August - September 2022 No 265

26 | A weak position in the cyber war

Lebanon lacks the talent
and technology for strong defences
36 | Decades of debt
A reform plan must come before
debt rescheduling
48 | Thinking financial inclusion
Leverarging opportunities
in a crisis-ridden climate
www.executive-magazine.com

THE (NOT SO) SECRET FUTURE

OF LEBANESE BANKING
12 executive-magazine.com
 August - September 2022

EDITORIAL #265

Actions matter
The dispatch from the general assembly of the United Nations (UN) was official. The
officially hyphenated Secretary-General Antonio Guterres met with Mohammad Najib
Azmi Mikati, President of the Council of Ministers of the Republic of Lebanon: “They
discussed the situation in Lebanon, with the Secretary-General emphasizing the contin-
ued commitment of the United Nations to support the Lebanese people.”
Why would it matter if the top representative of the world’s top transnational body
talks about the problems of a failed state with the nominal caretaker head of that state’s
cabinet? Why would the people of Lebanon care if the UN praise the Lebanese people
for their outstanding generosity in welcoming refugees ten years ago? Why would it help
that the UNIFIL mandate is still around at a time when order and security disintegrate
alongside the destruction of the economic and social fabric?
Some, usually from the safety of academic research labs and think tanks in devel-
oped countries, say that a failed state is a state whose government has lost its legitimacy,
or is no longer in control of the territory, or can no longer deliver basic services.
And so, when did Lebanon become one? Was it back in the 1990s, when one militia
was not disarmed? Was it back in the 2000s, when governmental positions were deter-
mined in foreign capital cities as Lebanon was shaken by serial political assassinations?
Was it in the 2010s, when the legitimacy of highest elected bodies was hollowed out?
Was it when basic services failed during the garbage, electricity, water crises, and the
multiple crises from 2020 onward? Was it in 2021, when the poverty rate shot up as
the currency lost so much value? Or was it in recent weeks, when the state still did not
deliver any progress on any reforms?
From within Lebanon today, my diagnosis of a failed state would be of a state that
cannot protect its citizens from violence and cannot protect its economy from those,
who with impunity, take what they have no right to claim. The responsibility to wield
the monopoly of violence comes with the dual obligation to protect the integrity of the
state, while standing up for those who are too weak to ascertain their own rights. Yet,
this coercive authority of the state must never succumb to the interests of either the
oligarchs or the self-appointed liberators of the people’s cash.
It does not concern me that the international jargon of sociological correctness talks
no longer about failed, but about fragile states. It does not matter to me that politicians
on the global stage utter polite words at the UN General Assembly. What matters to me,
is that Lebanon is a state deeply in need of determined actions that do not harm those
on whose behalf we claim to act; whether as activists, journalists, academics, or elected
representatives and appointed authorities. Everywhere.

Thomas Schellen
Editor-at-large

1
 August - September 2022
LEADERS
4 Banks’ regretful business
with the state
As bankers cower under
desks, leaders scratch heads
5 Peculiar wording from
the World Bank
Was it a deliberate repetition
of the word “deliberate”?
SPECIAL REPORT
BANKING & FINANCE
8 A common cause
for the common person
Lebanon needs a viable
banking sector
14 Little legal climate
for bankers
Quarrels continue between
depositors, banks and
lawmakers
18 Cryptocurrency during
the crisis
A burgeoning market as trust
in traditional banking falls
22 NFTs in Lebanon: just a
craze or an opportunity?
Local artists discover the
volatility of digital finance
2 executive-magazine.com
CONTENTS #265
26 A weak position in the
undeclared cyber war
Outdated software
opens up vulnerabilities
30 One path to survival with no
forks in the road
A new financial system is
required to save the nation
36 An infamous debt build up
Economic reform first, then
debt rescheduling to follow
40 Mikati’s plan for the
financial crisis
The Government’s proposal
P. 7 lacks legality
SPECIAL REPORT
BANKING & FINANCE BUSINESS ESSENTIALS
What next for a sector 42 Company bulletin
44 Conferences & exhibitions
blighted by debt,
a collapsed currency
and absent policy makers? LAST WORD
48 Thinking financial inclusion
Leveraging economic
opportunities in a crisis-
ridden climate
 ExecutivE
Responsible director Antoine Chidiac
Managing director & editor-in-chief Yasser Akkaoui

Editor-at-large Thomas Schellen

Managing editor Rosabel Crean
Journalist Rouba Bou Khzam
Contributors Sarah Hourany, Mounir Rached, Alexander Reviakin,
Marwan Marshi, Samer Marchi, Rudy Shoushany, Sasha Matar
Art direction Tanya Salem
Photos Archives
(Additional photos from AFP)
Operations manager Lucy Moussa
Web development manager Rabih Ibrahim
Online specialist Ruba Sharafeddine
Marketing representative Karine Ayoub Mattar
Print & online advertising Michele Hobeika
Public relations manager Maguy Ghorayeb
Subscriptions manager Roula Emanuel
Subscriptions Gladys Najjar
Distribution manager Katia Massoud
Accountant Fadi Bechara

Published by NewsMedia sal

Sehnaoui Center, 7th floor, Ashrafieh, Beirut
Tel/fax: 01/611-696
editorial@executive.com.lb
Contact us – We need your input.
Please contact us with any suggestions or comments at:
www.executive-magazine.com or
editorial@executive.com.lb

For subscriptions – subscribers@executive.com.lb

All rights reserved. Copying for purposes other than personal or internal reference use without express written permission from NewsMedia sal is prohibited © 2021.

The views and opinions expressed in the articles developed in collaboration

with Konrad-Adenauer-Stiftung (KAS - LEBANON) under the Special Report: Banking & Finance in this issue
are those of the authors and interviewees and do not necessarily reflect the views of KAS.
3
 August - September 2022
BANKING & FINANCE
Banks are in
the firing line
The cries are louder of an angry,
poor nation
One banker, interviewed for this
issue, said it: “Bankers feel threat-
ened, bullied, and feel that they are
[made to bear] responsibility for
something that they did not do.” The
stewards of the former Switzerland of
the Middle East, the bright stars who
transported our expertise across the
world for decades, have been forced
to cringe under their desks. Their er-
ror? Trusting the government. The
mistake has placed them in the firing
line of an angry and increasingly im-
poverished nation, who have a wan-
ing desire to be reasoned with. From
voicing anger online, the attacks on
banks have boiled over into more
tangible and dangerous incidents
in recent months; armed depositors
storming banks merely to access their
money has become one of the more
upsetting and surreal features of Leb-
anon’s relentless crisis.
Today the financial sector, once
the economy’s crown jewel, is up to
its neck in a homegrown calamity
which has left a horizon of haze hov-
ering over its future. The beleaguered
sector, perhaps the final one to have
its spoils plundered by the political
class, is now at the mercy of a people
trapped in a noisy room of confusion,
finger pointing, anger and impunity.
Impunity, state-level impunity specif-
ically, and its prevalence has effective-
ly bankrupted Lebanon. For decades,
the government borrowed and bor-
rowed from domestic and interna-
tional markets and from the central
bank, and under its “unconventional
finance” methods resorted to borrow-
ing from commercial banks. Their
4 executive-magazine.com
LEADER
By Executive Editors
actions piled up debt and drained the
state, and the government’s failure
to honor that commitment is at the
heart of the country’s pitiful present
state. The depth of the crisis and its
decades in the making has called
into question the legal aspects of the
banks, the central bank, and the gov-
ernment’s behavior (see page 14), and
the story of the debt buildup at the
root of it all (see page 36).
A FINANCIAL OVERHAUL nomic rebound grows more urgent,
Executive’s summer special re- as financial experts and think tanks call
port 2022, on banking and finance, for the radical transformation of the in-
attempts to get to the bottom of the dustry. Indeed, a deep transformation
financial crisis and the government’s is needed; ranging from retail and con-
actions over the years, while offering sumer banking all the way to invest-
promising components that will shape ment banking and the vestiges of cen-
the sector’s next chapter. A proposed tral banking. The country needs banks;
stabilization scenario for the currency a credible, transparent and ethical fi-
comprising a future without the Leba- nancial sector gives a nation the legs to
nese pound is explored on page 30. On stand on and the lungs to breathe.
the other side of the coin,
digital currency is of-
fering investors a future Impunity, state-level
absent of any fiat-based impunity specifically, and its
system. Although not prevalence has effectively
new to the global market,
cryptocurrencies (see
bankrupted Lebanon
page 18), or virtual assets
such as non-fungible tokens (see page These are global challenges, which
22), and their innovations are begin- the Lebanese financial sector will have
ning to make waves in Lebanon. The to succeed in, as well as passing the test
government’s damage to the financial of rebuilding from the national crisis
sector, now etched into the minds of of everything. This avalanche of chal-
depositors, is sending some to seek lenges is also an opportunity. At a time
alternative financing methods away when the numbers of refugees, the
from traditional banking. Yet with- mountains of private and public debt,
out sound investment and regulation, and the concerns over the Sustainable
Lebanon’s digital infrastructure will Development Goals’ achievements
be its Achilles heel, while also placing since the start of this millennium are
business and individuals vulnerable to racing from peak to peak, it behooves
cyber- attacks (page 26). anyone with the least emotional or
As the political class twiddle their intellectual stake in the future of the
thumbs and scratch their heads, and world as we know it to consider the
policy makers remain ever absent, the future of banking and finance from
need for an International Monetary priority aspects of sustainability, inclu-
Fund agreement to encourage an eco- sion and responsibility.

BANKING & FINANCE
A deliberate
mistake?
A sloppy and condescending
op-ed from the World Bank
For one thing, human constants
have to be considered. When Wal-
ter Bagehot, the founding editor of
The Economist, reflected on the role
of the “English Political Economy”
shortly before his untimely passing
in 1877, he emphasized first how this
economic philosophy had brought
unprecedented benefits to the people,
writing: “The life of almost everyone
in England – perhaps of everyone – is
different and better in consequence
of it.” His second comment, however,
was that this English Political Econ-
omy was – in his day and age – an
insular science, one that was neither
greatly appreciated elsewhere, nor
one that was broadly applied.
What Bagehot called the English
Political Economy entailed a novel
theory of free trade, which he clas-
sified as “more opposed to the action
of government in all ways than most
such theories,” and prone to not find
favor among pro-state zealots (or our
latter day populists). This was because,
as the sharp-eyed editor observed dry-
ly: “All governments like to interfere; it
elevates their position to make out that
they can cure the evils of mankind.
And all zealots wish that they should
interfere, for such zealots think that
they can and may convert the rulers
and manipulate the State control.”
The fact that financial zealotry, or
in present journalese populism, has
had a detrimental impact on public
discourse in Lebanon over the past
three years, cannot be denied. But it
is more than detrimental to see that
a destructive populist rant has in-
vaded a publication affiliated with the
World Bank Group.
By Thomas Schellen
An op-ed in the Lebanon Public
Finance Review of August 2022, pos-
ing as a “Message to the Lebanese
People” stood out from the remainder
of the publication in terms of writing
style and content. At a prominent
place in the document and text, the
op-ed posited deliberation, specifi-
cally meaning malicious intent, as
something that existed from the roots
of the crisis and something that is
“important for them to know.”
A STRIKING WORD
COMBINATION
Apart from the sloppy editing
and unclear colloquial usage of the
word “them” in the first paragraph
of the “message” – a
pattern that one of-
ten encounters when
One can indeed argue that
interviewing local many actions of state players in
intellectuals – a quick Lebanon over the years have been
word use analysis corrupt, it is not a revelation
shows that the word
“deliberate” or “de-
liberately” was inserted eight times
in the “message.” This is 40 percent
of a total of 19 mentions in the ap-
proximately 110-page body text of
the Lebanon Public Finance Review
(not counting summary pages in
Arabic and French where the word is
cited once). In the first three analyti- high frequency on a single op-ed page
cal chapters of the body text (pages
28 to 63), the word deliberate is used
once, however, with a positive con-
notation and not in conjunction
with the term depression.
The word combination of delib-
erate and depression, which is used
three times in the op-ed, reappears
on page 65 of the Finance Review as
a reference term to a Lebanon Eco-
nomic Monitor issue that was pub-
lished in 2020. The same usage of
deliberate as reference to the earlier
publication accounts for all but two
appearances of the word deliberate.
In these two mentions, it is argued
that failures in services delivery by
the Lebanese government was in-
tentional under a corrupt scheme to
benefit private interests.
ANONYMOUS AUTHORS
One can indeed argue that many
actions of state players in Lebanon over
the years have been corrupt, it is not
a revelation. One can also sympathize
with the view, expressed in the Lebanese
Economic Monitor of Fall 2020, that in
the preceding months, “Lebanese au-
thorities countered the assailment of
compounded crises with deliberately
inadequate policy responses.” However,
when anonymous writers offer zero
evidence for their claim of deliberation,
by which they imply malicious intent of
some actors from the very roots of post-
conflict debt accumulation by various
Lebanese Councils of Ministers, there is
only spin doctoring and populist opin-
ion mongering present.
The term deliberate appears in
that differs sharply in style and content
from the analytical focus and dispas-
sionate language of the rest of the Leb-
anon Public Finance Review. The fact
that “Message to the Lebanese People”
is an op-ed that is not signed by any
name, although clearly written from
an angle of ideological proselytization,
in addition to the usage of the impre-
cise and illogical term “Ponzi finance,”
and a cover design that reminds this
European of destructive ideologi-
cal pamphlets of the 1920s and 30s,
compounds into the impression of a
(hopefully non-deliberate on the part
of the World Bank) disgrace.
5
 S.A.L.
CAPITAL CONCEPT

