BEIRUT (AP) — Lebanon’s Cabinet on Friday approved a draft law to determine the extent of losses suffered by Lebanese banks during the country’s financial meltdown in 2019 and provide a mechanism to return depositors’ funds that were wiped out at the time.
The financial collapse, which wiped out billions in savings and left many unable to access their funds, was part of a fiscal crisis that followed decades of corruption, financial mismanagement and nefarious profiteering.
The draft legislation, which still has to be approved by parliament to become law, marked the first move by the government to try and return funds to individual depositors whose bank accounts were frozen.
Thirteen ministers voted in favor and nine against the draft law, dubbed “financial gap law.” During the Cabinet meeting, a sit-in protest outside the government headquarters demanded action and expressed skepticism over the legislation.
It remained unclear when Lebanon’s parliament could take up the draft. Its passage in the assembly could face delays — a pattern seen with many previous efforts to reform the financial system.
There has been an ongoing blame game over who is ultimately responsible for Lebanon’s economic crisis and the evaporation of people’s deposits.
Banks have blamed government corruption, while critics argue that the banks operated a Ponzi-like scheme, using new deposits to pay off earlier depositors rather than maintaining adequate reserves. The former central bank governor, Riad Salameh, who is wanted internationally on corruption charges, has claimed he consistently opposed such practices.
Lebanese Prime Minister Nawaf Salam issued a statement after the Cabinet meeting, promising that once the legislation is in place, smaller depositors — who “comprise 85% of depositors” — will receive their full deposits over four years, while larger depositors will recover their money more gradually — first up to $100,000 in cash.
The remainder of the large deposits will be converted into tradable bonds backed by the Central Bank’s revenues and assets, which total around $50 billion, Salam said.
He rejected accusations that the bonds were “worthless,” adding that large depositors can recover a part of their funds every year. “For example, a depositor with $3 million could recover about $60,000 per year,” he said.
Salam also said there was a clause in the law ensuring accountability, and denied claims the law was a “forgive and forget” measure.
The bill will offer a legislative framework for restructuring Lebanon’s battered financial sector after years of paralysis among political groups, banks and the central bank governor.
It touches on measures that the International Monetary Fund has long sought, including clear rules for returning depositors’ funds, restructuring bank liabilities and improving transparency.
The IMF has previously expressed frustration over more than half a decade of talks with Lebanon that have yet to produce an approved recovery plan aimed at reforming the economy and restoring investor confidence.
The Lebanese currency has lost over 90% of its value against the dollar, leaving over half the population in poverty
Lebanon’s financial woes were compounded by Israel’s war with the Lebanese militant Hezbollah group that ended with a U.S-brokered ceasefire last November. A World Bank report has said that the estimated cost of reconstruction and recovery for Lebanon following the 14-month war is about $11 billion.
Lebanon’s recently elected President Joseph Aoun and Salam, the prime minister, have pledged to implement reforms, including tackling the long-standing economic crisis. The crisis has been so severe that for years the country has relied largely on a cash-based economy, with widespread public distrust of banks and low levels of investment.