81. Deposits Made “Sacred”: The Dangerous Red Line of Lebanon’s Elites
- Author:
- Mounir Mahmalat
- Publication Date:
- 04-2020
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- Facing the ashes of an economic model based on sectarianism and cronyism, Lebanon currently endures a perfect storm of overlapping financial, economic, and political crises. Since its inauguration on January 31, 2020, the technocratic government of Prime Minister Hassan Diab, aided by international advisors, elaborated an “economic rescue plan” to explore options for recovery. Leaked as a preliminary version in early April, the plan offers a sobering analysis of Lebanon’s economic realities. The plan exposes Lebanon’s present-day power struggle between traditional communal elites and a reformist protest movement. While some assumptions and projections are questionable or left unexplained, in conclusion, the plan depicts as inevitable a contribution of large deposits in the form of “bail-in’s” to cover losses only in the banking sector twice as large as the national economy. In such a scenario, a part of the largest deposits could be transformed into bank equity or placed into a dedicated fund to be replenished with reclaimed “stolen funds.” While some assumptions and projections are questionable or left unexplained, the plan makes visible the power struggle between an elite trying to preserve its interests in the status quo and a reformist protest movement. As a major conclusion, the plan depicts as inevitable a contribution of large deposits in the form of “bail-in’s” to cover losses only in the banking sector twice as large as the national economy. In such a scenario, a part of the largest deposits could be transformed into bank equity or placed into a dedicated fund to be replenished with reclaimed “stolen funds.” Communal elites and party leaders didn’t spare strong words to denounce that plan. While Nabieh Berri unceremoniously declared deposits as “sacred”, former Prime Minister Saad Hariri prophesied “economic suicide” when deposits would be used to cover banks’ losses (assumed that much more could be murdered in the economy). Other leaders from all political parties followed suit, including Hezbollah and the Progressive Socialist Party. Liquidity injections into the banking system in a “bail-out” scenario should leave deposits untouched and be financed largely by privatization of state assets. Despite the high stakes at play for politicians’ bank accounts and the legal complexity of bail-ins, this unusual unity is not trivial to explain. For sure, by accepting any cut on deposits, elites would admit political defeat and declare a 30-year legacy of economic policies as a miserable failure.
- Topic:
- Reform, Economy, Elites, and Economic Crisis
- Political Geography:
- Middle East and Lebanon