STRATEGY - FINANCE - GOVERNANCE

Registery of Commerce of Beirut 1004399 | Capital 30 000 000 LL. Fully Paid
Al Bourj Building, Martyrs’ Square, Beirut Central District, Lebanon
Tel. + 961 1 991 911 | Fax. + 961 1 997 050 | E-mail. info@kconcept.biz
 www.executive-magazine.com

August - September 2022

SPECIAL REPORT

BANKING & FINANCE

> Banking for the

common person
> Perceptions of
Lebanese banks
> The hopes of crypto
> NFTs and the digitization
of creativity
> A weak cyber-defense
> An infamous debt profile
> No legal legs to stand on
> An alternative to the lira

In collaboration with
 August - September 2022
SPECIAL REPORT
Overview
In collaboration with
Banking & Finance
By Thomas Schellen

BANKING FOR THE COMMON PERSON

DEBT

Lebanese banks are stuck at an intersection marked by disgruntled depositors and absent legislators

“You can take it to the bank,” is an idiomatic
expression commonly uttered by someone – usu-
ally a politician or manly man with business power
– to express a very high degree of confidence that
their latest assertion or promise, such as winning
an impending election, is going to be fulfilled. It
is an example for how deeply and easily our minds
can correlate the notion of trust with the concept of
banking.
The exact opposite association has been building
up in Lebanon, where banking is being demonized.
8 executive-magazine.com
The animosity against banks has been festering in an
environment of supercharged activism, to a point
where an assault on a bank branch ignores the pos-
sibility of traumatizing customers and employees for
the sake of raking in an emblematic amount of cash
under a claim of “one’s right to one’s money.”
Taken in this context of a lost societal glue, the
investigation of the three-plus years-long banking
crisis of Lebanon (the exact moment of its start in
2019 is arguable and can be posited a few months
before the overwhelming evidence of the troubles
appeared at the end of October) is much more than
research into accounting for losses, attribution of
blame, and attempts at however partial short-term
restitution of their rightful belongings to the deposi-
tors. It is an exercise that turns into an arduous and
sometimes agonizing journey of the mind. Reflect-
ing on what is gone amiss in Lebanon with the shock
of the abrupt shuttering of many banking services,
the use of which previously had been almost self-
evident and certainly indispensable part of daily life,
requires a conscious effort that also might serve as a
reminder of the importance of recovering the prin-
ciple of trust that underlies finance, money, and the
entire economy.
THE CURRENT STATUS QUO
It is frequently overlooked that Lebanese banks
have suffered along with their depositors. The latest
news is that the suffering of banks, in a manner of
speaking, has eased. According to numbers cited
in Bank Audi’s Lebanon Weekly Monitor (LWM)
publication, the contraction of customer deposits in
the banking sector has slowed when comparing the
first seven months of 2022 to the same period in the
previous year. Deposits are said to stand at $127.8
billion at the end of July.
Amounting to $1.7 billion for the period, the
contraction in deposits looks almost benign when
compared to the rates of stricture, which stood from
January 1 to July 31, respectively, at $5.89 billion and
$15.57 billion in 2021 and 2020. Unsurprisingly, LBP
deposits grew in 2022 while FX deposits contracted.
This brought the deposit dollarization ratio down by
almost three percentage points. An estimated $2 bil-
lion in dollar deposits are “fresh.”
The slowing in contraction of deposits is a dan-
gerously double-edged phenomenon as banks are
still illicitly holding these deposits, which are their li-
abilities, back from the people to whom they belong.
On the other hand, one can interpret the narrowing
in the rate of deposit contractions as a relative in-
dication that the overall financial situation, albeit in
the perverse manner of a bank run that is frozen in
time, has moved from extreme convulsions towards
a glimmer of financial health.
On the side of assets, banks’ loan portfolios con-
tracted by $4.45 billion over the reporting period to
reach $23.3 billion. This compares with contractions of
$4.75 billion and $9.5 billion in the first seven months
of the previous two years. Shareholder equity stood at
$16.9 billion in July 2022, a reduction of $0.9 billion
from December 2021, a weakening which the publica-
tion attributed to losses related to FX costs, operating
expenses, inflation, and needed provisioning.
“The banks’ Eurobond portfolio contracted
from $4.4 billion in December 2021 to $3.9 billion
in July 2022, a contraction of $0.5 billion. The con-
traction in this year’s Eurobond portfolio is mainly
the result of the provisioning requirements imposed
by the Central Bank of Lebanon,” Bank Audi said. In
terms of net foreign assets at the central bank, the
contraction, attributed primarily to currency inter-
ventions, was reported as $3 billion.
Another noteworthy set of data was related to
the number and concentration of existing bank ac-
counts. Citing the 2021 Annual Report of Association
of Banks in Lebanon – which Executive did not see
– the LWM noted that the banking sector’s resident
depositor base at the end of last year was 2.35 million
account holders, of whom more than 56 percent held
deposits of less than LBP 5 million (LBP values calcu-
lated at the rate of LBP 1.507 to the dollar).
Interestingly, the majority of these banking clients
own a dismal 0.7 percent of total deposits, or LBP 1.3
trillion out of LBP 188.6 trillion at the aforementioned
“official” rate of LBP/USD conversion. The holdings
of depositors overwhelmingly do not exceed LBP
300 million per account, with 29 percent of cumula-
tive deposits’ value held by 95.2 percent of depositors,
whose account balances at the end of 2021 were below
that threshold. According to ABL’s disclosures, some
114,000 account holders – the remaining 4.8 percent
of the depositor base – call 71 percent of total deposits
their own, in the nominal value of LBP 134 trillion.
As extreme as this concentration of wealth in the
hands of approximately 2 percent of Lebanese citi-
zenry and the top 5 percent of bank account holders
is, and as much as it sends
It is frequently strong signals for policy
making in favor of better
overlooked that tax collection, a redistribu-
Lebanese banks have tive tax system, and per-
suffered along with haps even an annual wealth
their depositors tax (as banker Riad Obegi
proposed when talking to
Executive), the reported
concentration is somewhat less severe than has been
rumored by some activists and in social media posts.
Yet, the veracity of the above numbers is not easy
to ascertain in an atmosphere where some bankers
have been evading accountability. Moreover, reli-
ance of data is marred by well-founded skepticism if
any data on the banking sector is actually relevant in
any way, given that banks have been holding deposi-
tors’ hostage for three years.
This notwithstanding, it is a continuing reality
that banks in Lebanon, despite selling internation-
al units, closing departments, downsizing branch
9
 August - September 2022
SPECIAL REPORT
Banking & Finance
networks, overworking tellers and reducing head-
counts, have remained operational and in some
counter-intuitive manner, shown resilience. In legal
language, both the largest commercial banks and
the sector at large are not formally bankrupt – even
though insiders of the industry occasionally, and
publicly, declare that they consider all of the 14 larg-
est lenders in the country, to be de-facto bankrupt.
This contradiction in itself makes Lebanese
banking an intriguing object of study; inviting a
deep dive into the situation of banks, the impact of
their behavior over the past three years on society,
and the changed realities of the sector in banking
players’ own perception, beyond their slightly im-
proved annual numbers (in comparison with the
two previous years). Additionally, it constitutes the
minimum of diligence to inquire about the longer-
term outlook of Lebanese banking, and to evaluate
from a wider social and economic perspective, but
also considering banking sector financial signals;
trends of high relevance in the economy and society
that have emerged over the past three years.
SAMPLING NEW REALITIES
AND INFLECTION POINTS
So, what has changed in the experience of fi-
nance at banks, from a public observation point of
view, and for banks in their own perspective? The
second part of the question cannot be answered
comprehensively for all banks. Too many chief exec-
utives and board chairmen are covering behind veils
of determined, counterproductive, and one assumes,
either helpless or desperate silence. However, a sam-
ple of creative perspectives from the sector can be
obtained by listening to a minority of bankers who
are confident enough to talk.
One new reality is a departure from banks’ past
group behavior, which until 2019 conveyed the impres-
sion of a well-controlled and mutually intertwined col-
lective identity among all lenders. “I think that for the
first time in the past 30 years, the outlook and behavior
of banks is taking different routes. A bank like [AM
Bank], which is a medium sized bank that has handled
the crisis more efficiently than some other banks, does
not see itself as necessarily aligned [with] a much larger
bank that did not handle the crisis properly and is now
hated by most of its clients,” Marwan Kheireddine,
chairman of AM Bank, tells Executive.
Although he describes banks as having differ-
ent opinions in response to the economic crisis, he
says that they are still behaving mostly as one group.
“This is because no bank has gone bankrupt and the
10
Overview
central bank has made it clear that it does not wish
to bankrupt banks. Also, we are in this wait-and-see
game to see what laws the government is going to
enact, so that we can devise our strategies accord-
ingly,” Kheireddine continues.
“But for sure, you have today some banks that
have a much higher exposure to government risk
than others, and therefore the objectives [of banks]
have to differ from one another. There is far more
in common between medium and small banks than
with larger banks. This does not mean that banks will
fight against each other but it means that depending
on government policy, some banks might establish
different strategies from other banks,” he elaborates.
Economist Jean Tawile is a board member of the
Rassemblement des Dirigeants et Chefs d’entreprise
Libanais (RDCL), an association of business leaders,
who has in recent months authored papers discuss-
ing crony capitalism, as well as good bank, bad bank
solutions for restructur-
ing the financial sector. In
The decision makers
his analysis, many banks
are showing very little are too weak to transform
respect for the people themselves, while others
and they are also are not ready to accept
that their equity will fall
showing very to zero and need to be re-
little understanding built, while a third group
have accepted the need to
reset equity to the zero point and rebuild.
“Under a good bank, bad bank model, you are
structuring a banking sector on the size of the com-
mercial portfolio of loans. There are banks that hold
no commercial loan assets, so they would be com-
pletely under the bad bank side of the structure,” he
says. This third group is willing to embark on ways
of addressing the solvency problem over time and
operating as a legitimate bank by obtaining some
fresh dollar inflows, while in the meantime tackling
the liquidity problem in collaboration with interna-
tional financial institutions (IFIs) by way of giving
loans through the banking channel.
For Riad Obegi, chairman and CEO of
Banque BEMO, the situation of banks has be-
come comparable to a person who is kept every
day in uncertainty over whether they might be
executed the next day. “The decision makers are
showing very little respect for the people and
they are also showing very little understanding,”
he says, in reference to not only the government
of Lebanon, but also foreign governments and
IFIs. “The problem is to bring back trust, and
executive-magazine.com

