Osama Habib| The Daily Star
BEIRUT: A leading banker says economic slowdown in Lebanon does not necessarily mean the Lebanese pound is at risk of devaluation. “The Central Bank governor is assuring and reassuring about the stability of the local currency to dispel rumors that the pound is under threat,” Fadi Osseiran, general manager of BLOMINVEST, told The Daily Star in an interview.
He stressed that “no one in the world and in his right mind” will say that the economic situation is related to the currency.
Among the tools Banque du Liban has at its disposal are the massive foreign currency reserves, as well as the ability to raise interest rates on deposits to draw funds.
Osseiran gave the example of other emerging-market countries that have hiked interest rates to draw more funds and protect national currencies.
“Turkey and Argentina, for example, raised the interest rates to attract funds,” he added.
He also said that sometimes countries and central banks around the world raise interest rates to defend their currency.
“There is no relation between the government and the currency. But there is a relation between government and economics,” Osseiran said. He added that there is always a fear of the outflows of cash and deposits from Lebanon.
“But these scenarios can only happen if there are wars and devastation which may trigger massive outflows,” he explained.
He dismissed claims that the devaluation of the currency may improve the economic situation in the country.
“[On] the contrary, the devaluation of the pound may exacerbate the economic situation in Lebanon. The monetary situation must be maintained for the sake of our country,” Osseiran said.
He indicated that Lebanon registered an accumulated deficit of more than $13 billion in the balance of payments over many years.
According to Osseiran, that was one of the reasons that prompted Central Bank Gov. Riad Salameh to initiate financial engineering to beef up foreign currency reserves and draw more funds to the country.
He said that one way to reduce the balance of payment deficit or even achieve a surplus was to increase exports of Lebanese goods and services.
“Tourism and foreign direct investments are also ways to improve the balance of payment and attract [the] dollar and other foreign currencies. CEDRE is also another way to boost balance of payments.
“I don’t think it is enough to draw more deposits to improve the situation. I am in favor of increasing the exports of goods and services, as well as focus on tourism and FDI,” Osseiran said.
He said it would be a mistake to rehash financial engineering in order to draw funds and improve the balance of payments.
“We can do this one year or two years. We need to restructure our economy and we need to carry out necessary reforms.
“We cannot live beyond our means. It is not a question of the currency, it is a question [of] the health of the country. If [we] don’t produce, we are going to die,” the banker said. He added that Lebanon cannot live under a large budget deficit “forever.”
Osseiran also underlined the need to upgrade and rehabilitate the country’s infrastructure. “The government cannot [at the moment] make any investments in infrastructure because of the budget deficit. But there are two ways to achieve these goals: One way is through FDI or long-term borrowing, and the other is through private-public partnership,” he said.
Osseiran maintained that there is nothing magic about FDI, noting that many countries have allowed the private sector to get involved in infrastructure projects.
“If there is a government that is willing to implement reforms and proceed with PPP, then this would be great.
“But if we have a government which is not willing to implement reforms, then I prefer not to have a government,” he said.
Osseiran also highlighted the need to have good governance in the government.
Responding to a question about GDP growth, he estimated growth at 1 percent this year, adding that if everything was working properly, Lebanon could achieve 2 to 3 percent GDP growth.
“We have the potential to achieve higher growth, but unfortunately we haven’t used our full resources,” he said.
Osseiran expressed belief that Lebanon cannot absorb more than $1.2 billion a year from CEDRE soft loan pledges due to the country’s capacity. “But if we improve our capacity, then we can absorb more cash from CEDRE each year,” he added.