Publications & Resources

November 2017

The domestic crisis, the diaspora energy and the forthcoming Paris Conference

Original text edited in Arabic
At the end of 2017, the Lebanese arena was swamped with several topics and developments, which are worth reviewing, as they would leave their mark on 2018.

First, the crisis which developed following the resignation of the Prime Minister in November and the second was the Conference of Diaspora Energy (CDE), which was held in Cancun / Mexico, while the third is the forthcoming Paris Conference.’


First -The crisis that has ended or nearing end

This crisis was sudden and implausible, causing ramifications on political, economic and financial levels.

We would like to focus on the financial and monetary levels and leave politicians and international community to handle the political implications of this crisis.

This crisis may have been contained but is definitely not over.

Disassociation is a question of practice and not a written document only.

It is essential that the political parties and organizations in the country abide by disassociation so we won’t be surprised again by the same crisis.

It is imprudent to outsmart each other just to gain time as this practice is futile.

The November crisis caused high pressures in the exchange markets, which, on the one hand, resulted in a wave of conversion from the pound to the dollar, which reached unprecedented proportions since the assassination of Prime Minister Rafik Hariri in 2005 and the July 2006 war with Israel.

It was also reflected in a capital outflow that was effectively contained by the commercial banks in cooperation with the Banque du Liban and through its strong relationship with big depositors.

The pressures caused by the crisis, on the other hand, have led to an unprecedented rise in interest rates, especially on customer deposits in the lira and dollar markets.

The high interest rates on the lira prompted depositors not to convert from the lira to the dollar, which is offset by high interest rates on the dollar to prevent the transfer of funds out of Lebanon, and it is hoped that it would lure more deposits.

The interbank interest rates in Lebanese and international currencies also surged to high levels that could reduce lending to the private sector, which may also shrink the GDP growth.

It is worth noting that loans to the economy represent a vital element for economic growth in the absence of investments from the Lebanese business community and in the absence of foreign direct investment (FDI).

Within this framework are incentives that the central bank intends to expand in order to encourage banks to lend and encourage businessmen to invest, expand institutions, increase employment and create new incomes, which in turn will stimulate the economic cycle.

Second: In mobilizing expatriates of Lebanese origin

The Ministry of Foreign Affairs and Emigrants has successfully organized a conference on mobilizing LDE in Cancun / Mexico for Central and South America.

Representatives of the Banque du Liban, the Association of Banks and three banks, Bank Audi, BLOM Bank and Bank of Beirut, attended the meeting.

The banking sector also provided support to ensure the organization of the conference possible.

The conference was successful by all standards, attended by about 800 participants, about half of them from Mexico, headed by global businessman Carlos Slim Helou, and the other half came from various countries of Central America and Latin America. Remarks made by the Deputy Governor of the Banque du Liban and the Secretary General of the Association of Banks explained the services and financial products provided by the banking sector to Lebanese expatriates.

It can be summarized in three areas: the first and most important of which is the fact that the Lebanese banking sector is a modern and regulated banking sector that enjoys high solvency within international standards and with a liquidity exceeding the global requirements. They have a network of branches in Lebanon (approximately 1,100 branches) and outside of Lebanon where our banks are located in 32 countries and over 90 cities and have a network of correspondents covering all four continents, including Latin America.

The second feature of the banking sector, lies in its ability to keep abreast with the world of diaspora in its operations and its investments in Lebanon through soft interest loans either for the purpose of housing (home acquisition or construction of the house) or for investment purposes, where banks provide subsidized loans and low-interest. Expatriates can also benefit from the mechanisms of Circular No. 331 on startups.

Banks' investment in startup companies has exceeded $368 million and has financing capacity of $750 million, or 4% of its capital. The number of startup companies in the Lebanese Incubator has reached 800, providing approximately 9,000 jobs directly and indirectly. Banks also contribute to the eight investment funds established under Circular 331. The contribution of the startup sector to GDP is estimated to be about 1.5%, or equivalent approximately to $1 billion. Businessmen of Lebanese descent, if they want to establish industrial enterprises in Lebanon, can benefit from two additional mechanisms to finance and encourage exports.

IDAL manages the first and the banks manage the second through the inter-Arab trade finance program, as well as subsidized interest loans for export production scheme.

The third advantage of the Lebanese banking sector is the ability of banks to advise their expatriate clients who wish to establish and develop businesses in Lebanon or to partner with Lebanese residents.

And who is better than our bankers to direct our expatriates to promising investment areas and / or to credit-worthy and successful Lebanese partners.

Third: On Paris 4 Conference

There has been a lot of talk in Lebanese circles recently about a fourth conference to be held in Paris in the context of the three conferences that were hosted by the French capital under the names of the Paris Conferences 1, 2 and 3.

The possibility of convening such a conference is great after the meeting of the international community to support Lebanon recently and its security umbrella to establish and protect political stability in Lebanon, which constitutes a necessary but mandatory entry into any large-scale funding program from donor countries and international and regional financial institutions for projects inside Lebanon.

According to the information so far, the difference between Paris 4, if it is held, and the previous three conferences is in two respects: first, that funding will be limited to infrastructure projects without what was called budget support or state finance. Secondly, the pivotal role of the World Bank and the International Monetary Fund (IMF), where the former would be responsible for giving approval or a validation pass to each selected project within the package, which would significantly reduce the size of corruption and the number of potential corrupt people,

The International Monetary Fund will be responsible for the elaboration and follow-up of the general macro-economic framework with its required balance of growth, inflation, employment and monetary stability. The convening of such a conference with a coherent program of sufficient scope to modernize and expand human and material infrastructure in Lebanon is a timely opportunity to attract businessmen of Lebanese origin to invest in Lebanon and to share their energies, work mechanisms and management techniques with their Lebanese counterparts who have no less abilities and experience.

Finally, we call on the Ministry of Finance, on the occasion of preparing and then discussing the draft budget for 2018, to include in this draft a minor legislative amendment to repeal Article 69 of the Income Tax Law of 1959, i.e. the cancellation of the income tax on the return of capital funds of Lebanese resident abroad.

To maintain such a tax as Lebanon joins the International Agreement on Tax Exchange of Information will greatly limit the ability of non-resident Lebanese to relocate their economic residence to Lebanon. The Ministry of Finance, in its Implementation Decree of the Law on the Exchange of Tax Information, has excluded to sign agreements with African countries, thus protecting the Lebanese communities there mainly from south Lebanon from negative repercussions.

What about the Lebanese communities in other continents, especially in Europe and America? They are also Lebanese expatriates who deserve a similar gesture from us.