you will not bring back trust by talking every day
that you will take someone’s head off.”
In searching for exit routes from the endless an-
ticipation of what laws may be adopted, and ways
to end the paralysis of banking, his thoughts do not
stop at the idea of shaking the defining institutions
of money and banking in Lebanon. “Society wants
full dollarization – so why would you fight society?”
He argues that there is no need to hold on to Banque
du Liban (BDL) as the central bank for the purpose
of issuing currency. In his reckoning, the central
bank has not succeeded in its core functions of man-
aging a monetary policy, supervising the banks, and
printing money responsibly. He goes on to compare
BDL with a railway company; keeping a nonfunc-
tioning railroad operator may be inexpensive and
worthwhile in the longer run, but the maintenance
of a central bank is very dear.
“The central bank has not fulfilled its role, and
it costs a lot. Is there a chance that it will do its job
in the future, [with regard to] one, the currency,
two, the monetary policy, and three, the integrity of
banks?” he asks rhetorically. Positing that a return of
reserves to commercial lenders and the handover of
gold would enable banks to restart lending – provid-
ing they succeed in deferring to honor their deposi-
tors’ withdrawal demands under a clear time sched-
ule of several years – he presents the dissolution of
BDL as a step that would help banks return to a path
of orderly business in service to the economy.
The central
bank has not
fulfilled its role,
and it costs a lot
PROPOSED TAXATION SOMERSAULTS
AND DEBT AEROBICS
As well as improving state revenues towards fis-
cal balances, Obegi envisions an annual wealth tax
as the best method. “Taxes on profits are regres-
sive, unprogressive and in my opinion immoral. I
personally believe that tax on profit is bad but tax on
wealth is good.” he say, before continuing: “If the aim
of the state is to create more solidarity among peo-
ple, and have taxation that creates growth and does
not destroy growth, taxes should not be on revenues
but on wealth.” He believes that a combination of a 10
percent value-added tax as the conduit to steer con-
sumption, in combination with a one-percent annual
wealth, could replace other taxes as a flat but contin-
ual wealth tax could bring in the equivalent of more
than 10 percent of GDP per year.
The assumption of the state’s responsibility
for paying its debts is crucial for a solution. Obegi
emphasizes that banks must be accountable for the
mistakes they made. But he contends that analyses
of the risk exposure accepted by banks are incom-
plete, without taking into account that banks had to
operate under the law and in a small country with
a highly interconnected set of economic behaviors.
He refers to the zero-coupon bonds through which
banks were obliged to channel funding to govern-
ment needs for a limited time in the early 2000s, as
an example of this. “Banks could not not abide by
that,” he says, delivering a model sentence of dou-
11
 August - September 2022
SPECIAL REPORT
Overview
Banking & Finance
ble negation, before asserting that he also sees it as a
non-negotiable red line that banks have to abide vis-
à-vis to their customers. “Before the depositor gets a
haircut, the bank needs to go bankrupt.”
“I think banks have to assume a level of respon-
sibility [for the crisis] that is commensurate with the
risk that each one of them has taken, as recorded on
their balance sheet,” Kheireddine says. According to
him, the central bank will have to bear some responsi-
bility when it comes to providing the government with
US dollars versus receiving Lebanese pounds, though
he concedes: “But it was an open market at the time,
and in my opinion the central bank had no choice. But
the elephant in the room is the Lebanese government.
Our government has run budget deficits every single
year for the past 30 years,” Kheireddine says.
DANGEROUS INTERSECTIONS
It is a common perception that Lebanon has slid
into an intersection where one road leads deeper
into the abyss and the other offers uncertain and dif-
ficult improvements of the economy. While deeply
political in terms of requiring a clear presidential
election and a political will for reforms and sacri-
fices that many bankers and economists do not see
as forthcoming, the intersection can be seen as also
including economic and financial inflection points.
INFLECTION POINT: DOLLARIZATION
In early discussions of the unhinged Lebanese
pound back in 2020 and also in 2021, it appeared
pertinent to assess the pros and cons of two oppos-
ing currency regimes – free float versus hard peg.
Deliberations at roundtables and in expert papers
more closely explored currency regime variants,
such as full dollarization and currency board solu-
tions on the hard-peg side, an intermediate model
such as a crawling peg and currency basket, and op-
tions such as a radical free float or managed float.
Currency regime choices, even in theory, were
not many in the spring and summer of 2020, but the
number of solutions with reasonable prospects for
popular acceptance, seems to have further evapo-
rated during this year.
The rational choice for most people is dollariza-
tion. BEMO’s Obegi compares it to a fever that helps a
body recover its health. On one hand, he says “society
is doing this dollarization to fight corruption: the cor-
ruption of decision makers.” Yet on the other hand,
“people are moving toward dollarization because it is
the way in which they can go on living.” Spinning the
metaphor further, he adds that fighting against soci-
12
ety’s choice of dollarization at the current time would
be like fighting the healing process, and result in no
cure for the country’s ills, except for the most radi-
cal cure: cutting off your head. “Dollarization is good.
Fighting this would be fighting the healing process.”
The diagnosis, but not the treatment angle is
shared by economist Tawile. “The economy is being
dollarized and the local currency is only for the pub-
lic sector,” he says. An ancillary journalist’s look at
the dollarization phenomena on a street level of peo-
ple’s economic choices – which are rational by their
respective experiences – provides ample anecdotal
evidence of growth in practical dollarization.
Some local restaurants, tired of having to ad-
just Lebanese pound prices all the time, changed
their prices this year to dollars. George T., a neigh-
borhood hairdresser who has worked for 25 years
in the same spot in Achrafieh, put up a sign pric-
ing his standard haircut at “$10 (Sayrafa)” in June,
switching a sign that had successively read “50,000”;
“75,000”; “100,000” and “LL150,000” over the previ-
ous 24 months. Across the street, a chocolatier called
Roger calculates his margins in the US currency be-
fore telling his clients a Lebanese pound price. He
explains that he charges 20 percent less on a dollar
basis when compared with 2018, despite sharp rises
in the cost of imported materials and local electricity
supply. Wherever one looks, society has been adopt-
ing the dollar not only for communicating prices of
imported goods but also for pricing local services.
INFLECTION POINT: THE OVER-
BOARDING INFORMALITY OF
NETWORKS AND ACTIVITIES
In Tawile’s analysis, the divisive economic reality is
also manifesting as further escalation of an already high
executive-magazine.com
level of informality that has roared beyond 50 percent.
“We have [a] two-speed society, one [part of which is
equipped] with dollars, and all the others. Dollarization
is based entirely on cash and today, the parallel econo-
my for me is much bigger than the formal economy.
This is the biggest problem in Lebanon,” he says. Op-
erating solely on the basis of the formal economy, and
dependent on fiscal management for its compliance
with taxes and standards set by the government, any
current budgetary planning will be handicapped by the
fact that the formal half of the economy will be bearing
the cost of the entire economy, he adds.
Correlated to dollarization, economic informal-
ity, and distrust in banks is the entrenchment of un-
conventional financial networks that are at play; from
family-level support between expatriates and their
loved ones in Lebanon, to disbursements of cash sup-
port from international NGOs to needy persons in
the country. Although, previously regarded as fragile
and possibly temporary, in light of research of soaring
inbound cash transfers directly after the Beirut Port
explosion of August 4, 2020, this segment of the fi-
nancial industry has been stable and growing in user
numbers up to the middle of this year. This is accord-
ing to data announced at the beginning of this month
by BDL, and information from inbound market lead-
er, OMT. Together with another local partner compa-
ny of global money transfer operator, Western Union,
OMT dominates this particular business, which on a
micro-level contributes to cash in the pockets of ben-
eficiaries, and on the macro-scale helps a bit with the
current account balance.
According to BDL data cited in the Lebanon This
Week (LTW) publication of Byblos Bank, inflows of
remittances stood at $6.4 billion for the full year of
2021 – a decrease of 3.6 percent from $6.63 billion in
2020. However, net remittance inflows were $4.3 bil-
lion for last year, 16.6 percent more than in 2020, an
increase which LTW attributed to a significant drop
in remittance outflows between 2020 and 2021.
Although the money transfer segment of the lo-
cal financial industry has to contend with numerous
logistical issues and market complexity according to
OMT, which can act as barriers to competitors, some
new entrants say they are seeking to establish fran-
chises with stronger digital aspects, besides promis-
ing to lower cost and work for financial inclusion.
“By launching our services in Lebanon in 2021, we
opened the doors for people all around the world to
contribute and be more involved in the Middle East
market through sending remittances and support-
ing those economies,” Imane Charioui, the director
of francophone Africa and Middle East at money
transfer Fintech WorldRemit, tells Executive.
Taking all inflection factors and distortions into
account, the picture of the Lebanese economy looks
an increasingly fragmented system operating not
just with two speeds, but which is subject to many
centrifugal forces compelling its pieces further apart
from one another and from the state as the organi-
zational center; because of the formal and informal,
dollarized and lira-based contours of pieces in the
economy that comprise differing inflationary pres-
sures and, in some cases, experience deflationary
moments. And as the formal financial market, his-
torically controlled by banking and not well-bal-
anced between equity and debt markets, is caught in
a stupor of political and banking confusion, the un-
tenable lives of the common person, become more
untenable even in the time it takes to produce a sin-
gle analytical banking story.
A visit to conduct a routine cashless transaction
at a bank branch located barely a kilometer from the
location of a branch assault on September 14, 2022,
took five times as long as one month ago and includ-
ed an hour’s wait on a stair in front of branch doors
that admitted persons on individual basis, since they
were not allowed to enter
the branch freely, result-
Society has been ing from measures in place
adopting the dollar since a wave in anti-bank
not only for prices of activism. In the follow-
ing days, banks declared a
imported goods but also three-day closure follow-
for local services ing an alarming same-day
surge of hold-ups by armed
depositors at banks across
Lebanon, and subsequent announcements by the De-
positors’ Outcry Association to conduct more heists.
Aware of the fact that the state in Lebanon has
been taken to the verge of total failure, or “hell,” the
people of Lebanon have been suffering from depriva-
tion of more than their meager financial assets. But
vigilantism will not open ways to solve the financial
and economic dysfunctionality that underlies the
state’s failings, because of the dictum that a functional
and legitimate state is dependent on its monopoly
over coercive capacities. Further, at a time when vigi-
lantism and escalations are perceived by many as al-
ternative to investing into a viable state, the need to
rebuild banking as a key to better economic perfor-
mance, and thereby provision of fiscal revenue, con-
verges with the urgency of building a stronger state.
A system in which reform mandates also enforce law
and justice against the powerful, who might consider
themselves too rich to be held accountable. In this
context, banking becomes a vital channel for the re-
turn to societal hope as it is for the economy.
13
 August - September 2022
SPECIAL REPORT
Analysis
Banking & Finance
By Thomas Schellen
THE LEGALITY AND THE PERCEPTIONS OF BANKING
BASED IN LEBANON
The public has been unwittingly enjoying a governmental charade of discussions, statements, and little change
To the interest of anyone who is not a part
of the political and banking power ensemble,
an absurd theater of dance and song is being
played out on the nation’s institutional public
stages. But this year’s summer theater is being per-
formed in rationality-defying ways; as if the goal
was an emulation of an ancient Athenian tragedy
whose protagonists’ immersion into inescapable
misfortune and his aims at catharsis are available
only on the basis of divine intervention.
These are some of the acts in which the legal
drama has been progressing: After a staff-level
agreement between the Lebanese government and
the International Monetary Fund (IMF) was an-
14
In collaboration with
nounced on April 7, the choirs of politicians were
immediately intoning praises and hymns with
promises of rapid action. Even the Association of
Banks in Lebanon (ABL) congratulated the govern-
ment on the staff-level agreement in a letter, calling
it “a crucial first step towards the implementation
of an IMF program.” But then the progress towards
actually signing an IMF agreement over the follow-
ing five months resembled a play of double-talk,
twists and intrigues. It invited the thought of how
social media, or today’s Erinyes - the epitome of
vengeance for broken promises - will be busy for
years. It would give any ancient Greek tragedian a
run for their money.
executive-magazine.com
 The bewildering performance in the national
theater has been commented upon by a chorus of
media and civil society voices attempting to vocal-
ize the hidden agendas and unspoken fears of the
main actors to the spectator. In one example of
the chorus-worthy drama, the presidential signa-
ture for the banking secrecy law was reportedly
held back in August, because of pending evalu-
atory responses to a revised draft. In September,
news agency Reuters reported that the IMF un-
covered “key deficiencies” in the recent modi-
fications by Lebanese lawmakers to the draft of
the banking secrecy law. The law is one of several
prerequisites for the IMF agreement.
Another such prerequisite is the capital con-
trols law, which by September 2022 is approxi-
mately 35 months late. Local media site, Naha-
rnet, reported on the last day of August that a
joint session of involved parliament committees
“agreed on finding a capital control solution that
would both preserve the rights of depositors and
the ‘existence’ of banks.” No decisions were re-
ported from the joint committees’ meeting. Gov-
ernment representatives, however, have been
waxing wisely that the country is at a crossroads
and has to go toward reform or further collapse.
Soon after, advocacy organization Legal Agenda
added its two cents by commenting: “The Gov-
ernment, like parliament, is still unable or refus-
ing to take any step on the road to reform or exit
from the crisis, which puts the whole country in
front of risks whose limits are difficult to pre-
dict.” The group also decried that along with the
failure to produce a capital controls law, a gov-
ernmental economic rescue plan has been de-
bated to no avail on three occasions during the
eight-month period up to September 2022.
And so, throughout this summer it has con-
tinued; a now three-years-long charade of con-
ferences, plans, law discussions, expressions of
absolute determination, and non-implementa-
tion of anything decisive, least of all honest re-
forms and laws prerequisite for an agreement
with the IMF. The local audience of this charade,
long mired in disbelief of political assurances, in
the meanwhile is held captive to a macabre dance
of depreciation of the local currency, alongside
domestic, pass-through, and now global infla-
tion, and desperate struggles for their liveli-
hoods. A dance of a slow economic death that is
separating the haves-of-a-few-real-dollars from
the haves-of-near-worthless-lira by an ever-wid-
ening gulf of inequality.
A CLEAR LIST OF LEGISLATIVE
AND ORGANIZATIONAL NEEDS
One perspective shared by virtually every econ-
omist and expert heard by Executive throughout
this year is that Lebanon will not recover without a
viable financial sector. Although, the views of these
experts vary regarding important nuances; never-
theless economically relevant laws are necessary to
the foundation on which to rebuild banking and
the economy. Driving this point home in an inter-
view on the legislative priorities and the legality of
banks’ behaviors, lawyer and former minister Ziad
Baroud leaves no doubt that the legal requirements
make room for any ambiguity. “The IMF staff level
agreement is very clear in envisaging a package
deal of at least four laws to be voted [in]: [laws on]
the budget, capital controls, bank restructuring,
and banking secrecy,” he tells Executive.
Noting that laws on banking secrecy and capi-
tal controls have been initiated, while a budget is
the minimum that any country should commit to
and legislate in a timely manner, Baroud elaborates
on the order of these laws’
Government importance. In his view,
representatives have the bank restructuring
law deserves the utmost
been waxing wisely attention. “In my reading,
that the country is the number one priority
at a crossroads and is the restructuring of the
banking sector because
has to go toward reform
the other three laws would
or further collapse not create much impact
unless you restructure the
banking sector. And if you don’t have banks, you
don’t have an economy,” he explains.
There are many contentious issues in local
debates about all banking-related laws however.
These debates show how crucial the legality of
bank actions is for the current and future relation-
ship between banks and their depositors, and even
their imagined stakeholders. Here, uncertainties
and misconceptions abound over issues such as
the use of reserves at the central bank, along with
the baseline liabilities and responsibilities of poli-
ticians, central bank, and commercial banks. “But
before talking about reserves and the legality of
their use, I want to say that deposits are protected
by law. Thus, everything that has been happening
since Oct 2019, is de facto not really legal,” Baroud
emphasizes.
According to him, the mandatory or compul-
sory reserves is an instrument granted to Banque
du Liban (BDL) by virtue of the Code of Money
15
 August - September 2022
SPECIAL REPORT
Analysis
Banking & Finance
and Credit, Article 76, paragraph D, according to
which the central bank can deposit with banks up to
15 percent of their respective obligations. “Such re-
serve is provided in order for the BDL to perform its
operational tasks in terms of liquidity and – for in-
stance – credit policy. Therefore, it cannot be regard-
ed as deposits’ guarantee; this is a common blunder.
It’s a tool in the hands of the central bank, which can
consider the Treasury Bonds as part of said compul-
sory reserves as per the law,” Baroud clarifies.
This seems divergent to positions expressed by
ABL in 2021, under which the association blamed
the central bank for submitting - when it lowered
the reserve requirements by a percentage point - to
pressures from “the political authorities, contrary
to the Monetary and Credit Law where the purpose
of the mandatory reserves is limited to the needs
of the banking sector.” However, as to whether the
mandatory reserves are actually fixed at an exact
level of 15 percent, Baroud explains that this is a
ceiling set in the Code of Money and Credit, and
the central bank can lower it.
A quick headline query on the subject of reserve
requirements by central banks shows that comparable
steps to the one enacted by BDL in 2021 have been
taken by many central banks elsewhere, or that such
requirements in developed economies commonly
range in the low single digits, in terms of what central
banks require from commercial banks. For example,
