1/ It's important to say that very little of what I've shared here in the last few months is original work. Nobody should get the impression that any one person can know and do all this alone. It has always been a team effort.
@Mohdfaour89 tracked the history of financial sector with precision
The Govt Plan & ABL Contribution provided useful info as well.
Just the comments/DMs on Twitter are a university degree on their own.
I've learned from dozens of people over the months, people who have actually done original work. The list is too long because the pool of Lebanese talent is insane. It's what keeps me optimistic.
It'd take days to list all of the people who have contributed. I'm forgetting many.
All I'm good at is receiving, synthesizing, and communicating information, but maybe 5% of the work is purely original.
Follow all of the people above to stay up to date on the important challenges facing this country. They're the future.
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1/ Why can't Lebanon just pay Iraq for the fuel it sends to avoid this self-inflicted crisis? We can't afford it and never intended to pay. After 3 years, we now owe ~$2 bn, ~10% of GDP!
The issue came up in 2021. MPs told us to ignore it
2/ Stabilizing the LBP is BDL's only objective. But it's unwilling to do what is needed to achieve sustainable currency stability and economic growth: restructuring the financial sector. So it stabilizes the LBP at the expense of public living standards and future generations.
3/ So how has the LBP has been stabilized? One main way is by significantly increasing taxes and electricity tariffs while cutting/maintaining low public spending.
The trades between Optimum Invest (OI) & Banque du Liban (BDL) are part of an elaborate accounting fraud and money laundering plot that OI facilitated. The Kroll report doesn't vindicate OI. A simple explanation of what happened:
** Firstly, this is damning for: (i) Alvarez & Marsal, which only uncovered 2 of 45 such trades in its poor-quality report; (ii) Deloitte, the auditor who didn't raise any red flags; & (iii) current BDL management for failing to investigate (investigate anything, not just this!)
2/ Anatomy of the trade
Simultaneously,
(a) BDL lends 100 to OI
(b) OI uses 100 to buy a Treasury bond from BDL for a price of 100 [numbers for illustration]
(c) BDL buys the same bond from OI for 150
(d) OI takes the excess 50, pays 49 to BDL as commission & keeps 1 as profit
1. No change in the IMF view on financial sector restructuring: address losses upfront, respect the hierarchy of claims (i.e., bank shareholders lose first and then depositors), protect small depositors, and limit use of public assets/money given the unsustainable public debt.
2. The IMF recognizes that proposals calling for "Gov't to pay the losses using its assets" & "not touch any deposits" are NOT viable. They simply don't work b/c the numbers don't add up.
This is a message directed at Lebanese MPs and uninformed economists promoting such ideas
1/ Stop everything and read the three-part investigation by @MaucourantNada describing never-before seen details of the European money laundering investigation into Lebanon's central bank governor. I will summarize below:
2/ Firstly, the investigations were launched starting in 2020 as a result of the Panama Papers leak, a change in financial disclosure rules and related anti-money laundering laws in Europe, and, in some cases, complaints filed by watchdog organizations abroad, incl @NowActs.
3/ So yes, contrary to popular opinion in Lebanon, Omar Harfoush and Wadi3 Akl have nothing to do with the investigations and are not behind them in any way. They are only exploiting them for political gain.
Practically, this doesn't change much for the economy or depositors
It's being sold as "a step towards implementing the IMF deal" but it actually cuts against the philosophy of the deal - recognizing ALL losses upfront & not dragging it
- Financial sector losses should be resolved through a comprehensive bank resolution framework, not piecemeal circulars
- What about banks other losses (BDL exposure, etc.). These are much larger than the fx losses referenced in the article/circular, so why are they ignored?
- Will BDL adopt the new rate on its b/s & finally admit to its own capital/fx losses or will it continue hiding them via fraud?
- How much fx losses do banks actually have, how will they plausibly be closed over 5 years, and why use a fake 15,000 rate? Why drag on this misery?
Looking back at the Lebanese economy in 2022, a few things things to note. 1/ The exchange rate trajectory has not really changed, & the last few weeks weren't out-of-the-ordinary. The change from 35,000 LBP to 46,500 LBP is the same as the change from 1,500 to 2,000 in % terms
2/ The balance of payments deficit was ~$3 bn, not much different from 2021. This is all financed using BDL reserves. Despite the continued devaluation of the LBP, the BOP deficit remains high and is not falling. It takes more than currency collapse to make a productive economy.
3/ BDL foreign currencies fell from $12.8 billion to $10.2 billion. The LBP depreciated from ~27,000 in Dec 2021 to ~46,000 in Dec 2022 (~40% loss in value). This is despite BDL intervening in the market with ~$2.5-3 billion.