Riad Salameh’s Tenure as Lebanon’s Central Bank Governor: A Legacy of Economic Crisis and Allegations of Corruption
Lebanon’s Economic Crisis and the End of Riad Salameh’s Tenure
Beirut, Lebanon – As Riad Salameh steps down as governor of Lebanon’s central bank, the financial damage he leaves behind is substantial. Salameh, 73, who served for 30 years, faces money laundering, fraud, and embezzlement charges in both Lebanon and abroad.
Economic Losses Exceeding $72bn
The World Bank reports that Lebanon’s financial losses now exceed $72bn, more than three times its GDP in 2021. The economic instability began in 2011 during protests against the country’s sectarian system and Syria’s civil war.
Financial Engineering Program: A Ponzi Scheme?
In response to the economic instability, Salameh implemented a financial engineering programme in 2016. This programme involved high returns on US dollar deposits to banks to maintain foreign currency reserves, ultimately depleting the bank’s reserves and leading to a financial system collapse in 2019.
Programme Features:
- High returns on US dollar deposits
- Maintained foreign currency reserves
- Depletion of bank’s reserves
Impact:
- Financial system collapse in 2019
Acclaims and Accolades
Salameh was initially brought in to rebuild Lebanon’s banking sector after the civil war. He was praised for his “winning strategies,” which included high interest rates and rapid expansion in the banking sector. The Lebanese lira was pegged to the US dollar for decades, maintaining confidence in Salameh’s strategy.
Cracks in the Strategy
However, the cracks in Salameh’s strategy began to show when remittances and foreign investment slowed. Eventually, this led to the financial engineering programme, which economist Toufic Gaspard calls a “Ponzi scheme.”
Corruption Allegations
Salameh is now under investigation for money laundering, fraud, and embezzlement, totaling $330m in Lebanon and abroad. He is also being investigated for illicit enrichment and transferring funds from the BDL to Lebanese actress Stephanie Saliba. Salameh currently faces charges in Belgium, France, Germany, Liechtenstein, Luxembourg, and Switzerland for money laundering and tax evasion.
Political Protection
Despite calls to remove him, Salameh remained in power due to his control over the top body for monitoring money laundering and his ability to control BDL account audits, most of which were never published.
The Lebanese People’s Displeasure
The Lebanese people are displeased with the political protection afforded to Salameh by Prime Minister Najib Mikati. This fueled further anger and frustration.
Next Steps and Economic Recovery
It remains uncertain what will become of Salameh following his legal battles. He has expressed his intent to appeal the Interpol notices and is currently cooperating with the Lebanese judicial system. Economist Toufic Gaspard believes that economic recovery is possible, but the lack of political will to enact change in the banking sector and the political climate is a major barrier.
Barriers to Economic Recovery:
- Lack of political will to enact change in the banking sector
- Unfavourable political climate
Further Reading
For more information, please refer to the following report by Toufic Gaspard in the World Bank: https://openknowledge.worldbank.org/handle/10986/35496