the European Central Bank (ECB) tells online visi-
tors: “Reserve requirements are a standard monetary
policy tool in central banking, but are not required by
all central banks,” citing as examples of the latter Aus-
16
tralia, Canada, and Sweden. According to the ECB,
banks in the eurozone had to hold a minimum of 2
percent of relevant liabilities as reserves in accounts at
national central banks until 2012, after which time the
rate was halved to 1 percent.
For Lebanon, dealing with the commercial
bank’s unsecured deposits, the lawyer points out
that as the regulator of the banking sector, the cen-
tral bank has a huge supervisory obligation. More-
over, it is not some private enterprise but part of the
Lebanese Republic, and therefore carries responsi-
bility on par with those who hold political respon-
sibility. As a combination of economic and mon-
etary factors, together with a lack of transparency,
have engendered the crisis, the problem over the
use of reserves is essentially interlaced with cen-
tral bank independence, discretionary power, and
responsibility. “The main problem we are facing is
linked in my reading to the lack of transparency
in the operations pertaining to the reserves and
more specifically to the undefined and open-ended
boundaries between the needs of the government
and the margins of maneuver of the BDL,” Baroud
says. “In any case, compulsory reserves are defi-
nitely not the guarantee for deposits, at least from
a legal perspective, although [they are] viewed as
such by the depositors at large.”
PERCEPTIONS AND SELF-PERCEPTIONS
As Baroud further notes, banks have his-
torically been transparent and compliant enough
when interacting with correspondent banks and
counterparties abroad. Yet they also went to great
We need more
transparency
in the banking
sector, better
monitoring by the
regulator and by
the shareholders
and boards
of directors
executive-magazine.com
lengths – and successfully so – to conceal their real
data from public scrutiny and local stakeholders. “We
need more transparency in the banking sector, better
monitoring by the regulator and by the shareholders
and boards of directors,” he says, adding that under
a 1994 law, each bank in Lebanon should appoint at
least one independent, non-executive board member.
The demand for improved governance and
transparency at Lebanese banks is well known to
the readers of Executive magazine. Today, it reso-
nates even larger, as for the past two years banks
have done astoundingly little to communicate their
real situations, both relating to meaningful data
and staff welfare factors.
Despite conducting previous interviews with
multiple leaders of ABL, like Salim Sfeir, the organ-
ization’s current president, he did not accept Ex-
ecutive’s invitation to be questioned for this issue.
Sadly, nixing our hope to understand his current
views on the resilience of banks.
In our most recent in-depth interview with him
in the summer of 2019, Sfeir had acknowledged a
wave of deliberate social media assaults on the
banking sector which occurred in the second half
of the 2010s. At the time, however, he opined dis-
missively about the sector’s reputation problems,
“no, it is not a problem,” displaying with hindsight
an unseeming confidence that banking was valued
in society as the “services industry that existed to
best serve the interests of its customers.”
Two mid-tier banks that responded affirma-
tively to our interview requests, however, provide
glimpses into the mindsets of bankers who are
battered by the furies of public opinion. Marwan
Kheireddine, the chairman of AM Bank confesses
that he has gathered overflowing experience in be-
ing misunderstood, and much of that on purpose.
“Because I am visible in the media, I constantly
get attacked,” Kheireddine says as he meets Executive
in his office in Hamra. An hour earlier, further down
the street, a chaotic scene had been unfolding involv-
ing protestors, a bank, and one shotgun-wielding de-
positor demanding access to his money. “In reality, I
am defending the free market economy,” he says.
“Bankers in general feel bullied, feel threatened,
and feel that they are [made to bear] responsibil-
ity for something that they did not do. [Bankers]
find it very hard to have an educated conversation
with society overall as they have been under attack
for two and a half years,” Kheireddine says of the
experiences of his peers. Though, he admonishes
that on their part, banks failed to create a lobby to
defend against attacks in the media or on social
media, which have morphed from unpredictable
moments into much more harmful incidents.
“My message to banks is that they should be more
courageous,” agrees Riad Obegi, chairman and gen-
eral manager of Banque
BEMO. For him, the role
Banks also went to of banks in society is not
great lengths – and limited to financial mar-
successfully so – to kets, and not even limited
to their contribution to the
conceal their real data economy. “Banks are like
from public scrutiny and a symbiotic virus. If our
local stakeholders host dies, we die as well.
If we are becoming too
strong, our hosts become
too weak. There must be an equilibrium. We need to
help our hosts become stronger so that we become
stronger,” he tells Executive.
Quarrels over the liability of banks between
depositors and banks as their debtors have been
playing out in cycles of varying intensity over the
past three years, with emotive peaks of distress and
litigious energy. There are no improvements to date
as far as restoration of trust between the Lebanese
people and their government or their banks.
Irrespective of the depressing short- and medi-
um-term pecuniary realities that are prevailing in
the country, alongside the backdrop of evading ac-
countability attempts by actors responsible for the
ongoing tragedy, there may be no reason to expect
that banks will be resolved lastingly of their moral
and legal obligations in the ultra-long-term.
Today’s examinations bring to mind how the
realms of long-delayed accountability for past mis-
deeds across the globe have lately been expanding
in time. We have been seeing judicial reckonings
of corporate crimes involving apologies and finan-
cial payouts by religious and civil organizations to
victims of abuse, national governments scrambling
to restitute art treasures to former colonies, inner-
European legal conflicts over claims for reparations
70 years after World War II, and struggles of eth-
nic groups for compensations from their ancestors’
slave masters. Accountability may be coming late,
but its arm is proverbially long and getting longer.
Moreover, in the even longer run, the unknown
does rule and other challenges will beckon, raising
questions that are as likely to remain unsolved as
all big questions of humanity but these questions
will render today’s worries and preoccupations of
bankers and depositors, as ever, absurd.
17
 August - September 2022
SPECIAL REPORT
Analysis
Banking & Finance
By Sasha Matar
THE LOCAL BITCOIN MARKET AND THE CRISIS
The young currency remains a topic of the day
Lebanon’s banking crisis is yet to offer deposi-
tors any cushion to soften the blow of capital control
restrictions, a crumbling currency, and an uncertain
future. As depositors become well versed at queuing
outside banks and fighting for their money, some
have begun looking for alternative methods to stor-
ing their money - not under the mattress, but digitally,
through cryptocurrency. “My clients who buy crypto-
currencies or exchange them for fiat, are the ones who
do not feel that it is safe to deal with banks anymore,
not now, not ever. The banking crisis alone has creat-
ed ample conditions for the interest in cryptocurren-
cies, namely Bitcoin,” Nader Dirany, a cryptocurrency
consultant and founder of one of the first cryptocur-
rency exchange counters in Lebanon, tells Executive.
Linkages between cryptocurrencies and financial
crises seem to be anchored in recent history. To many,
the appearance of Bitcoin during the Great Recession
was not a coincidence. Although the rationale of Bit-
coin in the original white paper published by a per-
son or group of persons under the Satoshi Nakamoto
pseudonym, did not refer to banking crises in gen-
eral or the period’s subprime problems in particular,
cryptocurrency users can easily perceive the digital
currency to address the failure of banks, presuming
that Bitcoin will not fail the world the way the bank-
ing system and the central banks did in 2008-09. For
Lebanon, the banking breakdown arrived a decade
later, when a liquidity shock rippled through banks at
18
In collaboration with
the end of 2019, forcing them to impose tight capital
controls which prohibited depositors from spending
money abroad and from access to accounts, in an at-
tempt to stem capital flight amid a widespread short-
age of US dollars. The conditions sowed the seeds for
the beginnings of a cryptocurrency community in
Lebanon.
FERTILE SOIL FOR BITCOIN
The cryptocurrency story is tied to the global
financial crisis of 2007-09. Early crypto enthusiasts
were thrilled by the idea of a currency that is authen-
ticated by a foolproof chain of digital evidence on the
internet, named the ‘blockchain’, which is free from
the chains of central bank controls. This anarchic
hope, embedded into the mysterious narrative of Bit-
coin, was soon paired with interest from speculators,
money launderers, black market drug sellers, and
people who looked for alternatives to “fiat” money
issued by central banks. The invention of Bitcoin in
2008 in one sense got a boost from the global crisis,
and the rise of Bitcoin from the fancy of a few tech
enthusiasts and monetary anarchists took shape over
several waves, riding both speculative gains and im-
mense losses.
While there were local enthusiasts who were ex-
citedly embracing the Bitcoin concept in finance and
academia, the dominant local mood about crypto-
currency during the first ten years of the story was
one of disinterest and indifference. Lebanon was not
really affected by the 2008 financial crisis. It was not
until banks blocked depositors’ access to their funds
in 2019, that Bitcoin earned widespread attention lo-
cally. Banks that were once the protectors of foreign
capital inflow, including the diaspora’s money in
particular, turned into exchange counters after 2019.
They stopped providing financial services and were
no longer allowing transfers abroad, nor providing
loans, or savings premiums. Cryptocurrencies, on the
other hand, are a digital and decentralized cross-bor-
der medium of payment exchange which can be used
to buy regular goods and services, despite their highly
volatile nature. In addition, Bitcoin is allowing Leba-
nese to transmit wealth abroad through electronic
wallets, without the intervention of any third party.
By definition, Bitcoin is a peer-to-peer electronic
executive-magazine.com
cash system. It is by design intended to facilitate the
transfer from point A to point B by eliminating the
intervention of an institutional party. It removes bu-
reaucratic procedures, elevating limitations on trans-
actions, saving time, and shifting complete control to
the transacting parties while disrupting traditional
banking systems. To help onboard more local users,
Dirany suggests supporting merchants to accept pay-
ments in crypto and stablecoins (digital tokens that
declare they are backed by real-world assets), con-
sidering the difficulties surrounding bank card pay-
ments. “An announcement attributed to Banque du
Liban would for instance incite merchants to explore
the cryptocurrency culture,” Dirany says. “The Bit-
coin community of Lebanon, that interacts in groups
on messaging platforms, mainly Telegram and hosts
tens of thousands of users, is ready to start lobby-
ing for the implementations of regulations and the
foundation of a syndicate for the cryptocurrencies
exchange counters.”
FROM SWITZERLAND OF THE EAST TO
VENEZUELA OF THE EAST
Several historical factors influenced the promo-
tion of the banking sector to its prominent position
in Lebanon. In short, the Lebanese economy became
part of the famous Bretton Woods monetary system.
As a result of the 1944 Bretton Woods conference,
countries agreed that their central banks would main-
tain fixed exchange rates between their currencies and
the US dollar, which was in turn pegged to the price
of gold. In 1956, the Lebanese parliament enacted the
Banking Secrecy Law, which kickstarted foreign capi-
tal inflow into the country.
After the 1971 Nixon Shock, when US president
Richard Nixon’s new policy ended the Bretton Woods
system or the Gold Standard era, the Lebanese cur-
rency remained pegged to the dollar. Banque du Li-
ban (BDL) and bankers in the early 1970s believed
that the peg was a cornerstone for stability. As a result,
it attracted traders and foreign investors to a now-
dollarized Lebanese economy. Foreign inflow was
also generated from diaspora remittances and neigh-
boring Arab nations like Syria, United Arab Emirates,
Saudi Arabia, Kuwait, Qatar, and so forth.
Whether they simply wanted to store their money
in a trusted banking system that offered conceal-
ment from the prying eyes of tax collectors, or were
attracted by the interest returns on banking deposits
in the Lebanese market, or had other reasons not to
entrust funds to the banks in their home countries,
inflows from foreign depositors found their way to
domestic banks. From early on in the post-conflict
reconstruction of the 1990s, high yields of govern-
ment-issued treasury bills, certificates of deposit, and
later Eurobonds, drew banks to provide funds to the
government. When maturing after a few months or
years, these debts were rolled over into new debts, in
what was a profitable and comfortable spiral from the
perspective of the lenders. But as time went on, the
government stopped paying its debt to both local and
foreign lenders, which resulted in mushrooming debt
and a lack of liquidity.
CRYPTOCURRENCY STATUS QUO
Despite the contraction of the trade balance defi-
cit as a result of the decline in purchasing power and
multiple local and international efforts to boost local
exports, the imports of goods reached $14 billion at
the end of 2021, according to Bank Audi’s Lebanon
Economic Report for the second quarter of 2022. As
a result of the recent measures taken by banks, sup-
pliers have been seeking alternatives to banks to con-
duct business transactions with cross-border traders.
This is particularly significant as the Lebanese econ-
omy depends largely on imports (up to 60 percent of
goods as a percentage of GDP are imported). Within
these circumstances, a digital currency with the char-
acteristics of Bitcoin has allowed traders to transmit
wealth abroad through electronic wallets, without the
intervention of any third party. However, the current
market cap in Lebanon is difficult to establish and the
volume cannot be tracked since most transactions en-
tail off-exchanges, through an underground market or
motorcycle delivery exchanges, sources interviewed for
this article told Executive.
Dirany guesses there are
The invention of hundreds of “ad-hoc sellers”
Bitcoin in 2008 in one in the crypto community
sense got a boost from in Lebanon, and says there
are only two other over-the-
the global crisis
counter markets besides his.
“For this reason, it is hard
to tell what is the exact exchange volume of Bitcoin,”
he adds. This year traders saw extreme volatility in
the price of Bitcoin, and as such the expectations of
the local community vary according to their power
of purchase. Large traders consider Bitcoin as a long-
term investment, according to Michel Haber, crypto
expert and CEO of Astrofi, a digital marketing plat-
form. Meanwhile, small traders who are attracted by
the ‘get-rich-fast scheme’ are there for the excitement,
speculation, and a potential way to make a passive in-
come when Bitcoin’s price goes up. A survey by the
Dutch bank ING on the perceptions around cryp-
tocurrencies showed that countries with lower per-
capita income levels are more likely to consider using
cryptocurrency as a payment medium.
19
 August - September 2022
SPECIAL REPORT
Analysis
Banking & Finance
LEGAL ASPECTS
To help curb scams and internally regulate his
business, Dirany requires his customers to show a
valid government-issued ID with every transaction,
which is the most basic know-your-customer (KYC)
step any financial institution would require, despite its
contradiction with Bitcoin’s anonymous philosophy.
The exchange fees at the counter vary between minus
five to seven percent, depending on demand, while
charges among peers could be non-existent, depend-
ing on trust. “This business is subject to supply and
demand rules par excellence,” Dirany says.
Lebanon does not yet have regulation on cryp-
tocurrency, leaving exchange counters in a regula-
tory desert. Charbel Choueh, attorney and expert
in blockchain and cyber law, points out that the ab-
sence of legislation puts clients at risk. Choueh sug-
gests that BDL, along with legislators and local crypto
experts, should issue regulations that would require
such counters to register their business, in the same
way other money exchangers are required to deposit a
guarantee in an accredited renowned bank or at BDL.
Such licenses should meet the international require-
ments of the anti-money laundering and KYC pro-
cess for the founders and the clients, and be compli-
ant with Lebanese law. This requirement would set up
guidelines to eliminate the risk of fraud.
According to Choueh, local regulations do not
prohibit ownership or the use of cryptocurrencies,
yet they are not accepted as payment methods. Un-
der Lebanese law, transactions in cryptocurrencies,
such as retail exchanges of goods or services against
Bitcoin, are considered barter deals. In the case of
fraud, users should deposit their claim at the Cyber-
crime Bureau, where a division revises the claims and
presents them to the Public Prosecution Office at the
Court of Appeal. Choueh says that this Bureau needs
to be equipped with the latest technologies to be able
to follow up and track users’ complaints.
20
Regulating the environment surrounding the
trade of Bitcoin does not necessarily mean the adop-
tion of crypto as a legal tender. There have been a
few jurisdictions around the world that moved to
make Bitcoin a legal tender but many internal and
external reasons stand in the way of such a decision
for Lebanon. The International Monetary Fund and
the World Bank have issued multiple statements to
El Salvador against the usage of decentralized cryp-
tocurrencies, due to the high volatility risks. Despite
these warnings, Bitcoin according to its proponents,
continues to appear as a potential global unit of ac-
count - necessary to measure value and price fairly –
and more specifically for countries, like Lebanon, that
rely heavily on imports.
UNCERTAIN FUTURE
On one hand, the argument that Bitcoin trading
is risky because of its volatile nature is accurate; Bit-
coin is influenced by supply and demand, user feelings,
and government regulations. More than once, Bitcoin’s
price altered drastically following a tweet from the tech
giant Elon Musk; like in 2021, when Musk announced
that Tesla would stop accepting Bitcoin as a payment
method. Although Tesla is expected to resume accept-
ing Bitcoin, and it will be interesting to watch the sub-
sequent behavior of the market. Others praise Bitcoin
for its deflationary aspect, due to the halving technique
which means that the supply of Bitcoins created would
be cut by ‘halves’ or 50 percent every four years until
the year 2140, when the limit of 21 million supply ca-
pacity of Bitcoin is expected to be reached.
Yet, all currencies with hard supply limits, such as
gold, silver, and Bitcoin, have deflationary properties.
Conceptually, monetary theorists fear that the halv-
ing of new supply is only a way that might delay the
moment when the supply of Bitcoin is insufficient to
meet the money needs of growing economies; this has
not been tested in any economy that we know. But
whether risks in the future of digital currencies reside
more in issues of volatility or are rooted in deflation-
ary dangers, Lebanon is consumed with more urgent
and more immediate money problems, which is re-
flected in the fact that most people (and many long-
standing finance experts) seem far away from regard-
ing Bitcoin as an alternative to payment transactions.
The physical relation the population has established
with cash has grown since the absence of banks, and
the psychological distance with virtual money is risk-
ier according to behavioral economics, especially to a
society that lost a lot of physical belongings over the
past couple of years.
executive-magazine.com
21
 August - September 2022
SPECIAL REPORT
Analysis
In collaboration with
Banking & Finance
By Sarah Hourany

