BEIRUT: A positive political climate in
Lebanon is crucial for the implementation of fiscal and economic reforms in 2007
and the coming years, Central Bank Governor Riad Salameh said on Wednesday.
"There should have been a general consensus before going to Paris III last month
but unfortunately the timing was not under our control. That's why we went there
to make the best of it," Salameh told bankers, businessmen and reporters during
a launch ceremony held in his honor by Lebanon Opportunities magazine at the
Crowne Plaza Hotel in Hamra.
Salameh was alluding to January's Paris III
donor conference to ease the burden of Lebanon's public debt, speed up reforms
and inject cash into the private sector.
Prime Minister Fouad Siniora managed to come
back to Lebanon from Paris with a total of $7.6 billion in pledges from the
donor states and international organizations.
In Speaker Nabih Berri's Parliament, the
government faces an obstacle to pushing for reforms and privatizing state-owned
companies. Berri is aligned with the opposition.
Salameh said the donor states agreed
unconditionally to give Lebanon $2 billion to finance
foreign-currency-denominated bonds maturing this year.
The government hopes to reduce the cost of
debt-servicing through the injection of cash from donors' soft loans, which
carry interest rates of less than 4 percent.
"The second phase of the assistance is the
support of the private sector, and for this reason the donor states agreed to
provide Lebanon with $1.2 billion in soft loans," Salameh said.
But the bank chief admitted that the
remaining $4.4 billion in pledges are linked to government reforms.
He said that the International Monetary Fund
(IMF) would follow the progress of reforms.
Opposition parties and trade unions have
blasted the government reform proposal because it supports new taxes.
Salameh said the tax raises in the reform
paper "may be delayed if they will affect the purchasing power of the
Lebanese.
According to the proposal, the value added
tax (VAT) will jump from 10 percent to 12 percent in 2008 and to 15 percent in
2010.
In addition, the government intends to impose
a new tax on gasoline that could lift the price of 20 liters from $14.66 to more
than $20.00, according to some estimates.
Responding to a question, Salameh said that
Lebanese banks can help in reducing the cost of debt servicing, but emphasized
that banks would act on a voluntary basis.
"The Central Bank will engineer some plans to
help the government in its task to reduce debt servicing and we hope that the
banks will help us endure this difficult situation," Salameh said.
Lebanese banks provided that government in
2002 with $4 billion in Treasury bills and Eurobonds that carried zero percent
interest.
But the president of the Association of Banks
in Lebanon, Francois Bassil, has repeatedly said that the banks would not repeat
the same scenario.
Salameh defended the privatization program on
the grounds that the state was not a successful merchant.
"The government can act as a regulator and
supervise the performance of all the privatized companies," he said.
Salameh said the Central Bank will continue
its monetary policy to keep the Lebanese pound stable at a time of political
adversity.
He also gave a bright picture of the banking
sector in Lebanon, noting that bank deposits continue to rise despite the
political situation.
"The Central Bank policies are effective and
as you can see not a single bank went into bankruptcy and not a single
individual lost his deposit over the past 13 years," he said.
"I sleep sound at night knowing that the bank
deposits and foreign currency reserves are high," Salameh said, noting that
deposits by Lebanese living abroad are also high.
