All eyes are on Lebanon’s top banker as the country slides deeper into financial peril
Riad Salameh has so far eluded the justice system at home, but European investigators are tightening the noose
If social media and table gossip are anything to go by, the lucky minority of Lebanese not preoccupied with where their next meal is coming from are transfixed by the waning fortunes of Riad Salameh.
The governor of the Banque du Liban since 1993, Salameh’s personal finances are being investigated by several European countries including Germany, France and Switzerland. These probes have fed judicial inquiries inside Lebanon that — although continually obstructed — are shaking free pieces of evidence suggesting the hitherto middle-income country was reduced to penury by recycled warlords, sectarian dynasts, and a mafia of bankers.
Appointed after Lebanon emerged from its 1975-90 civil war, Salameh has been at the centre of this web for three decades. While it was the profligacy and corruption of oligarchs that ultimately bankrupted Lebanon, the central bank governor was responsible for the machines that financed them, and kept them running over the past decade.
As early as 2015, the IMF detected a $4.7bn hole in the BdL’s net reserves. Salameh then started offering Lebanese banks interest rates that would reach double figures to attract dollars BdL would never be able to repay, as Lebanon’s fiscal and external deficits kept widening. The central bank called this “financial engineering”. Others called it a Ponzi scheme, which has created one of the worst economic depressions in history.
Nobody is being held to account for this, as the UN and World Bank estimate three-quarters of Lebanese have been plunged into poverty, and the country haemorrhages its world-recognised professional elites, doctors and engineers, academics and designers. Nor has a judicial inquiry progressed into responsibility for the gigantic August 2020 chemical explosion, which destroyed the port of Beirut and much of five districts in the capital. Pressure from Hizbollah, the Iran-backed Shia militia that dominates Lebanon, has in effect shut down the investigation, extinguishing the last flickers of the rule of law.
That is one reason Lebanese are fascinated with the Salameh case. They saw how he last week eluded a Lebanese judge’s summons — highlighting tribal loyalties in the judiciary and the rival security services who sought him out and those that prevented his arrest. But he cannot dodge the European investigations that are tightening like a noose.
Salameh is being investigated for embezzlement and money-laundering, not least the alleged siphoning off of BdL commissions charged to Lebanese banks purchasing government securities to an undeclared firm run by his brother. The bank governor told the Financial Times in an interview last week that he had done nothing wrong, and that the allegations against him were politically motivated.
However, this is big money, against a backdrop of greed by the elites and poverty for the masses, as Lebanon hurtles towards state failure. After the civic uprising that toppled the government in October 2019, foreign exchange inflows dried up and the banks (most of them part-owned by politicians), shut depositors out of their mostly dollar accounts, limiting withdrawals as the Lebanese pound lost more than 90 per cent of its value. Influential Lebanese had little problem transferring their dollars out of the country — which needs the BdL — while ordinary people had their savings confiscated.
The succeeding interim government’s rescue plan in April 2020 estimated the BdL deficit at nearly $50bn and total bank losses at $83bn, more than the size of Lebanon’s shrinking economy. The central bank and the bankers rejected this. Indeed, Lebanon fielded four different teams to negotiate with the IMF, as though they were engaging in a tag-wrestling contest. The banks are also jibbing at more recent estimates by the current government of the financial losses, even though the distribution still favours them. They meanwhile inflate their way out of debt and reduce dollar liabilities by forcing depositors to withdraw the worthless Lebanese pounds that the BdL prints at way below market exchange rates.
Obviously this is down to more than one person. If Salameh is as guilty as many suspect, he also likely knows where the bodies are buried. Perhaps that is why he is still protected at home.
He remains, however, the point-man in the attempt to restart IMF negotiations he helped torpedo two years ago. Now, the objective demands for a bailout are higher because the economic collapse is so much deeper. But how can the fund deal with a man who is the subject of multiple investigations, having championed him for decades?
France is trying to push Salameh out, but he somehow still has US support, albeit ambiguous. “We don’t know whether he’s the grenade on the table or its pin” one American official admits.