Lebanon's Salameh world's worst central banker: The Economist

By Al Mayadeen English
Source: The Economist + Al Mayadeen English
2 Aug 2023 00:02

Riad Salameh is leaving behind a struggling economy and facing investigations into corruption allegations involving embezzlement of funds from the central bank.

Riad Salameh outside the Central Bank building, in Beirut, Monday, July 31, 2023 (AP)

Riad Salameh, dubbed the world's worst central banker in a recent article by The Economist, has retired last week after 30 years of presiding over Banque du Liban.

In "Talking to My Daughter about the Economy", Yanis Varoufakis titles the chapter on banks: the Black Magic of Banking. Ironically, Salameh was once described as a 'magician' by his supporters for managing to stabilize the currency, long before he presided over the crisis that enveloped Lebanon, which many blamed him for.

The exchange rate for the lira, long pegged at 1,500 to the dollar, currently stands at 90,000 to the dollar, and the GDP has experienced a contraction of 40% since 2018.

Salameh, who was appointed by late Prime Minister Rafik Hariri, played a key role alongside the late prime minister in establishing an economy dependent on substantial foreign inflows to finance wide deficits and maintain the currency peg, The Economist explained. During its peak, Lebanon's banking sector held deposits equivalent to four times the country's GDP.

In 2015, to prevent his magic from faltering, Salameh implemented his "financial engineering". The Banque Du Liban paid above-market interest rates to borrow dollars from commercial banks, which in turn offered generous rates to depositors.

Like all magic tricks, Salameh's required that his audience not look too closely to enjoy it. For a time, everyone was happy: the central bank padded its gross reserves, while banks and their customers enjoyed healthy profits.

During this period, everyone was content; the central bank saw its gross reserves increase, and both banks and their large depositors experienced hefty profits.

In 2019, the available funds were no longer sufficient to fulfill existing obligations, leading to a situation where there was a lack of new money to pay off old debts. Consequently, the lira's value depreciated from its pegged rate.

The report by The Economist points out that Salameh's fiasco is evidence not only of his personal failure but that of a "country where politicians refuse to take responsibility for policy."

The exception which the report cites is that of former Prime Minister Diab's proposed rescue plan, which was blocked by bankers and MPs.

The report adds that Salameh's retirement is unlikely to be quiet. Several European countries, including Belgium, France, Germany, Liechtenstein, Luxembourg, and Switzerland, are currently conducting investigations into allegations of corruption against him. He stands accused of embezzling as much as $330 million from Lebanon's central bank. The investigators claim that some of the stolen funds were transferred to his brother's Swiss bank accounts, while others were used to purchase properties across various European locations.