentious “Sayrafa” platform as a critical first step. This move aimed to facilitate the floatation of the Lebanese pound and to bring all market rates under a unified banner, with Bloomberg selected as the platform to navigate market fluctuations.
Mansouri’s mission to rebuild faith in the system is reminiscent of Don Quixote tilting at windmills. In the face of his own quirks, like Don Quixote, Mansouri is often seen as a hero, thanks to his unwavering commitment to his idealistic principles. He stands for values of chivalry, honor, and truth, which raises the question: Will he go to great lengths to defend these ideals?
Speaking at a recent workshop, Mansouri declared, “The Central Bank of Lebanon deserves the trust of the Lebanese citizens, and just as we need the citizens’ trust, the citizens also need to trust the institution. I invite you to trust this institution.” However, the pivotal question remains: Will the political junta pass laws that ease the concerns of depositors, reopen banks, and stimulate the economic cycle to regain confidence? The erosion of trust is undermining liquidity in the banking sector, and concerns are mounting that banks may not be in a position to assist the government in funding its high budget and current account deficits.
On his first day, Mansouri extended an olive branch to politicians while addressing the Lebanese people, stating, “To the women and men of Lebanon, allow me to apologize to you once again. An official, who is expected to lead the country’s financial authority, is saying he can’t do it alone.” Will these political bodies respond to the convoluted and intricate political system? Like Don Quixote, Mansouri’s message is about an imagination that resists the constraints of the current reality.
In essence, Mansouri is urging the government to implement a set of policies tantamount to shock therapy that can gain credibility within a divided legislative body. Rebuilding confidence in the economy necessitates sweeping economic reforms, including the restructuring of public debt and the banking system, governance reforms, and the phasing out of subsidies to non-performing, corruption-ridden national councils, state-owned enterprises, and government-related entities. Yet, these aspirations face formidable obstacles.
Mansouri’s open statements have generally found favor in the banking community. He recognizes that he cannot act unilaterally, as the Code of Money and Credit accords “important prerogatives” to the Central Bank of Lebanon. Article 70 outlines the bank’s mission to maintain the stability of the banking sector, the economy, and the Lebanese pound. So, why is Mansouri seeking a “New Deal” involving the Association of Banks, the Ministry of Finance, and politicians? The economy yearns for independence, transparency, and disclosure obligations across the entire spectrum of BDL’s policy and budget data. Restoring credibility to the BDL demands unwavering independence from the government and Parliament, and it compels politicians to be held accountable for their inaction and reckless policies.
Mansouri has called upon the Council of Ministers and the political elite to chart a financially viable path for the country, marking a new feat for the BDL. This initiative was followed by the Ministry of Finance unveiling a fully dollarized 2024 budget. Evidently, Mansouri is committed to his promise of reforms. However, he is still grappling with an expanding cash economy. Mansouri has emphasized that “the cash economy in Lebanon should not and cannot continue.” Reportedly, over USD 7 billion in remittances remain outside the financial system. His plan to control the circulation of money is pivotal to the economy.
As he approaches his 100th day in office, Mansouri’s vision remains aspirational. To manage liquidity, the acting governor has successfully gathered approximately $79 million from informal markets, primarily money exchange companies and currency dealers. In other words, the BDL is still intervening in the markets, bolstering the cash economy.
IMF Reforms
Mansouri’s policies align with the IMF’s objectives. High on his agenda is urging the legislature to adhere to an IMF Staff Level Agreement from April 2022. Unfortunately, Lebanon’s caretaker government and politicians show no signs of willingness to implement the required reforms agreed upon with the Fund. For some politicians, this remains a “fantasy” given the political divide. However, for the watchdog, the equation is straightforward: Lebanon must initiate the reforms outlined in the April 2022 agreement to rectify its finances, restructure its banking system, and revive its economy, or risk limited growth prospects. In summary, the last IMF mission has not received the political and public attention it merits. Consequently, the proposed mechanism for restructuring the banking sector by the government does not align with the initial understanding between Lebanon and the IMF, returning things to square one. The Capital Control Law project, currently up for a vote in parliament, still falls short of meeting the IMF’s requirements, despite amendments within the parliament. The stance of the new BDL leadership remains uncertain. Can Mansouri motivate politicians to pursue these reforms without political interference?
Alvarez & Marsal Forensic Audit
Another challenge for the new acting governor, alongside the changing of the guard at the BDL, is the long-awaited Alvarez & Marsal forensic audit report findings. The report, spanning 332 pages across 14 chapters, highlights that former governor Salameh imposed decisions on the higher banking council, resulting in one-sided policies and an irregular accounting structure.
Hence, Mansouri’s trust challenge also involves investigating the allegations and pursuing the findings of the Alvarez & Marsal forensic audit. Mansouri has pledged to expose wrongdoers and collaborate with judicial authorities to ensure justice. Unfortunately, as of the time of writing, no action has been taken, and the forensic audit has not been fully disclosed. Mansouri is yet to commence his investigation within the Central Bank, making it transparent to the public. There has been no public statement regarding this matter.
Depositors’ Money
Another trust challenge for the new acting governor is determining how to handle depositors’ money. While emphasizing the need to “rebuild the banking sector by restoring depositors’ confidence,” the interim governor has sparked controversy by implying that the state cannot reimburse depositors before restructuring the country’s banks. He noted, “People cannot be treated the way they are being treated now. This is a lack of respect for them and for the state.”
In a separate interview, Mansouri made further contentious statements, stating, “I will not lend the Lebanese state the people’s money.” This stance presents another challenge, “Even if a law is passed in the Parliament for borrowing [money], and there are no reform laws accompanying it, I will not disburse the funds. This is my right under the law.” Evidently, Mansouri is committed to his promise.
Additionally, on his agenda, Mansouri aims to implement a policy of limiting government lending if not justified by a ceiling. On Aug. 25, during a press conference, the acting BDL governor said that Lebanon’s central bank would not print money to lend the state or cover the crisis-hit economy’s projected deficit. He said that further delaying reforms “risks isolating the country from the global financial system.”
Lastly, one can see Mansouri as an idealist within the system. Our concern is that he will not misinterpret reality while dealing with political leaders as partners to build a new system based on trust. The reality for the state’s 2024 finances is that more than USD 1.5 billion is needed, and it is not yet known how these funds will be secured unless Mansouri reverses his position and is forced to disburse from the mandatory employment in the BDL. This could potentially put him in confrontation with depositors and risk breaking his previous promises. Also on his list of To-Do is securing dollars to support the purchase of medicines. Mansouri was able to collect $80 million from the market to pay employees’ salaries during the days when tourists were in the country. Whether this can be sustained is another question.
Maan Barazy is an economist and founder and president of the National Council of Entrepreneurship and Innovation. He tweets @maanbarazy.
The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW.
