Report: Ex-Central Bank Chief’s Actions Deplete Lebanon $7.7B

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A preliminary forensic audit of Lebanon’s central bank, carried out by professional services firm Alvarez & Marsal, painted a damning picture of the institution under former governor Riad Salamé.

Acting Finance Minister Youssef Khalil on Friday presented copies of the report on the Banque du Liban to acting Prime Minister Najib Mikati, Speaker of Parliament Nabih Berri and other lawmakers.

It comprises 332 pages divided into 14 sections and details complex accounting, banking and administrative operations.

The report comes after the US Treasury on Thursday announced sanctions against Salamé, along with his son Nadi Salamé, brother Raja Salamé, assistant Marianne Howayek and friend Anna Kozakova.

Salamé was still in the job when Alvarez & Marsal won the audit contract in 2021. He resigned last month.

The report states that the financial engineering carried out by the former governor was “very costly, with a total cost of 115,000 billion Lebanese pounds (1,000 Lebanese pounds = 0.061 euro) – or 7.7 billion dollars (1 dollar US = 0.91 euro) between 2015 and 2020”.

The balance sheet showed no losses, according to the report. Instead, losses were recorded in the “other assets” and “clearing and settlement accounts” categories.

No explanation was provided for the payment of interest to major depositors and borrowers.

The central bank resorted to issuing bonds and printing banknotes, which led to increased government spending and caused an inflation problem that affected its ability to stabilize the exchange rate, according to the document.

In its preliminary findings, the report found that transfers to Forry Associates Ltd. – held by Raja Salamé and subject to European judicial investigations for possible corruption – amounted to 333 million dollars, including 111 million dollars of illegal transfers.

Civil movements have blamed Lebanon’s economic collapse since 2019 on the failure of successive governments and the financial engineering carried out by Salamé.

The report indicates that the value of loans granted by the central bank amounts to 15,000 billion Lebanese pounds and that 23 individuals, entities and associations have unfairly benefited from financial support greater than 100,000 dollars between 2015 and 2020.

Due to the unconventional standards adopted by the central bank and its manipulation of accounts, its deficit rose to 77 trillion Lebanese pounds in 2020, according to the report.

The latter also indicated that while the bank had a foreign exchange surplus of $7.2 billion at the end of 2015, this turned into a deficit of $50.7 billion at the end of 2015. end of 2020.

Also according to the report, the bank’s rapidly deteriorating financial condition was not reflected in its balance sheet and financial statements, as its use of unconventional accounting standards allowed it to overstate the value of its assets and its profits.

The document also revealed minutes of a meeting of the bank’s central board that showed how Salamé shaped monetary policy, established accounting standards that concealed accumulated losses, and determined which banks would benefit from loans and engineering. financial.

Central council members did not challenge these decisions or oversee related details.

The report states that the unconventional policies applied by the central bank include: “The deferral of interest charges to increase profitability; the creation of seigniorage balances to offset a portion of deferred charges from maturing CDs; the overstatement of the carrying value of the Lebanese treasury bills by not recognizing the impairment in their value; the recording of unrealized appreciation/(depreciation) of gold in the balance sheet leading to an understatement/(overstatement) of assets and equity; the netting of the USD overdraft debt of the Ministry of Finance with the central bank with the Lebanese pound deposits of the Treasury, which leads to an undervaluation of assets and liabilities; and netting of loans and deposits under leverage agreements, leading to undervaluation of assets and liabilities. »

The report also discusses the attraction of foreign deposits and their conversion into local assets. He found that a substantial part of foreign currency holdings were, in fact, local holdings and said that if these amounts were to be returned, they would put immense pressure on the Lebanese state, economy and people.

“BDL’s positions and losses are presented through netting assets and liabilities and recording them in general and unexplained accounts such as ‘other assets’ and ‘compensation and clearing accounts’. regulations,'” the report said.

The report claims that “no losses are shown in the balance sheet”, noting that no information has been provided to the public, such as profit and loss accounts from 2015 to 2020, interest paid to major depositors or granted to major borrowers, or the methodology for declaring those interests.

Also, details such as deposit segmentation were omitted, as were the costs of financial engineering and related decisions.

Instead, the central bank resorted to monetization to increase the supply of the Lebanese pound, leading to an increase in the country’s overall spending.

The report said central banks may sometimes engage in such activities, but an increase in such operations creates an inflation problem and affects the ability to stabilize the exchange rate.

He similarly claimed that the central bank also used financial engineering to keep US dollars in the banking system, but once the stabilization phase of the exchange rate is over, the approach of taking advantage of monetization is become unconventional and unstable.

The rise in the value of the Lebanese pound led to economic growth, especially in sectors that made profits in foreign currencies.

According to the report, the use of monetization was not entirely prudent and was not disclosed to the public.

This article is originally published on arabnews.fr

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