Austerity talks in Lebanon open Pandora’s box, banking sector in focus

Hariri has promised intensive Cabinet meetings to quickly endorse the draft budget so that it can be ratified by Parliament before the end of this month

Lebanon's Prime Minister Saad al-Hariri reacts, after the announcement of the new government at the presidential palace in Baabda, Lebanon January 31, 2019.

Lebanon's Prime Minister Saad al-Hariri reacts, after the announcement of the new government at the presidential palace in Baabda, Lebanon January 31, 2019.

REUTERS/Mohamed Azakir

BEIRUT: The Cabinet discussion of a draft austerity budget appears to have opened Pandora’s box, sparking a wave of labor strikes and threatening to paralyze the vibrant banking sector after an open-ended strike declared by Banque du Liban employees to protest alleged plans to cut their wages and benefits, despite denials by the finance minister and other government officials.

The escalating confrontation between the government and various labor unions, including retired military personnel, over the austerity measures envisaged in the draft budget comes as the Cabinet is set to resume discussions Monday on the 2019 fiscal plan amid political tensions and labor turmoil.

The BDL employees’ strike and its negative repercussions on the banking sector were expected to figure high in Cabinet’s deliberations.

Monday’s session, to be chaired by Prime Minister Saad Hariri at the Grand Serail, will be the fifth since the Cabinet last week began a series of meetings dedicated to examining the draft budget, which seeks to reduce the deficit and generate revenues, a key demand of international donors.

Hariri has promised intensive Cabinet meetings to quickly endorse the draft budget so that it can be ratified by Parliament before the end of this month. Speaker Nabih Berri has said that the budget should be passed and sent to Parliament before May 31, when an extended spending measure expires.

In addition to a three-day strike called by the General Confederation of Lebanese Workers that paralyzed state institutions last week, BDL employees announced Saturday that their warning strike, initially planned for two days, would go on indefinitely in an escalation of protests against alleged cuts to wages and benefits.

“We have taken a decision to go on an open-ended strike until the political forces back off from the unjust decisions to be taken against the BDL employees,” Abbas Awadeh, head of the BDL employees’ syndicate, told a news conference at the Central Bank.

Declaring that the BDL employees’ strike would obstruct transactions and transfers from Lebanese banks to BDL, Awadeh also hinted that public-sector employees would not be able to get their salaries if the strike persisted. However, a source close to the Central Bank told The Daily Star Sunday that the strike could end Tuesday as officials from the Finance Ministry made assurances that employee salaries would not be touched.

The strike has affected the operations of all commercial banks in Lebanon, the source said.

“Banks are unable to clear checks, transfer money abroad or receive transfers from abroad as well. But the strike had no impact on Eurobonds and Treasury bills. BDL will remain committed to honoring all the dues of the government to prevent any default,” the source said.

Despite the BDL employees’ strike, the head of the Union of the Syndicates of Bank Employees said that Monday would be a “normal working day” for banks.

George Hajj told local media Sunday that he would be meeting with BDL employees Wednesday to discuss joint action if the employees did not receive assurances that their salaries would not be affected by the austerity measures.

The government has said the new budget will include wide-ranging austerity provisions that aim to curb spending and increase revenues to reduce the country’s deficit.

Last year’s budget deficit was estimated at $6.7 billion, or 11 percent of gross domestic product, though the final figures have not been released.

A BDL source told The Daily Star that they had seen a version of the draft budget, and that it sought to impose austerity measures on BDL employees as government workers, despite the fact that they don’t enjoy the same benefits.

Finance Minister Ali Hasan Khalil denied allegations about a plan to change the legal relationship between the Central Bank and the Finance Ministry. “All the talk about a project to change the legal relationship between the Finance Ministry and the Central Bank is purely fabricated and unfounded,” he tweeted.

The head of the Association of Banks in Lebanon called on President Michel Aoun to intervene in order to end the BDL employees’ strike.

Speaking to reporters after meeting Aoun at Baabda Palace Saturday, Joseph Torbey said the strike constituted a “freeze on banking in Lebanon,” as Lebanese banks “put their liquidity” into the Central Bank.

Torbey’s talks focused on the budget, which among other things calls for raising taxes on interest from banking deposits from 7 to 10 percent.

Torbey repeated his warning against increasing taxes on interest earned from bank deposits. “In our opinion, and in the opinion of economists who have been studying the situation, we cannot impose additional taxes in a time of economic crisis,” he said.

Beirut Port, a main lifeline of the national economy, has been paralyzed for over 10 days by a strike staged by its employees and workers protesting proposed cuts to their salaries and benefits.

The GCLW, the umbrella group of the country’s labor force, had called its three-day strike as a warning against any measure in the budget that might adversely affect workers’ salaries or retirement benefits.

A group of Lebanese judges have also been on strike since last week and will continue until Wednesday to protest what they said were proposed cuts to their pension fund.

Similarly, employees of the state-run National Social Security Fund issued a statement vowing to continue their strike. They called for a sit-in and a demonstration outside the NSSF’s main headquarters in the Corniche al-Mazraa area before noon Monday to protest what they called the “direct attack on our salaries and acquired rights” in the draft budget.

Last month, military veterans and other retirees blocked entrances to the BDL headquarters on Hamra Street and the Beirut Port to protest the proposed cuts and any other measures that might slash their retirement wages or benefits. They have threatened escalatory measures if the government does not cancel the proposed cuts to their retirement benefits.

Khalil, apparently feeling the pinch of snowballing street protests against the austerity measures, has reiterated that the draft budget will not affect the salaries, wages and social benefits of military and security forces, or those with middle and limited incomes.

Foreign Minister Gebran Bassil appeared to be confident about overcoming the economic crisis. “We have passed and endured difficult days. It will not be difficult for us to resolve an economic crisis that will not be stronger than us with all the bad intentions accompanying it from inside and outside the country,” he said Sunday on a tour of Ghazir, in the Kesrouan district.

“The internal intentions are tied to corruption and attempts to acquire the state’s resources, while the external intentions are [designed] to link Lebanon and its debt to projects and deals aiming to weaken and subjugate us,” he added.

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