One banker, interviewed for this issue, said it: “Bankers feel threatened, bullied, and feel that they are [made to bear] responsibility for something that they did not do.” The stewards of the former Switzerland of the Middle East, the bright stars who transported our expertise across the world for decades, have been forced to cringe under their desks. Their error? Trusting the government. The mistake has placed them in the firing line of an angry and increasingly impoverished nation, who have a waning desire to be reasoned with. From voicing anger online, the attacks on banks have boiled over into more tangible and dangerous incidents in recent months; armed depositors storming banks merely to access their money has become one of the more upsetting and surreal features of Lebanon’s relentless crisis.
Today the financial sector, once the economy’s crown jewel, is up to its neck in a homegrown calamity which has left a horizon of haze hovering over its future. The beleaguered sector, perhaps the final one to have its spoils plundered by the political class, is now at the mercy of a people trapped in a noisy room of confusion, finger pointing, anger and impunity. Impunity, state-level impunity specifically, and its prevalence has effectively bankrupted Lebanon. For decades, the government borrowed and borrowed from domestic and international markets and from the central bank, and under its “unconventional finance” methods resorted to borrowing from commercial banks. Their actions piled up debt and drained the state, and the government’s failure to honor that commitment is at the heart of the country’s pitiful present state. The depth of the crisis and its decades in the making has called into question the legal aspects of the banks, the central bank, and the government’s behavior, and the story of the debt buildup at the root of it all.
A Financial Overhaul
Executive’s summer special report 2022, on banking and finance, attempts to get to the bottom of the financial crisis and the government’s actions over the years, while offering promising components that will shape the sector’s next chapter. A proposed stabilization scenario for the currency comprising a future without the Lebanese pound is explored here. On the other side of the coin, digital currency is offering investors a future absent of any fiat-based system. Although not new to the global market, cryptocurrencies, or virtual assets such as non-fungible tokens, and their innovations are beginning to make waves in Lebanon. The government’s damage to the financial sector, now etched into the minds of depositors, is sending some to seek alternative financing methods away from traditional banking. Yet without sound investment and regulation, Lebanon’s digital infrastructure will be its Achilles heel, while also placing business and individuals vulnerable to cyber- attacks.
As the political class twiddle their thumbs and scratch their heads, and policy makers remain ever absent, the need for an International Monetary Fund agreement to encourage an economic rebound grows more urgent, as financial experts and think tanks call for the radical transformation of the industry. Indeed, a deep transformation is needed; ranging from retail and consumer banking all the way to investment banking and the vestiges of central banking. The country needs banks; a credible, transparent and ethical financial sector gives a nation the legs to stand on and the lungs to breathe.
These are global challenges, which the Lebanese financial sector will have to succeed in, as well as passing the test of rebuilding from the national crisis of everything. This avalanche of challenges is also an opportunity. At a time when the numbers of refugees, the mountains of private and public debt, and the concerns over the Sustainable Development Goals’ achievements since the start of this millennium are racing from peak to peak, it behooves anyone with the least emotional or intellectual stake in the future of the world as we know it to consider the future of banking and finance from priority aspects of sustainability, inclusion and responsibility.