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Lebanon PM: 98% of Depositors to be Unaffected by Economic Rescue Plan

Lebanon PM: 98% of Depositors to be Unaffected by Economic Rescue Plan

Thursday, 16 April, 2020 - 18:30
FILE PHOTO: Lebanese Prime Minister Hassan Diab arrives at the presidential palace in Baabda, Lebanon, January 22, 2020. REUTERS/Mohamed Azakir/File Photo

Lebanese Prime Minister Hassan Diab said on Thursday that 98 percent of the country's depositors will not be affected by an economic rescue plan, the draft of which included a proposal to fund some losses with a contribution from deposits.


"I can announce today that the percentage of those who will be unaffected will be not less than 98 percent of depositors," Diab said in a televised address.


The plan, which was discussed during a cabinet session chaired by President Michel Aoun at Baabda Palace on Thursday, has drawn nationwide opposition after it was leaked to the press and included clauses on a severe haircut to restructure the public debt and banking sector as well as salvage the Lebanese economy.


The leaked plan reportedly includes a reference to imposing fees on banks’ “large depositors” — people who deposit between $100,000 and $1 million or more — to pay part of the state's debt.


Lebanon has suffered in recent years from a lack of economic growth, high unemployment and a drop in hard currency inflows from abroad. Nationwide protests over widespread corruption and decades of mismanagement by the ruling political class engulfed the country in October, leading to the collapse of the government.


Diab’s cabinet, which won parliament’s vote of confidence in February, has promised to resolve Lebanon’s crises.


Also Thursday, Lebanon's central bank said that money transfer services operating outside commercial banks must issue cash in local currency at a "market rate", according to a central bank circular.


The circular said hard currency received from abroad must also be sold on to a new central bank FX unit being set up to trade foreign currency.


The measure comes amid efforts to rein in a parallel FX market that has become the primary source of hard currency, and where the pound has lost about half of its value since October, after capital inflows dried up and protests erupted.


The circular did not specify the market rate that money transfer services should adhere to.


Lebanon's deep financial crisis and hard currency shortage has prompted banks to impose tight controls on withdrawals and transfers, angering Lebanese severed from much of their savings.


Much of Lebanon's sprawling diaspora relies on money transfer services such as OMT and Western Union to send remittances from abroad, bypassing cash-strapped commercial banks.


Nassib Ghobril, chief economist at Byblos Bank, said the new measure could bring some of that hard currency back to the formal banking system.


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