Nasrallah tries to pin the blame for the system’s failure on banks
In the first year of law school, students are taught that “a plaintiff will be unable to pursue legal remedy if it arises in connection with his own illegal act.” This legal doctrine, known as ex turpi causa non oritur actio, prevents someone from benefiting from wickedness and illegality, which Lebanon’s political elite have made fortunes from doing.
This simple legal doctrine comes to mind when the Lebanese political elite try to justify the abysmal state of affairs and the economic collapse that they cheekily insist the Lebanese banking sector take full responsibility for. Ironically, this same banking sector has long been praised by the same political class as being the engine of Lebanon’s economy and a living testament to the myth of the country’s ingenuity and entrepreneurship — until it collapsed, that is.
The intention to scapegoat Lebanese banks is apparent from the rhetoric of the political elite, who always emphasise that banks have made millions of dollars and are thus compelled to give back to the country. In his latest televised speech, Hezbollah Secretary-General Hassan Nasrallah unleashed a new violent attack on the Lebanese banking sector with the intention or protecting small depositors, or so he claimed. Nasrallah’s sermon-style lectures have taken a clearly threatening tone. Most recently, he tacitly addressed bank owners themselves, saying: “How can we appeal to the humanity of these bank owners? I wish you [the public] can help me… figure how to address them.”
“I do not want to open the many files [we have on] how they made their fortunes, although we might have to do so at a later time,” Nasrallah added.
Whilst it is true that the banking sector has made billions because of the unwise financial borrowing policy of successive governments, the real blame rests with the political class that Hezbollah has been a part of since at least 2005, when it agreed to join the executive branch of government. It is no coincidence that Nasrallah’s verbal bombardment of the banks comes at a time the government is considering a capital control bill to limit the flow of foreign capital in and out of the country, thus ending Lebanon’s so-called liberal economy. The pro-Hezbollah cabinet of Prime Minister Hassan Diab is also considering and promoting one of the most detested options — a so-called “haircut” that would include deducting part of the deposits to cover banks’ equity losses and ultimately lead to the devaluation of the Lebanese pound.
Both of these half-baked measures will not remedy Lebanon’s economic situation but further polarise and cement the banks as public enemy number one. Conversely, one of the essential steps towards proper reform requires Diab’s cabinet to clearly chart how it will pay its creditors, whether Eurobond holders or others and, more importantly, the reforms it proposes to enact to ensure sufficient liquidity is available to pay back its debts, both on a short- and long-term basis. If Lebanon cannot prove to its own people and, more importantly, the international community its willingness to carry out reform, cut down on expenses and properly fight corruption, it will fail to secure the much-needed foreign currency injection, which is the only option at the moment.
But rather than carrying out these reforms, the Diab cabinet and, more importantly, Hezbollah are offering capital control and the haircut as the only way out of the ongoing financial calamity. Capital control might temporarily delay capital flight, at least for those that have not already flown, but it will not be capable of providing liquidity to the markets. As it stands, the Diab cabinet has done nothing to properly qualify to receive any form of funding from the international community, specifically the World Bank or the International Monetary Fund (IMF).
While Lebanese banks are indeed guilty of indulging in the loan shark game and lending the Lebanese state money that it simply squandered away, holding these banks as solely responsible will only propagate the crisis. The restructuring of the banking sector through recapitalisation and consolidation is a matter that needs to be addressed, but in the immediate future it will not solve debt restructuring concerns. The survival of a strong banking sector for Lebanon, whether consolidated or reduced in size, is a very important component for the success of the government’s restructuring programme, as the international community will need to work through the system.
The Lebanese system in its entirety is in serious need of a radical overhaul, including the banking sector that needs to return to its proper role of loaning and facilitating the activities of the private sector. Yet, this change will certainly not come at the hands of the same political class and, more importantly, Hezbollah, which will stop at nothing to ensure that Lebanon never rises again.