Calls are mounting for Lebanon to impose formal restrictions on the movement of money to defend the country’s dollar peg and prevent a run on the banks when they open their doors after nationwide protests, reported Bloomberg.
Banks have been closed since the start of the uprising two weeks ago and only plan to reopen once the political situation stabilises. The longer they remain shut, however, the more a backlog in dollar demand builds and speculation swirls about the measures the banks will need to take to avert financial collapse.
In a sign of crumbling confidence, local and foreign bankers said that banks have been getting calls from clients asking to move their money abroad while others are working at a frantic pace to transfer funds to Swiss accounts as soon as lenders resume operations.
As tensions intensify, influential local economists have raised the alarm—calling for limits on the transfer of funds outside the country. Two senior banking executives, speaking on condition of anonymity due to the sensitivity of the issue have said emergency measures were the logical next step given there is no political solution to the crisis in sight.
Capital controls are again becoming the weapon of choice for embattled governments in need of some breathing room. Such a step—even if temporary—would mark a turning point for Lebanon since it’s likely to cause a backlash among diaspora investors, the country’s financial lifeline.
Lebanon, one of the world’s most indebted countries, has few viable options. Hundreds of thousands of Lebanese have been on the streets for two weeks, demanding the resignation of a political class they say has pillaged state coffers to the verge of bankruptcy whilst leaving the public with failing public services and daily blackouts.
Importers have complained for months that banks were no longer allowing them to transfer Lebanese pound holdings into dollars to pay for shipments. Instead, businesses were increasingly turning to exchange bureaus for hard currency and paying more than the official rate of LBP 1,507 to the dollar.
For much of this year, some lenders have placed informal limits on the dollars they will supply to holders of Lebanese pounds, or charged additional fees for withdrawals in foreign currency or for transfers outside of Lebanon.
Lenders have been replenishing ATM machines to allow people to access their salaries and meet their day-to-day needs but have set a daily limit on withdrawals of LBP 1 million ($663).