Forensic auditor to review every transaction at Lebanon’s central bank
Economy minister says comprehensive inspection is part of measures needed to save economy
A forensic auditor will review every transaction at Lebanon’s central bank, the economy minister said, in an exercise set to increase pressure on the long-serving head of the Banque du Liban as the government seeks a way out of its most severe economic crisis in decades.
The independent auditing firm, one of three appointed last month, “will look into all the transactions” to understand what has been done and the “validity” of each arrangement, Raoul Nehme, economy minister, told the Financial Times. “Whatever bailouts and so on. Everything that was done.”
When the audit was announced in April, it was pitched by Prime Minister Hassan Diab as a measure to improve transparency for creditors after the government defaulted on its foreign borrowing for the first time and asked to restructure $90bn of debt.
But tensions between Mr Diab and Riad Salame, governor of the central bank, came to a head last week after the prime minister criticised his handling of the country’s monetary crisis. Mr Salame, who has run the bank since 1993, responded by saying that the Banque du Liban had often propped up the government and alleged there was a targeted campaign against him.
In 2016, Mr Salame launched the bank’s first so-called “financial engineering” operations with local lenders, combining a complex series of swaps involving government debt, and local currency and dollar deposits at Banque du Liban. The costly scheme attracted foreign reserves and helped the bank shore up the country’s dollar-pegged currency, but also helped boost profits at Beirut-based lenders, some of whom were in financial difficulty.
Mr Nehme, who was the executive general manager of Lebanese lender Bank Med from 2018, said the audit would go back as far “as needed” but would focus on the most recent of the financial engineering operations.
The international firms KPMG, Kroll and Oliver Wyman, which the government named last month to run the audit as part of a plan to restructure the banking sector, did not respond to requests for comment. Mr Nehme said he could not yet officially confirm which of the three companies would run the forensic audit. Mr Salame was not immediately available to comment.
Lebanon’s new government estimates that the financial sector is sitting on about $80bn worth of losses, which it says must be tackled for the import-dependent economy to recover from its intertwined fiscal, economic and banking crises.
The government, central bank and political parties could turn things round if “we all work hand in hand and forget the political bickering”, Mr Nehme said in the interview this week. “We’re all in the same boat. So if one of us is going to make a hole in the boat, we will all sink.”
On the parallel market, the value of the Lebanese pound against the dollar has fallen about 60 per cent since late January and food prices have more than doubled year on year. Protests have reignited and last month rioters torched dozens of banks.
An economic recovery plan approved by cabinet last week had a “menu” of options for sharing bank losses between shareholders, the state and large depositors, Mr Nehme said.
The plan also sketches out a route to reducing Lebanon’s 175 per cent debt to gross domestic product ratio and gradually unpegging its rapidly depreciating currency from the dollar. It has paved the way for intervention by the IMF, to which Beirut has turned for budgetary support.
While Lebanon was focused on securing multilateral support for the economy, Mr Nehme said the government would also seek to renegotiate its trade agreements with the EU and Arab states, which contained clauses that “are unfair to Lebanon”, he said.
But with the government so strapped for cash, he said he was relying on unpaid advisers and economists for help. “I have economists working for free, and, hopefully soon, I will have other big name advisers,” he said.