Diab’s plan also included a forensic audit of the central bank, the Banque du Liban, which is responsible in particular for safeguarding the country’s monetary and economic stability. Riad Salameh, who has been the bank’s governor since 1993, is recognized worldwide, especially for his so-called financial engineering. It basically worked like this: Commercial banks would offer double-digit interest rates for new term deposits, then loan that money to the central bank, which then loaned it to the government. The arrangement, which even French President Emmanuel Macron called a “Ponzi scheme,” was based on banks’ aspiration for new money. The share of public debt held by banks amounted to over 40%. From 1993, when Salameh took office, to 2018, banks’ net profits increased 3,000% to $ 2 billion.
High interest rates on bank deposits encouraged a rent-based economy that discouraged investment in industry and agriculture. Hala Bejjani, the former managing director of Kulluna Irada, a civic organization for political reform, told me that the signs of Lebanon’s financial disaster were “obvious” but the leaders did not care to see them. She and a team of development scholars, economists and financial experts met with senior politicians, including the president, in March 2020 to warn of an impending financial implosion and to suggest ways to avoid it. “It’s a recipe, like baking a cake,” Bejjani said of the plans. “They were all absolutely shocked at what we were telling them,” Bejjani said, “because it’s Riad Salameh’s job. They were each focused on their strongholds.
“If you still believe that you can trust the same warlords to take new aid funds to fix the problems, you are wrong.”
Salameh declined to answer many questions submitted by the foreign audit firm Alvarez & Marsal, selected by the firm Diab, citing a 1956 banking secrecy law. Najm, the former justice minister who was one of the staunchest supporters of a forensic audit, denounced Salameh’s claims that public funds were subject to the bank secrecy law, which has had to be suspended for a year before an investigation could be opened. “It doesn’t have to be, and it’s a dangerous precedent,” she said, “because it gives you the idea that you can’t do an audit without lifting the law every time. Attieh, who attended the cabinet sessions on forensic auditing, lobbied to audit not only the central bank but all state ministries, a recommendation that was not adopted.
Salameh is currently under investigation by Swiss and French authorities for raising hundreds of millions of dollars, allegedly through embezzlement and money laundering schemes. He denies any wrongdoing. The French president said the Lebanese ruling class had used its links with banks to transfer funds abroad during the financial crisis. Many Lebanese, including Michel Daher, entrepreneur and first-time MP who tried unsuccessfully to introduce a capital control law in 2019, want the international community to reveal the foreign bank accounts of Lebanese politicians. “If people are starving and their political leaders have billions of dollars overseas and sell them slogans,” Daher said, “the people will turn on them”.
A new Lebanese government led by Najib Mikati was formed in September and in October relaunched the central bank forensic audit and talks with the IMF. because of Hezbollah’s powerful role within the state and its close ties to its regional enemy, Iran. The West has also said aid will be based on reform and anti-corruption measures, a condition it has made and ignored in the past.
For people like Kobaissi, it is clear that Western countries are “liars when they say they want to fight corruption” in Lebanon. If they were serious, he told me, “they would support the accountability and regulatory bodies.” According to the Gherbal Initiative, a civil society organization founded in 2018 that studies state contracts, foreign loans and grants, foreign states have often invested money in fuzzy projects that never materialize. Assaad Thebian, the 33-year-old executive director of Gherbal, gave me a case in point: several foreign loans over the years, totaling some $ 200 million, for the same wastewater treatment project that has never been executed. “If you still believe that you can trust the same warlords to take new aid funds to solve the problems, you are wrong,” he said.