In a significant and hopeful development for the Lebanese economy, the cabinet has introduced a draft law aimed at reimbursing depositors affected by one of the most severe financial crises in recent history. This legislation comes three years after the Lebanese lira plummeted, banks halted withdrawals, and countless citizens faced financial distress. The proposed law not only underscores the government’s acknowledgment of depositor grievances but also reflects a growing commitment to stabilizing the financial system and restoring trust in Lebanon’s banking sector.
After enduring a financial crisis that has persisted since 2019, Lebanon’s cabinet has approved a draft law intended to provide relief to depositors by allowing them to recover a portion of their funds. This move comes after the Lebanese currency experienced a drastic devaluation, losing 98 percent of its value, which led to closures of banks and widespread protests as depositors were denied access to their money.
Under this new draft, known as the “gap law,” individuals who deposited amounts up to 0,000 will receive reimbursements within a four-year time frame, a notable acceleration compared to previous proposals that extended the repayment period to over a decade. Despite this improvement, many observers express disappointment over the omission of previous provisions that promised deposits of up to 0,000, which were designed to ensure a more equitable recovery for larger depositors.
Prime Minister Nawaf Salam emphasized the importance of a full financial audit of the banking sector, which is critically needed to uncover discrepancies between the banks’ claims and actual financial practices. Legal experts, including Fouad Debs from the Depositors Union, have pointed out that such audits are integral to understanding the operations that led to the financial crisis, including lavish bonuses and dividends paid to bank executives during a time of hardship for average depositors.
However, while the new draft law provides some relief, it has been criticized for its structure, particularly the stipulation that the 0,000 reimbursement is limited to each depositor rather than per account. This means that individuals with multiple accounts holding more than 0,000 will still be capped at receiving just that amount. Additionally, depositors exceeding this threshold will receive the first 0,000 in cash, while the remaining balance will be compensated with bonds backed by the Central Bank of Lebanon.
Critics argue that the draft law favors banks and politicians while placing the financial burden predominantly on the state, which is expected to cover the estimated billion gap between what is owed to depositors and what the financial system can afford. This situation raises concerns, particularly given reports that banks continued to issue dividends to shareholders while blocking depositors from accessing their funds for day-to-day expenses.
In response to the crisis, some bankers have suggested that the state should bear the financial responsibility. They contend that because the Central Bank of Lebanon managed depositors’ funds, it is the state’s obligation to repay those amounts. However, many argue that banks acted unilaterally in handling depositors’ money, leveraging it without consent, thus undermining their position in seeking state assistance.
Financing for the state’s commitments to depositors is expected to come from public funds, with the repayment to be facilitated via bonds that could implicate state assets, including the nation’s gold reserves. Critics warn that this approach could lead to a scenario where state assets are utilized to satisfy foreign investors, putting the entire Lebanese population at risk.
Despite differences, there appears to be occasional alignment between civil society and the International Monetary Fund (IMF), which traditionally advocates for austerity measures. In this case, both parties have questioned the fairness of imposing the financial burden on depositors before addressing the responsibilities of banking institutions.
As Lebanon grapples with the repercussions of its ongoing financial crisis, the introduction of the gap law marks a critical step toward addressing depositors’ concerns and revitalizing the nation’s economy.
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