NFTS IN LEBANON:
JUST A CRAZE OR A PROMISING OPPORTUNITY?

‘Digital nights’, an NFT artwork by Lebanese artist Ralph Khoury, known as ‘Ginger Potter’

As trust in traditional banking declines, financial preservation using digital methods are starting to be cooked up

In periods of economic uncertainties, peo- to digital markets to curtail the repercussions of

ple look for safe havens to preserve the value a crippling recession.
of their money and assets, and the choices of The picture in Lebanon, however, has been
investors during the current global and local characterized by one major obstacle blocking
economic crisis has proven no exception. Be it NFTs development. This summer, Lebanese artists
cryptocurrency or Non-Fungible Tokens (NFTs), were banned from the world’s largest NFT market
a significant number of individuals have turned OpenSea, headquartered in New York, dealing a
22 executive-magazine.com
blow to the sector and artists like Ralph Khoury, a
Lebanese NFT artist known as ‘Ginger Potter’. Fol-
lowing the unexplainable prohibition, Khoury said
that many Lebanese artists resorted to virtual pri-
vate network alterations to access OpenSea’s web-
site. Shortly after, their accounts were deleted and
their collections removed. These sudden restric-
tions prevented the artists from reaping revenues
and harmed their relations with their collectors, as
their NFTs vanished from the blockchain.
Such barriers have frustrated the growth of the
young market in Lebanon, albeit globally, it also re-
mains a novel field. Is it a sound investment? Stud-
ies and data have yet to prove it. Nonetheless, some
facts are undeniable: users across the globe spent an
estimated $44.2 billion worth of NFTs in 2021, up
from $106 million in 2020, according to the block-
chain data company Chainalysis’ latest market re-
port, almost amounting to the size of the global fine
art market. In Lebanon, the NFT is well-adopted as
per experts, although there is an absence of available
concrete figures to showcase it. On the other hand,
cryptocurrencies’ adoption is increasing with volume
hitting $26 billion, placing the country second in the
region behind Turkey ($132 billion) and ahead of the
United Arab Emirates (UAE) with $25 billion, as per
a recent report by PwC, the global accountancy firm.
A PRIMER ON NFTS
NFTs are a type of cryptocurrency that can
store data on blockchains, specifically Ethereum,
and differ from classical cryptocurrencies, such as
Bitcoin, in their fundamental features. In econom-
ics, ‘fungibility’ refers to the interchangeability of a
good or asset with other specific ones of the same
type. For instance, currencies, Bitcoins and com-
modities are fungible, which allow them to serve
as a medium of exchange, facilitating global trade.
Explained simply, a $10 note can be exchanged
with two $5 notes or with a product worth $10
in the market. In contrast, a non-fungible token
is not intrinsically substitutable with other digi-
tal assets. This enables it to depict something or
someone in a unique way. To be more specific,
under NFTs, a creator can easily demonstrate the
existence and ownership of digital assets includ-
ing videos, photos, and audio files; itself a major
step towards more robust intellectual property
protection. As a matter of fact, pre-NFT, digital
content was accessible either legally on free online
platforms such as Google Images or YouTube, or
illegally on black market streaming sites, thereby
placing their authenticity in question, and making
them vulnerable to replication.
According to various research papers published
in renowned business journals, NFTs have three
characteristics which enable them to resolve the
problem of original ownership in digital markets.
Firstly, NFTs are non-interchangeable: each
NFT is connected to a digital or physical asset in-
dicating the value, proprietorship, trading rights,
and other specifications.
Secondly, NFTs are im-
Another distingiushing mutable; meaning that
mark of NFTs are the they cannot be changed
or forged, given that they
royalities secured to the are stored on a decentral-
orginal creator whenever ized network of comput-
a NFT is traded or ers and algorithms where
exchanged they go through a specific
validation and authenti-
cation process. As such,
the blockchain verifies that each NFT is original
and unique and once its information is recorded,
ensures that it cannot be modified. Thirdly, NFTs
are transparent in the sense that their properties
and ownership are clearly visible to all parties.
Yet, some critics remain skeptical about the
uniqueness of NFTs; there could be many similar
NFTs copied from an original one, pretending to
be novel. But for Mohamad Sheet, product special-
ist at Oasis X, a Dubai-based NFT marketplace and
creator studio, these arguments are not convincing:
“If you copy a Louis Vuitton bag, it doesn’t make it
original. In the real market, it will cost you time and
energy to verify its authenticity. In the NFT world,
the issue is much simpler as blockchain technology
makes it easy to verify ownership.” Indeed, trace-
ability is a major characteristic tied to blockchains.
“Smart contracts provide collectors with all the
details related to the NFTs, so if someone takes a
screenshot of a certain creation it would be easy
to know which file came out first,” Najib Khanafer
adds, Sheet’s colleague and co-founder of Oasis X.
Another distinguishing mark of NFTs are the
royalties secured to the original creator whenever
a NFT is traded or exchanged. This is an appeal-
ing feature as artists normally do not receive future
earnings after their art is first sold. “The continuous
monetization of the NFTs is one of the attractive
aspects for creators, especially that art appreciates
with time,” Khanafer says.
For Khoury, the Lebanese NFT artist whose
‘Ginger Potter’, moniker was acquired in part from
friends and in part from his round eye glasses lik-
ened to those worn by the book character Harry
Potter, NFTs provided an opportunity to showcase
his talent, away from traditional galleries that were
23
 August - September 2022
SPECIAL REPORT
Analysis
Banking & Finance

either unreachable or limited when it comes to ‘Ginger Potter’s ‘Complicated’ appears to capture Lebanese finances
art genres. Not only did it enable him to generate
money during the worst economic downturn in
Lebanon’s recent history, but it also offered him a
passive income from these royalties. According to
Khoury, who has been creating NFTs for nearly a
year, his fellow Lebanese NFT artists are generating
several thousands of dollars monthly, a remarkable
number given the current average income in the
country.

