The IMF program and “Capital Control”: one package

Elie Ferzli wrote in “Al-Akhbar”: Although the Finance Committee has returned to discussing the Capital Control Law, no one expects it to be approved soon. After the smuggling of as much money as possible, and after the bankruptcy of banks, the law is no longer intended to limit the transfer of funds abroad. Its approval is only necessary as a condition of the IMF. Therefore, it will not be approved except in parallel with the approval of a program with the Fund, to allow its implementation and ensure that the support funds are not transferred abroad.

On May 28, the proposal to impose controls on bank transfers and cash withdrawals was placed on the agenda of the General Assembly of Parliament. The expedited proposal, which was signed by Representatives Alan Aoun, Ibrahim Kanaan and Yassin Jaber, was considered urgent at the time, despite the passage of 7 months since October 17, and despite the smuggling of their money by politicians, major depositors and shareholders in banks. It was said at the time that the remaining funds in Lebanon must be protected. However, with the passage of time, this goal has turned into an unnecessary necessity. During the crisis, banks have diverted everything that they can transfer, discretely, and thus have become unable to meet any obligations stipulated by the law. According to MP Yassin Jaber, the most appropriate time to pass such a law was in October, that is, before the banks were closed for two weeks after the outbreak of the uprising. It suffices to indicate the extent of the sin committed by the Authority to indicate that during the first two days of the banks’ return to work, after the closure in October 2019, 700 million dollars were transferred abroad.

Accordingly, every day that passed without the approval of “Capital Control” meant additional bleeding in foreign currencies, until the matter came to the point of threatening to stop importing basic materials. The priority of authority was different. At that time, the Banque du Liban and the banks, ie Capital Control, refused, under the pretext of ensuring a free economic system. This is something that Speaker Nabih Berri also held on to, until May. After the government stopped paying Eurobonds, and after the tendency was to conduct “Hercats” on deposits, Berri was quoted as saying that he supports “Capital Control” that keeps depositors’ deposits, unlike the “Hercules” that adopt deduction from deposits or converting them into long-term bonds.

At the hearing this support did not last. The president of the council withdrew the proposal, which was signed by a member of his bloc, due to the presence of observations from the governor of the Banque du Liban and the Monetary Fund, as he said at the time, and then transferred it to the Finance Committee.

Last week, the committee returned to put the proposal on the path of discussion, as it is one of the required reform laws. The goal, according to MP Nicolas Nahas, is to prepare the ground for the passage of the law when the time comes. Committee members are aware that the debate this time is proactive, as there is no intention to speed up approval. The problem with the law today is that if it is passed, it will be useless, because any law to control transfers is supposed to include exceptions, while banks are bankrupt, and therefore they will not be able to open the door to transfers again. The proposal that was withdrawn from circulation included, for example, limiting transfers to the following purposes:

1- Payment of living expenses, medical expenses, hospitalization, education, or rent.
2- Paying emerging loans before this law goes into effect.
3- Pay urgent taxes, fees or financial obligations owed to foreign authorities.
4- Purchase of industrial, commercial, agricultural, food, technological or medical materials or products (medicines and supplies).
These provisions, although they are considered the minimum possible, but the illegal practice of banks turned out to go far beyond the content of the law, as it restricted almost all types of transfers. Consequently, the passage of this law will oblige it to release part of the depositors’ money (50 thousand dollars per year), while confirming that it does not have the funds, and rather claims that it owes correspondent banks in large sums.To read the full article click here.

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