Lebanon’s central bank governor said nobody was running the country as he defended his decision to halt fuel subsidies that have drained currency reserves, saying the government could resolve the problem quickly by passing necessary legislation.
In an interview broadcast on Saturday, governor Riad Salameh pressed back against government accusations that he had acted alone in declaring an end to the subsidies on Wednesday, saying everyone knew the decision was coming.
Part of Lebanon’s wider financial meltdown, the steadily worsening fuel crisis has hit a crunch point, with hospitals, bakeries and many businesses scaling back operations or shutting down completely as fuel runs dry.
Deadly violence has flared in fuel lines, protesters have blocked roads, and fuel tankers have been hijacked this week.
The central bank’s move to end subsidies, which will mean a sharp increase in fuel prices, is the latest turn in the financial crisis that has sunk the Lebanese pound by 90% in less than two years and pushed more than half the population into poverty.
Salameh said Lebanon could recover but it was not possible to say how long that would take. “So far you have nobody running the country,” he told Radio Free Lebanon.
The central bank has effectively been subsidising fuel and other vital imports for the last two years by providing dollars at exchange rates below the real price of the Lebanese pound – most recently at 3,900 pounds to the dollar compared to parallel market rates above 20,000 – eating into a reserve which Salameh said now stood at $14 billion.
In order to continue providing such support, the central bank has said it needs legislation to allow use of the mandatory reserve, a portion of deposits that must be preserved by law.
“We are saying to everyone: You want to spend the mandatory reserve, we are ready, give us the law. It will take five minutes,” Salameh said.
The government has said fuel prices must not change, leaving fuel importers, who say they cannot import at market rates and sell at subsidised rates, demanding clarity.
“HUMILIATION OF THE LEBANESE”
Critics of the subsidy scheme say it has created huge incentives for smuggling and hoarding by selling petroleum products at a fraction of their real price.
Salameh said the bank had been obliged to finance traders who were not bringing product to market, and that more than $800 million spent on fuel imports in the last month should have lasted three months.
Despite an unprecedented wave of imports, Salameh noted there was no diesel, gasoline or electricity. “This is humiliation of the Lebanese,” he said.
Lebanon’s sectarian politicians have failed to agree on a new government since Prime Minister Hassan Diab quit last August after the catastrophic Beirut port blast. He has continued in a caretaker capacity since then.
Salameh said Lebanon could exit its crisis if a new government was formed that would embark on reforms. The Lebanese pound was “hostage to the formation of a new government and reforms”, he added.
The government has said steps to end subsidies must wait until prepaid cash cards for the poor are rolled out. Parliament approved these in June, but the financing has yet to be determined.
“When is the card? Let’s assume in the best case after two or three months … we will spend $3 billion while waiting,” Salameh said.
Photo: Lebanese women light candles in support for the anti-government protests at Martyrs’ square in Beirut, Lebanon. EPA-EFE/WAEL HAMZEH