A RECENT BLOW TO THE MARKET

The recent ascendancy of interest in NFTs by
Lebanese digital artists is what makes the sud-
den exclusion of several individuals from a well-
known marketplace disappointing. “The situation
with OpenSea is very unfortunate and unfair for
many artists and traders that found themselves
banned overnight and their accounts deleted,” ex-
plains Nagham Hassan, the founder of Bintcoin,
a platform which disseminates information about
Web3 in the Arab region. “It is especially disap-
pointing that users were not given any advance
notice of these measures.”
Khoury believes that the ban is political, giv-
en that users from other countries such as Cuba,
Syria and Iran were subject to similar restrictions.
This is a view shared by Hassan: “While blockchain
is decentralized and permission-less, service pro-
viders like NFT marketplaces are still very much
centralized companies subject to government over-
sight and political agendas.”
Several Lebanese artists reached out to the
platform for clarification but received no response.
Although, a statement from an OpenSea spokes-
person published on Cointelegraph, a digital
media dedicated to covering crypto, blockchain
and Fintech issues, said that the marketplace re-
stricts users based on the US government’s sanc-
tions list. “Our terms of service explicitly prohibit
sanctioned users or users in sanctioned territories
from using our services. We have a zero-tolerance
policy for the use of our services by sanctioned
individuals or entities and people located in sanc-
tioned countries. If we find individuals to be in
violation of our sanctions policy, we take swift ac-
tion to ban the associated accounts.”
NFTS IN LEBANON:
A HIDDEN OPPORTUNITY?
Irrespective of questions over the ethical impli-
cations that politically motivated sanctions of digi-
24
A NFT created by the artist Pak,
called ‘The Merge’ sold for a record sum
of $91.8 million in December 2021
tal artists might raise with any advocate of artistic
freedom, Khanafer says that the local market for
NFTs boomed despite Lebanon’s economic crisis.
People were looking for alternatives to store and
preserve their money and assets, in a period when
trust in the banking system was completely eroded.
As a matter of fact, a PwC report titled ‘The UAE
Virtual Assets Market’ issued this year suggests
that the key reason behind the high rate for crypto
adoption in Lebanon is value preservation.
Besides, the popularity of NFTs was gradually
growing in early 2020 before reaching its peak the
following year. A NFT created by the artist Pak,
called ‘The Merge’ sold for a record sum of $91.8
million in December 2021. Another piece, titled
‘Everyday: the first 5000 days’ was sold for $69.3
million at auction by Christie’s the same year.
Nonetheless, many factors still stand in the
way of the sector. In addition to the political com-
plications that reduce the possibility of establish-
ing international cryptocurrency companies in
Lebanon, given the operational difficulties they
could face from a legal standpoint, the access to
internet and technology is also a major drawback,
Khanafer says.
executive-magazine.com
 The internet infrastructure of Lebanon im-
proved during the 2010s, compared to the dial-
in days of the 1990s and the underpowered and
overpriced conditions of the 2000s. But arguably
it is far from complete. The Economist Intelli-
gence Unit’s Inclusive Internet Index report is-
sued in 2022 pointed out that Lebanon’s main
weakness continues to stem from its policy envi-
ronment. It ranked Lebanon in 72nd place out of
100 countries, regressing from 60th place in 2020.
The index is based on four criteria: availability,
which evaluates the quality and range of the ex-
isting infrastructure required for access and lev-
els of internet usage; affordability, which mainly
measures the cost of access compared to income
levels; relevance, which assesses the existence and
extent of local language and relevant content; and
readiness which studies the capacity to access the
internet, including skills, cultural acceptance, and
supporting policy.
Another impediment concerns the access to
the type of information investors need, according
to Khanafer. While experts attend conferences and
events, build connections, and receive accurate in-
formation, not everyone is included in such oppor-
tunities. Another challenge, Khoury says, is access
to cryptocurrencies. Lebanese banks do not permit
cryptocurrencies, adding challenges and even dis-
couraging people, at the same time creating ripe
conditions for a crypto black market.
The absence of regulatory authorities and gov-
erning bodies is also one of the major obstacles at a
time when nearby countries, particularly the UAE,
have been fostering a welcoming environment for
crypto and NFTs. Earlier this year, the Govern-
ment of Dubai enacted Law No. 4 of 2022 on the
‘Regulation of Virtual Assets’ and set up the Dubai
Virtual Assets Regulatory Authority. The estab-
lishment of such a legal framework will likely set
the scene for entrepreneurs and investors lured by
blockchain technology.
“There is no noteworthy effort focused on cre-
ating regulatory clarity around NFTs in Lebanon at
the moment,” Bintcoin’s Hassan says. “Additionally,
I doubt that the regulation of digital and virtual as-
sets is at the top of the country’s priority list.” In-
vestors and entrepreneurs are indeed looking for
countries that allow them a clear and fast frame-
work to set up business. Hassan also mentions how
the Lebanese are naturally technical and business
savvy people, who would benefit if given the op-
portunity. She recommends that Lebanese policy
makers set clear definitions and laws for digital
assets and cryptocurrencies by collaborating or
consulting with experts in the industry, as they can
give adequate guidance to set laws which can gov-
ern the space without hindering innovation.
A PROMISING OUTLOOK?
According to Hassan, NFTs are viewed by many
as speculative investments. As such, they usually
suffer in risk-off environments where preferences
shift to assets that are perceived as safe, or exiting
a market altogether. NFTs are especially vulnerable
as their non-fungible nature means that they are
relatively illiquid in the sense that they cannot be
easily converted to cash, she adds.
Hassan says that NFTs, as a technology, is
an excellent investment as it is already disrupt-
ing the entertainment, gaming, and ticketing
industries, to name a
Hassan also mentions few. Some of the biggest
brands are also launch-
how the Lebanese are ing loyalty programs and
naturally technical and special collectibles in the
business savvy people, form of NFTs. However,
NFTs as a speculative
who would benefit if
asset, is a riskier invest-
given the opportunity ment as the performance
of the asset will depend
greatly on the team behind the project. She
warns against projects originating from anony-
mous teams.
Despite all the hurdles, those interviewed
by Executive believe that the outlook for NFTs
in the country is promising. The Lebanese pub-
lic is increasingly interested in the NFT world,
with more people attending NFT club virtual or
physical meetups and joining Telegram groups.
OasisX is currently approaching Lebanese ce-
lebrities, news agencies and companies who ac-
cording to OasisX operators, all showed interest
in collaborations. Undeniably, NFTs are not lim-
ited to art but are increasingly used for business
purposes. Ticketing, marketing, memberships,
digital collectibles, token-gated commerce and
gaming are sectors expected to witness further
development.
In a country struggling to preserve its decaying
infrastructure, NFT development may seem far-
fetched, but any concrete reform - when you have
skilled human capital - would have a multiplier ef-
fect. After all, you only need a mobile phone and
internet access to be part of the NFT world.
25
 August - September 2022
SPECIAL REPORT
Comment
Banking & Finance
By Rudy Shoushany
A WEAK POSITION IN THE UNDECLARED CYBER WAR
Lebanon lacks the sufficient talent, resources and up-to-date technologies to ensure robust cyber defenses
We live in a time when hardly a day goes by
without hearing about a cybersecurity incident.
The need for a safe and secure digital world signifi-
cantly grew after the COVID-19 pandemic, as hu-
man behavior merged online even more than before,
and remote working became an everyday reality.
Lebanon is no different to this escalating threat.
Since 2019, however, Lebanon has undergone
an economic meltdown; a financial and monetary
crisis alongside the challenges related to the health
pandemic. Perhaps most importantly, Lebanon
witnessed the collapse of its main economic pillar:
the banking sector.
Out of all sectors, Lebanese banks had the big-
gest budgets to invest in cyber defense. As such,
they invested significantly on infrastructure, tech-
nology, and awareness to reach what was deemed
an acceptable protection level. On the other hand,
the public sector was left under protected by a
budget unable to guarantee a robust and proper
digital transformation and cyber defense. What is
more, the public sector was mainly dependent on
international donors, since there was no national
priority to step into the 21st century of a citizen-
focused digital experience.
26
In collaboration with
Many local institutions, particularly in 2018,
have suffered attacks and breaches. Unfortunately,
it is far too easy to access various entities in the
public and private sectors. As a result, a secure
transformation is greatly called for.
LEBANON’S CYBERSECURITY STATUS
Lebanon is ranked 109th in the world and 12th
regionally in the ITU Global Cybersecurity Index
2020. Lebanon is expected to drop further in the
new upcoming index. Earlier this year, in May, the
Lebanese Cybersecurity Empowering Research
Team, a group of ethical white hackers, found ma-
jor cyber-attacks on Lebanon. More than 2.5 mil-
lion attacks had been conducted within 21 days; an
alarming amount.
Various public sectors, businesses, educational
institutes, and the banking sector suffer from an
absence of coordination and implementation of
a cyber security risk strategy. The banking sector,
which was once considered the forefront of digital
innovation and cybersecurity spending, is now suf-
fering from the devaluation of the Lebanese pound,
and subsequent inability to pay monthly or yearly
software and hardware contracts, hindering its
executive-magazine.com
ability to stay up to date. There is a high possibility
of software expiring without being replaced, which
would arouse further dangers.
Today, Banque du Liban’s Circular 144 of Novem-
ber 28, 2017 regarding the protection of banks against
cybercrime, is not ranked as a high priority for imple-
mentation or enforcement vis a vis the financial crisis.
The migration of cybersecurity talent or hu-
man capital, skills shortage, and inadequate sala-
ries in the private and public sector bring a lot of
challenges in maintaining and enhancing cyber se-
curity operations in Lebanon, creating a climate of
“low-hanging fruits” for cyber-attacks.
The Internal Security Forces are the official body
responsible for combating and investigating cyber-
crime, but they are in dire need of new skills, the lat-
est technologies, legislative changes and even reliable
electrical power. It is worth noting that Lebanon lacks
specialized judges or lawyers in the field of informa-
tion technology. In addition, from a legal framework
perspective, Law 81/2018 relating to electronic trans-
actions and personal data, has yet to be enforced de-
spite being approved by the Cabinet four years ago.
Although, the ten-year Digital Transformation
Strategy was approved in May 2022. Needless to
highlight that implementing this strategy is a big
challenge, regarding a lack of commitment, fund-
ing, adopting simplified and standardized meas-
ures in a Lebanese national data center, as well as a
waste of time and financial resources.
2019 CYBERSECURITY STRATEGY
After lengthy work, the three-year National
Cybersecurity Strategy was published on August
29, 2019 by the government, two months before
the October 17 uprising and the beginning of the
economic downfall (technically the strategy should
have been implemented by now).
Even though different international grants are
actually supporting the strategy, having a well-
planned implementation framework supported by
state authority is crucial for robust coordination
with the 2022 Digital Transformation Strategy.
The strategy aims to protect government assets,
markets, commercial sectors, and citizens from cy-
ber threats and attacks. It is composed of two main sec-
tions: 1) preparation of a cybersecurity strategy and 2)
establishment of a national cybersecurity agency.
THE FIRST PART RESTS ON EIGHT PILLARS:
1. Defend, deter, and reinforce safeguards against
external and internal threats
2. Foster international cooperation in the field of
cybersecurity
3. Expand state capacity to support the develop-
ment of ICT
4. Bolster Lebanon’s educational capacity within
the realm of cybersecurity
5. Build up industrial and technical capacity
6. Promote exports and the global expansion of
Lebanese cybersecurity companies
7. Strengthen collaboration between the public
and private sectors
8. Expand the role of security and intelligence ser-
vices in cybersecurity while boosting cooperation
and coordination among the agencies with the sup-
port and supervision of higher authorities
FUTURE OUTLOOK
Lebanon has a chance to bounce back with the
implementation of both the Digital Transforma-
tion Strategy and the National Cybersecurity Strat-
egy, by strengthening its position and focusing on
digital economy opportu-
nities and citizen services.
Lebanon is ranked
The country is a green-
109th in the world and field environment for
12th regionally in the cyber developments, es-
ITU Global Cybersecurity pecially on the public sec-
tor side, since not many
Index 2020, and is e-Government services
expected to drop further are established or imple-
mented. It actually lays
the foundations to secure the right design to the
full implementation, while focusing on citizenship
centricity alongside contingency plans to ward off
local, regional, and international threats.
CYBERSECURITY GENERAL
RECOMMENDATIONS
Since the Cybersecurity Strategy was approved,
there is an opening for Lebanon’s digital transfor-
mation, and with it comes an urgency for cyberse-
curity, like fighting cybercrime, maintaining good
standards for data security, system integrity and
preventing high-profile breaches. Such improve-
ments will place Lebanon in a better position and
give the country a chance to improve its position
on the ITU Global Cybersecurity Index.
LEBANESE NATIONAL DATACENTER
For a successful digital transformation, a na-
tional data center is not just an option but rather a
necessity to host both the public and private sector;
particularly considering the range of challenges
like electricity cuts and high operating costs. There
is fragmentation across the board at present, in-
cluding within the banking sector; demonstrating
27
 August - September 2022
SPECIAL REPORT
Banking & Finance
the need for the cooperation of security informa-
tion and critical security data sharing.
A national datacenter will (a) resolve the data
residency problems, (b) provide 24/7 operations,
(c) ensure business continuity, (d) secure better so-
lutions, (e) centralize the management, (f) allow ef-
ficient security analysis and response and, (g) most
importantly assure lower cost.
COOPERATION ACROSS ALL SECTORS
A public private community partnership should
be enabled; particularly to help empower the cyber-
security strategy and have a new business model to
move away from outdated and inefficient systems.
Locally developed solutions coming from the
private sector and the community can bridge the
gap of accessing new affordable solutions; like li-
censing, upgrades, and more cost-effective man-
agement, whilst at the same time boosting the na-
tional digital economy.
OUTDATED SYSTEMS
The worsening economic situation and lack of
foreign investment is significantly affecting the de-
livery of basic services and management of digital
resources. Major capacity constraints are increas-
ing the prevalence of old systems (hardware and
software) with an outdated maintenance status. It
is important to note that such obsolete systems in-
crease vulnerabilities for hacking attacks directly or
indirectly. Among the objectives of both national
cybersecurity and digital transformation strategies
is to realize the best approach for addressing this
emerging deficiency in financial resources.
GOVERNANCE AND LEGISLATION
Despite the government’s approved Cyberse-
curity Strategy and with it the establishment of a
‘National Commission against Cybercrime and for
the Strengthening of Cybersecurity’, efforts need to
be taken towards the actual formation of this com-
mission and other relevant groups. Such a commis-
sion is essential to monitor the effectiveness of pro-
posed interventions, sharing of data among various
agencies and planning further initiatives to address
the impacts of cybercrime. The commission can
compel other administrations to comply with de-
cisions or coordinate with automation projects. In
this regard, a sustainable institutional framework
with comprehensive mandate for co-ordination of
all cybersecurity activities and interventions is also
critical, and is currently lacking.
28
Comment
However, implementation of the strategy with
appropriate human and financial resources are
required for the effective enforcement of the Law
81/2018. In addition, implementation decrees for
the management of cybersecurity interventions
need to be formulated as soon as possible.
The legal and technical approach should also
be enhanced, with the main goal of identifying
penal responsibilities throughout the investigation
phases, while efficiently implementing actions and
measures to combat cybercrimes.
One of the main challenges is to formulate a
modern legal framework and to strengthen the
law enforcement agencies: Army, Internal Security
Forces, General Security, and State Security to pro-
vide an updated and comprehensive security sys-
tem and to establish a national Community Emer-
gency Response Team.
CYBERSECURITY SKILLS AND RESEARCH
The shortage in human resources with cyber skills
is contributing further to a national vulnerability for
cybercrimes. As such, capacity building and knowl-
edge are indispensable to meet cybersecurity provi-
sions in both public and private sectors. In addition,
raising awareness and providing
formal training in cybersecurity for
Major capacity all employees who deal with any
constraints are system in any capacity is necessary
increasing the to win the undeclared cyber war.
Higher education institutions,
prevalence of old
like universities, can take a lead
systems role to direct careers towards fill-
ing the skills gap, and most impor-
tantly be at the forefront of cybersecurity research and
development for arising innovation in the field.
LASTLY, BEING PROACTIVE,
NOT REACTIVE
A proactive approach seeks to prevent cyberat-
tacks from occurring in the first place which can lead
to a much higher benefit, strong continuity of opera-
tions, return on investment and excellent reputation.
The only way to combat all of the above cyber
threats and attacks is through the establishment
of a nation-wide system capable of orchestrating a
coordinated response within a unified framework
incorporating technical and legal aspects.
Rudy Shoushany is the founder and host of DxTalks
and an expert in the governance of cybercrime
and transformation. He is also chair of LMAG Internet
Governance Forum – (IGF) Lebanon Chapter.
executive-magazine.com
29
 August - September 2022
SPECIAL REPORT
Comment
In collaboration with
Banking & Finance
By Marwan A. Marshi and Samer Marchi

