News Analysis: Gold reserves can help alleviate financial crisis in Lebanon: analysts

0 Comment(s)Print E-mail Xinhua, July 14, 2020
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by Dana Halawi

BEIRUT, July 14 (Xinhua) -- Lebanon's gold reserves can be used as collateral to attract money from the globe and inject them into Lebanon's local market, experts said.

Lebanon holds 286.6 tons of gold, worth nearly 18 billion U.S. dollars, ranking among the top 20 countries in the world in terms of gold reserves, and the central bank of Lebanon has highlighted the importance of gold reserves.

A debate took place in the past couple of months about whether the country should sell its gold reserves or not.

Local experts are not in favor of liquidating gold reserves; they rather prefer to use them as collateral to borrow from the international markets at low interest rates.

"We should definitely not sell our gold reserves. We need to encourage authorities to take an overdraft against part of the gold reserves for around 6 billion dollars to be injected in the economy through banks," Nassib Ghobril, an economist and head of the economic research department at Byblos Bank, told Xinhua.

Ghobril explained that this would be "a bridge solution" to reach an agreement with the International Monetary Fund (IMF).

Lebanon has been negotiating a rescue plan with the IMF lately but talks were put on hold until the Lebanese cabinet and the central bank unify figures of losses that they aim to present to the IMF to restructure the country's debt in hope of saving the collapsing economy.

The IMF is also awaiting reforms that should be implemented by the cabinet to unlock funds by the international community.

Ghobril noted that using gold as collateral would help in putting an end to the black market.

"We can take this move to provide liquidity for companies. People may even be temporarily capable of withdrawing limited amounts of dollars from banks," Ghobril said, adding that this would stabilize the situation until an agreement with the IMF is reached.

Lebanon has been suffering for the past year from a shortage in U.S. dollar crisis due to drop in injection of U.S. currency by expatriates in the Lebanese market and transfers made by big depositors to foreign countries.

This has prompted banks to impose unofficial capital control on individuals and companies who wish to withdraw U.S. dollars from their accounts, which created great panic among depositors about the possibility of losing their deposits in banks.

As a result, the Lebanese lost their trust and confidence in the banking sector.

This has created a black market for the U.S. dollar where the foreign currency's price had once reached a record of 9,000 Lebanese pounds per one dollar.

Riad Obegi, chairman and general manager of Banque BEMO, told Xinhua that he is in favor of pledging the country's gold reserves which would provide the country with an amount of money higher than the package that will be provided by the IMF.

"This solution would allow Lebanon to stabilize the Lebanese pound," Obegi explained, saying a fixed exchange rate is important for restoring confidence to the country and its banking system.

Meanwhile, Pierre Khoury, dean of the Faculty of Business and Insurance at the Lebanese German University, warned against using gold reserves without a clear strategic and national vision about where the country is going, how to solve its problems and how it will be governed in the future.

"Using the gold reserves without securing these factors is very dangerous. We can use our gold reserves in parallel to implementing a clear strategy that would secure economic growth in the long run, transparency and good governance in the public sector," Khoury said.

He also noted that the gold's price may increase given geopolitical conditions which would push up the value of Lebanon's gold reserves that would allow the country to pay back its public debt.

Lebanon's public debt has surpassed 90 billion dollars and the country has defaulted on its debt earlier this year. Enditem

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