What's Happening?
The Lebanese Cabinet has approved a draft law aimed at addressing the financial losses suffered by depositors during the 2019 banking collapse. This legislation seeks to determine the extent of losses and provide a mechanism for returning funds to depositors whose
accounts were frozen. The financial crisis, exacerbated by decades of corruption and financial mismanagement, resulted in billions of dollars in savings being wiped out. The draft law, known as the 'financial gap law,' was passed with 13 ministers in favor and nine against. It still requires parliamentary approval to become law. The proposed legislation promises that smaller depositors, who make up 85% of the total, will receive their full deposits over four years, while larger depositors will recover their funds more gradually. The law also includes provisions for converting large deposits into tradable bonds backed by the Central Bank's assets.
Why It's Important?
This legislative move is significant as it represents the first concrete step by the Lebanese government to address the financial crisis that has left over half the population in poverty. The approval of this draft law is crucial for restoring public trust in the banking system and the government. It also aligns with the International Monetary Fund's demands for clear rules on returning depositors' funds and restructuring bank liabilities. The success of this legislation could pave the way for further economic reforms and potentially restore investor confidence in Lebanon. However, the law's implementation faces challenges, including potential delays in parliamentary approval and skepticism from the public and financial stakeholders.
What's Next?
The next step involves the Lebanese parliament reviewing and potentially approving the draft law. If passed, the government will need to implement the mechanisms outlined in the legislation to return funds to depositors. This process will require coordination with banks and the Central Bank to ensure the bonds and repayment plans are effectively managed. The government may also face pressure from international bodies like the IMF to continue with broader economic reforms. Public protests and skepticism could influence the pace and success of these efforts, highlighting the need for transparent communication and accountability measures.