ONE PATH TO SURVIVAL WITH NO FORKS IN THE ROAD

A new financial system is required to lift the nation from its bowels of misery

Lebanon’s socio-political-economic cancer
has metastasized through critical levels of po-
litical corruption and nepotism, with flagrant
economic and social exploitations, from poli-
ticians, their institutions, and the elitists who
surround them. The country’s fiscal and monetary
platforms need a thorough overhaul, which stand
as the formal starting point to remedy the state’s
inherent calamities.
Earlier this year, on June 22, Marshi & Partners
(MAP) presented a comprehensive Reform Plan
(RP) for Lebanon. MAP’s newly designed financial
system is presented in Exhibit I (below). Its primary
focus is simple – creating robust, independent di-
visions with the necessary knowledge, and checks
and balances, legislated by a judicial infrastructure.
Every successful nation across the globe employs
similar processes.

REPUBLIC OF LEBANON (ROL)

30 executive-magazine.com
 The proposal provides executable solutions for
the majority of the catastrophes that plagued Leba-
non since its days of prosperity in the early 1970s.
Lebanon’s self-inflicted problems resulted from ac-
tions and decisions bordering on deliberate and in-
stitutional fraud. They destroyed the moral identity,
integrity, and dignity of the nation, disrespecting our
citizens, while abandoning future generations with
shameful legacies that require too long to heal.
MAP designed a restructuring of Lebanon’s fi-
nancial system, consistent with best practices. The
proposed new financial structure analyzes three
pillars: (A) Ministry of Finance (MOF); (B) Banque
du Liban (BDL); and (C) Commercial Banks. The
primary emphasis is on BDL, as it is the most criti-
cal component of the system today, marred with a
current convoluted and haphazard structure, com-
pounded by irresponsible input from MOF and
commercial banks (A and C). Once the state is se-
rious about restructuring; we could see ripples of
confidence and trust in nine months to a year.
It is practically impossible to establish sustain-
able solutions for around 95 percent of Lebanon’s
population – primarily middle-class and lower-
class citizens, and those below poverty lines – un-
less fiscal and monetary financial discourse is fixed
first. The approach must include fiscal control of
governmental expenditures, efficient tax collection,
along with monetary actions to inject confidence in
the local currency, control inflation, lower unem-
ployment, and expand GDP.
BANQUE DU LIBAN (BDL)
Page 31
In developed, prosperous, and democratic
countries, whenever political and financial prob-
lems collide, financial solutions usually out-trump
politics towards reform.
Political agendas ebb and
Lebanon was robbed flow and are often overly
of its stature and wealth debated. What may be
through domineering popular one year may
become toxic in another.
foreign affairs Alternately, the health of
financial markets is al-
ways necessary, and it generates an atmosphere of
productivity and efficiency.
Lebanon is a developing country, and over the
past decades, our government’s political and mon-
etary strategies grew in obstinate directions of sec-
tarian divides, mired by exceptional fiscal embez-
zlement and corruptibility. Lebanon was robbed of
its stature and wealth through domineering foreign
affairs, mostly found on fraud, malfeasance, and
exploitation, against a backdrop of impunity. Dec-
ades of financial carnage resulted in the collapse of
the commercial banking sector and BDL, the cen-
tral bank, just before the end of 2019. The civil up-
rising of October 2019 was the straw that broke the
camel’s back, as frustrations and inequalities of the
past near decade eventually erupted, in a somewhat
peaceful, yet aggressive, nationwide manner, never
witnessed before in Lebanon’s modern history.
Ironically, the savior for politicians against the
government’s compounded misfortunes arrived as
31
 August - September 2022
SPECIAL REPORT
Banking & Finance
a result of the outbreak of the global COVID-19
pandemic in January 2020, when protesting was
banned for health reasons and became legally and
practically prohibited – a significant win for the
government to procrastinate, especially as no solu-
tions were agreed to let alone contemplated.
From the onset of 2020, two of several debacles
sent Lebanon reeling further downwards. The first
was the announcement of the government’s first-
ever international debt moratorium in March 2020
by Prime Minister Hassan Diab, the short-lived
replacement after the resignation of Prime Minis-
ter Saad Hariri. The second was the heinous Beirut
Port explosion in August 2020, the combination of
which led to Hassan Diab’s resignation. The coun-
try’s woes continue to disintegrate, as the World
Bank defined the financial crisis as one of the worst
in the world since the mid-19th century.
Let us not forget that since its independence
from France in 1943, Lebanon has advanced with
the most highly qualified educational, social, and
medical institutions in the Arab world, with one of
the highest literacy rates in the Middle East. It cham-
pioned robust, westernized, international banking
and commercial organizations, with a cosmopoli-
tan, multi-lingual environment, under a democratic
constitution, albeit one that needs restructuring, to
appease current times. Lebanon commanded tour-
ism, with a breathtaking, fertile landscape, a com-
plete western Mediterranean coast, countless rivers,
ski-high mountains, and deep tree-lined valleys, en-
vied by most nations in the region. The country, with
all its problems, has always been a beacon of hope,
with resilience under any duress.
Lebanon’s character and history provide a
unique opportunity to reengage in principles of
fairness and morality, so long as the government
abides by its mandate for integrity and fairness. If
we fail with solutions in the now, our day of reck-
oning is around the corner.
FISCAL PROGRAM
In the fiscal part, MAP designed a program to
reduce the Ministry of Finance’s total debt outstand-
ing. We investigated all our indentures, covenants,
and our Fiscal Agency Agreement, and designed
what we termed the Switch Exchange Offer (SEO).
SEO is a unique strategy that allows for the ex-
ercise of our Collective Action Clause (CAC), in a
manner that applies to all Eurodebt. It allows MOF
to restructure the liabilities by extending maturity,
lowering interest expenses, and reducing principal
32
Comment
outstanding. The restructuring of local debt is not
as involved, particularly because it is governed by lo-
cal law, and the Lebanese pound (LBP) depreciated
significantly. In our fiscal phase, we reduce our debt
from close to USD 104 billion pre-crisis to around
USD 20 billion post-restructuring. The entire pro-
cess could be completed in less than one year.
MONETARY PROGRAM
Since 1997, post the Taif Agreement that ended
the Lebanese civil war, the Lebanese pound was
pegged to the US dollar (USD) at a constant rate of
LBP 1,500/USD 1.00. It was not until 2019 that the
Lebanese pound collapsed and by early September,
2022 reached levels as high as LBP 35,000/USD 1.00.
For any return of confidence in our currency, a
change in structure is required. A significant portion
of problems arose from the careless printing of the
pound and irresponsible acts of financial engineering.
With this in mind, MAP has incorporated a
new “benchmark currency” into the strategy, called
the Republic of Lebanon Lira (RLL). RLL is not the
central theme that restores confidence, but it nev-
ertheless represents a vital ingredient.
MAP proposes the following scenario. RLL
becomes the new and sole legal tender, the only
currency accepted for any transaction inside Leba-
non. Concurrently, LBP is confiscated in exchange
for RLL. RLL bills for circulation will be newly
minted, and RLL will enter the Fedwire system for
electronic international
transfers, post-conversion
RLL becomes the new to USD, at then-prevailing
and sole legal tender, exchange rates, as defined
the only currency accepted below. RLL will have two
for any transaction components, a pre-deter-
mined amount of USD
inside Lebanon and a Lebanese Lira-In-
dexed (LLI) Value. The
stapled nature of RLL makes it a single unit that
cannot be separated into individual elements and
is “collateralized” by them. Cross-border transac-
tions will be dealt with using RLL in local bank ac-
counts, converted to foreign currencies, using re-
serves at BDL. To apply some level of consistency,
RLL should be somehow related to the confiscated
Lebanese pounds, and that may be accomplished,
albeit at controlled levels of monitored “issuance.”
Assume the following exchange rate equation
applies between RLL and USD:
• RLL [1.00] = USD [Y] + USD [1.00 – Y] * [X(0)/
X(t)], where
executive-magazine.com
 COMMERCIAL BANKS
• RLL = New Republic of Lebanon Lira
• USD = US Dollar
• Y = Pre-determined fixed USD amount, for an
‘initial parity condition,’ so RLL 1.00 = USD 1.00
• X(0) = Constant exchange rate, for the initial par-
ity level of legacy LBP to USD
• X(t) = “Monetary Variable” representing a Leba-
non Lira-Index (LLI) to manage monetary policy,
to control inflation, unemployment, and GDP.
When RLL is introduced, at t = 0, RLL 1.00 will
equal USD 1.00, by definition. X(0) will be the ini-
tial parity level of legacy LBP/USD. As an example,
if Y is set at USD 0.70, which appears as a reason-
able approximation of the current percentage of
Lebanon’s GDP in USD; and X(0) equals legacy
LBP 20,000/USD, Lebanon meets its preliminary
parity objective, RLL 1.00 = USD 1.00.
If X(t) is changed to LBP 30,000/USD at a fu-
ture period t, then RLL = USD 0.90. Alternately, if
X(t) is changed to LBP 10,000/USD at a future pe-
riod t, then RLL = USD 1.30.
It is difficult to set the equation parameters
presently, without full knowledge of the existing
data. Importantly, future BDL monetary changes
are instituted through changes in X(t) at time in-
tervals of t. The value of X(t) will be managed by a
pre-determined percentage change by several insti-
tutions to ensure fairness and transparency. At the
outset, and until Lebanon’s economic confidence
is retrieved, the International Monetary Fund, the
World Bank, BDL, and the MOF will be in charge
of setting X(0) and the percentage range within
which X(t) can alter periodically, based on exten-
sive historical, economic, monetary, and statistical
data, with appreciation of market dynamics and re-
actions. Eventually, after trust in BDL is achieved
with the highest integrity, the value of X(t) will be
determined by BDL, as shown on page 31.
Once Y, X(0), and the parameters influ-
encing X(t) are established, RLL is produced.
Legacy Lebanese pound, LBP, will be translated
into RLL and confiscated.
All commercial banking
Legacy Lebanese deposits will be translated
pound, LBP, will be into RLL, through sys-
translated into RLL tematic and transparent
and confiscated processes, not described
in this article for simplici-
ty. Local transactions will
be performed in RLL as the sole currency, while
cross border activity is executed through ex-
changing RLL into USD at prevailing exchange
rates through BDL’s FX reserves.
The advantages of replacing the Lebanese
pound are numerous. Firstly, any constant peg
of LBP would be gone, and with it the outland-
ish mispricing opportunities in parallel and black
markets. The exchange shops, or “sarrafs” would be
outlawed, and a limited number of nationally regu-
lated exchange rate entities would be established
with offices all around Lebanon.
BDL would be divided into independent Di-
33
 August - September 2022
SPECIAL REPORT
Banking & Finance
visions I and II, with various, yet complementary
functions to separate the flows of USD and RLL
inside Lebanon. Division II will be tasked with
exchanging all USD net transfers across Lebanon
(such as proceeds and payments of foreign bor-
rowings, internal remittances and external trans-
fers, and financing current account deficits), in ex-
change for RLL from Division I at prevailing RLL/
USD exchange rates. Division I will be tasked with
exchanging all USD net transfers within Lebanon
in exchange for RLL with Division II at prevailing
RLL/USD exchange rates, and is the only entity
allowed to print RLL. In such a manner, all Leba-
nese constituents, such as merchants, suppliers,
and retail bank customers perform USD transac-
tions under the checks and balances between Di-
visions I and II as follows: To the extent Lebanese
constituents require USD transfers outside Leba-
non, Division II withdraws RLL from the Lebanese
constituents RLL commercial banks accounts and
exchanges them into USD from Division I for such
transfers. The reverse processes apply for Lebanese
constituents’ RLL commercial bank accounts re-
ceiving USD from outside Lebanon. While we use
USD here to explain the flows between Divisions,
any other international currency may be substitut-
ed. We use USD as the primary example because a)
Lebanon has a predominantly dollarized economy
and b) the USD is the reserve currency of the world.
All RLL/USD exchanges between the two Divi-
sions are pre-approved, recorded, and monitored.
Divisions I and II, within BDL, operate under
different management and are accounted for and
monitored separately and independently. Both Di-
visions jointly establish monetary policy for infla-
tion, labor, and current account stability, and inter-
mediate with the MOF to assess fiscal policy.
The three charts in this comment are our exhibit
I, which illustrates the proposal of our new financial
system, with emphasis on Part (B), BDL’s operational
restructuring. Exhibit I may appear complex, be-
cause it is a full and robust description of A, B and C.
In real life, it is simple to develop, given the advances
in financial system speed and technology.
There are exceptional advantages to institut-
ing RLL as the new currency. For purposes of il-
lustration below, we set Y at USD 0.70; X(0) at LBP
20,000/USD; and use X to denote X(t).
1. RLL cannot be separated into its individual com-
ponents; namely, USD 0.70 and the remaining LLI
portion of the RLL, and the issuance of RLL is fully
monitored and controlled by BDL’s Divisions I and II.
34
Comment
2. RLL will be the sole legal tender accepted in
Lebanon, with judicial penalties against any viola-
tions. Further, all commercial bank deposits will be
denominated in RLL, with fluent access to trans-
act in foreign currencies outside Lebanon, through
BDL’s Divisions.
3. RLL is neither a “peg” nor a “free-float” curren-
cy; its value can be adjusted based on changes in its
variables with the USD: a fixed component, Y, and
a tight range-bound variable component, X.
4. X does not change daily or independently, rather
it is altered periodically by BDL and its advisory
committees, as and if needed by market conditions.
5. RLL will generally be similar in currency com-
position to Lebanon’s GDP composition, providing for
more efficient stability in Lebanon’s current account.
6. RLL’s volatility is estimated to be less than
one-fourth the volatility of the defunct legacy
LBP, as a result of the stabilizing impact of a
constant Y value, and the tight range-bound X
value, offering consumers comfort and stability
in valuations and inflation.
7. RLL’s value for X is limited in reasonably stable
markets, and will generally be calibrated such that
RLL remains within USD 0.80 to USD 1.20, over
a long time period, unless unmitigated conditions
warrant otherwise.
8. RLL’s downside limit is USD 0.70 plus the re-
sidual USD value from X’s LLI component.
9. Unregulated “sarrafs” will be outlawed, and a
limited number of nationally regulated exchange
rate entities would be established to provide RLL
in exchange for USD, for tourism and other small
retail transactions.
MAP’s logic is based on history, using the
two extremes of currency exchangeability. At
one extreme would be the ‘peg concept,’ perhaps
at LBP 20,000/USD,
Citizens are exhausted or whichever alternate
constant figure. At the
from their collective other extreme, the cur-
miseries, observing rency is allowed to ‘float
one of history’s freely’ against other
currencies. History has
worst brain drains proved that neither ex-
treme would be success-
ful for Lebanon. Hence, MAP applied a point in
between, designed to calibrate the local financial
environment, by X adjustments. The country can
apply specific constraints on RLL allowing it to
serve as the common nucleus needed to advance
and confront the most critical problem we face.
executive-magazine.com
 news and announcements from all
the region’s countries and sectors

