The Network Position regarding the ERP and its recommendations.
The Network considers that executing a full comprehensive IMF deal within the applicable legal and political constraints is the way forward to re-instate the Lebanese economy.
Subsequently, the agreed Economic Recovery Plan (“ERP”) with the Lebanese Government should not burden the private sector to an extent incompatible with its main function, as we consider this sector is the engine for growth, innovation, and prosperity.
It is an unfortunate fact that the political class which is being called upon to implement the ERP continue to prioritize their patronage networks at the expense of a healthy private sector. The inevitable outcome will be to squeeze the private sector with a view towards subsidizing a mostly inefficient, overstaffed, unproductive and corrupt public sector.
Hence, the ERP must take into account the need for the Lebanese government to downsize the public sector, retrain the remaining civil servants, focus on good governance and introduce wide ranging administrative reforms with a particular emphasis on the judiciary- whilst concomitantly rebuilding a financial/banking superstructure conducive to investment, production and trade.
It is the Network’s recommendation that independent private sector entities that do not front for vested political interests, acting in their capacity as key stakeholders, should be continuously consulted during the entire process of elaboration and implementation of the recovery plan.
The Network also believe that some impetus should be given towards developing a narrative concerning the “Sovereignty” and “National Security” of Lebanon as a necessary condition for the success of the ERP.
We view the “normalization” of the situation in Lebanon as a necessary condition for the success of the ERP. Lebanon’s sovereignty “deficit” over its territory and institutions must be given at least some attention within the framework of the ERP. A particular issue is the control of borders and illegal trade that give rise to unfair competition and place exporting Lebanese businesses at a disadvantage. This aspect has been consistently occluded in the IMF reports that we have been able to access and should be mentioned for completeness particularly while the economy is being shocked by the hugely disruptive Syrian displacement crisis.
We are aware that the Mikati government’s ERP, and also the previous version developed by the Diab government, has been facing opposition among key policy makers, many parliamentarians, and interest groups resulting in a “kick the can down the road policy” by these politicians and policy makers.
Moreover, an ineffective and unfocused monetary policy by Banque Du Liban (“BDL”) has been based on Lirafication and incoherent BDL circulars. This procrastination in developing systemic solutions has left the country with a zombie banking sector, an increase in real sharp losses to the banks’ depositors; and much lower living standard and per capita income than otherwise could have been the case.
Therefore, we strongly recommend that the IMF should focus on discrete measures in the course of producing its forthcoming Article IV report which would:
support the private sector and citizens of Lebanon generally; and
contain the economic and social downward spirals.
Such measures would include realizable short term fiscal and monetary initiatives that might serve to contain the dramatic disintegration of the economic and social order including public sector entities, sustain productive economic actors and lay the groundwork towards economic recovery. These could be enacted prior to the election of a new President, the appointment of a Prime Minister, the formation of a government and the execution of an ERP.
We would like to highlight some of these measures noting that many have been suggested by the IMF:
BDL to focus on a monetary policy that contains money supply growth, and adhere to its bylaws of Money and Banking to limit its lending to the government as much as possible.
Unification of the exchange rate using the market rate.
Restructuring the management of BDL asap, reinstating proper governance, and separating of various entities under its control.
Collection of taxes/fees using the market rate. This would allow the government to maintain what remains of its public services, invest in infrastructure, and pay for salary increases rather than borrow from BDL. The target hereafter would be to achieve a primary fiscal balance.
Allowing new loans extended to be paid back and serviced in the currency the loan was issued in. This would immediately support private sector growth and bring back trust to the banking sector.
An additional point to be highlighted is that the government should be given the right to issue legislative decrees within a strict setting, in order to enable it to execute the ERP. This would prevent the endless back and forth with parliament and special interest groups, as has been the case during the past three years.