24 November 2007
BEIRUT: Demand for the US dollar remained reasonably low Friday despite the bleak political picture following the failure of members of Parliament to elect a new president, bankers and economists said. "We have not noticed any significant pressure on the Lebanese pound today, although most bankers and investors are watching with great concern the unfolding political developments," Joe Sarrouh, the adviser to the chairman of Fransabank, told The Daily Star in a telephone interview.
Political and financial analysts generally agree that the downward or upward movement of the Lebanese pound against the US dollar has become the main indicator of how the country responds to any crisis in the country.
Banque du Liban Governor Riad Salameh and Finance Minister Jihad Azour have stressed on many occasions that the market and the Treasury have been very liquid following the massive cash injection from the Paris III donors conference.
The central bank has more than $12 billion in gross foreign-currency reserves, in addition to its gold reserves, which are currently worth more than $7.2 billion.
Sarrouh said that only $30 million were sold on Friday, adding that this amount is relatively reasonable considering the delicate situation.
"We have been through worse situations before. The assassination of former Prime Minister Rafik Hariri in 2005 prompted many investors and depositors to shift large amounts of Lebanese pound to dollars," Sarrouh recalled.
He stressed, however, that the investors' sentiment changed positively just a few days after the assassination as capital inflows returned to shore up the balance of payments and customer deposits.
"I don't think the Lebanese will rush to banks to withdraw their money," Sarrouh said,
adding that the people of Lebanon are accustomed to political bickering.
But the banker warned that this picture may change if there were a major security incident.
"If we have assassinations and explosions, coupled with inflammatory speeches, then we may face some pressure on the pound," Sarrouh said.
Economist Elie Yashoui also ruled out panic in the market.
"Why should the Lebanese switch to dollars now?" he asked. "At least 80 percent of deposits are [already] in dollars and other foreign currencies."
The economist also dismissed some rumors that the opposition would resort to drastic measures to force the government of Prime Minister Fouad Siniora to step down.
"I think that Salameh will continue to oversee the monetary policy while Siniora's Cabinet will temporarily run the daily affairs of the state," Yashoui said.
The huge capital inflow from Lebanese expatriates is another reason that bankers and economists feel confident that the Lebanese economy can weather any shock.
"Each year, Lebanese expatriates transfer more than $5.5 billion to their relatives, loved ones and banks. This cash injection alleviates the pressure on the economy and the banking system," Yashoui said.
There are more than 400,000 Lebanese expatriates in the oil-rich Gulf region who are considered the hidden backbone of the Lebanese economy.
Yashoui also argued that regional and international powers are not eager to see the country fall apart.
"No one wants to see Lebanon going through a destructive civil war because this would lead to chaos in the region," the economist added.
However, Yashoui feared that the local status quo - neither war nor settlement - would continue indefinitely until the main regional and international players settle their differences peacefully.