ExecutivE
Taken holistically, we believe that along with
MOF’s domestic and foreign debt reduction pro-
gram, RLL’s stated advantages make it an ideal
monetary product for Lebanon.
If Lebanon places belief solely behind the sanc-
tity of politics or finance, independently, we will
surely fail for several more years, perhaps decades,
to come. Citizens are exhausted from their collec-
tive miseries, observing one of history’s worst brain
drains, under a mere two hours of electricity per day.
The will of the people must prevail. With that,
the only way to stabilize the nation is by first re-
vamping our financial system, outlawing corrup-
tion, and retrieving confidence. Once those are
done, political problems and standoffs, whatever
their genesis, will be resolved. The Lebanon of the
past must retreat from its old processes and man-
nerisms if we are to save the nation.
Marwan A. Marshi is the founder and chairman of Marshi &
Partners, a financial innovation boutique specializing in the
advice and execution of corporate and sovereign liability and
risk management strategies. Samer Marchi is a founding
member and director of Marshi & Partners.

FOLLOW EXECUTIVE ON
LINKEDIN, TWITTER, FACEBOOK
AND INSTAGRAM

@ExecutiveMagazine
@executivemag
@ExecutiveMagazine
@executivemagazine

ExecutivE
35
 August - September 2022
SPECIAL REPORT
Comment
Banking & Finance
By Mounir Rached
AN INFAMOUS DEBT BUILD UP
Economic reform first, then debt rescheduling will follow
Lebanon’s fiscal policy over the past decades
has been in most years very expansionary. Fis-
cal deficits at the end of the civil war relied heavily
on domestic currency financing. Foreign exchange
had been largely depleted by disruption to trade,
while inflows declined as families immigrated. Due
to the scarcity of financing in US dollars, combined
with a need to start reconstruction, the govern-
ment started to rely to a larger extent on borrowing
domestically and internationally in dollars.
Central bank reserves in the 1990s were quite
low as the war years depleted Banque du Liban
36
In collaboration with
(BDL) of its foreign exchange. Relying only on do-
mestic markets for foreign currency financing was
perceived to exert further pressure on the exchange
rate. Borrowing in dollars was prompted by two
factors: the need to finance reconstruction and the
need to have sufficient FX to maintain the peg that
was adopted in 1997.
During that period, the Lebanese pound (LBP)
interest rate was quite high, in the double-digit
range, which also contributed to the worsening of
the deficit. The government was attracted to foreign
borrowing to secure needed foreign money for the
budget, ease pressure on the exchange rate, as well
as lowering its cost. The higher return rate provided
by Lebanese banks, relative to regional and inter-
national markets, attracted increased inflow of FX
into Lebanon; and banks discovered it as a lucra-
tive channel to borrow from international markets
through short-term deposit inflows and lend locally
at a good interest rate with differential margin in its
favor. This process made it easier for the government
to borrow in dollars without straining the FX mar-
ket. The government then made an official arrange-
ment to issue Eurobonds under the jurisdiction of
the state of New York later on in 1990s.
Political division and the absence of clear fiscal
and debt policy encouraged the government to ex-
pand its spending as long as financing was available
and its service was guaranteed by further borrow-
ing. It created a vicious circle - borrow to finance
FX needs and borrow again to service FX debt.
As is well known, public debt is generated by
fiscal deficits, and even in years when a primary
surplus was achieved, it served as an illusion that
current operations excluding debt service provided
a sustainable debt scenario. Only a manageable
deficit, preferably with a primary surplus, a low
interest rate, and a high growth rate can provide
debt sustainability, which means placing the debt
to GDP ratio on a declining trend. These ingre-
dients were not stable and also difficult to attain
in Lebanon due to several factors. Government
spending for the most part was current in nature,
capital spending was sustained at a very low level
and priority was being given to current spending,
while cost of capital remained at a high level.
executive-magazine.com
 The sustainability of debt has to have reliable ingre-
dients and based on the determinants of the debt ratio
to GDP. It is presented in this simple relationship:
D=(1+i-g) *D-1 – PS
Where D is debt to GDP ratio i is the effective
real rate of interest rate on debt, g is real growth
rate and PS is primary surplus as a ratio of GDP.
The growth rate of the economy, the primary defi-
cit, and interest cost are the three dominant out-
comes used to determine the debt outlook and
sustainability. These variables can be displayed
in nominal terms as well but the substance of the
analysis remains the same.
Debt increases whenever a real interest rate
exceeds growth, and with a negative primary bal-
ance (overall deficit without interest payment). The
primary balance comprises total revenues less total
current expenditure (excluding interest) and capital
spending. Current spending contains mostly wages
and salaries and spending on goods and services.
The distinction between primary balance
and total balance (deficit) is largely connotative.
When a surplus is realized in the primary budget
it means that, had the debt of a country been non-
existent and there was no debt service, then the
budget could have realized a surplus. It is mean-
ingful when a country has a potential to undertake
a debt rescheduling; reducing interest payments or
spreading them over a longer period. It could help
the country either to significantly reduce its deficit
or even achieve a balanced outcome. Therefore, the
larger the primary surplus, the better the sustain-
ability outlook, as part of interest cost can now be
covered from the primary balance.
The post-war strategy of Lebanon was based on
several critical choices that led to a rapid accumu-
lation of fiscal deficits and debt. These included the
need to accelerate growth, enhance security, law
and order, provide social services, rebuild infra-
structure, recover trust in the Lebanese currency,
and improve living conditions.
This vision required increased spending at
all levels while the room to advance tax collec-
tion remained limited with a weak tax base in an
economy emerging from 15 years of war. At that
time, the government perceived that it was essen-
tial to increase public wages, including retirement
compensation for the civil and security service, in-
crease spending on infrastructure, health and edu-
cation, and allocate funding to return refugees to
their towns and villages. The government’s vision
to boost spending despite a limited tax base, neces-
sitated embarking on a grand borrowing scheme
from internal and external sources. The monetary
policy then strived, without success, to lower inter-
est rates in order to pacify the escalating debt ser-
vice cost while maintaining Lebanon as an attrac-
tive destination for capital inflows. The challenges
facing the economy limited the opportunities cre-
ated by foreign borrowing under the umbrellas of
Paris I and II conference in 2001 and 2002.
To have a declining debt ratio, the real growth in
the economy should be greater than the real inter-
est rate, and revenues should exceed expenditures.
Debt sustainability is interpreted as the condition
that stabilizes the debt ratio which is satisfied if the
ratio of excess revenue to GDP is at least equal to
the excess of interest rate over growth. In simplified
words, the debt ratio is stable when change in debt
to GDP ratio becomes zero.
DEBT PROGRESSION 2011-2019
In spite of political turmoil that prevailed fol-
lowing the assassination of former Prime Minis-
ter Rafic Hariri in 2005, successive governments
had been able to arrest economic deterioration;
growth rebounded, the balance of payments (BOP)
achieved significant surpluses, and interest rates
stabilized. Exceptional performance was recorded
between 2007 and 2010.
Following 2011, Growth was recorded in the
range of 8 percent for four
the period witnessed consecutive years (2007-
political and economic 2010), and the debt ratios
terrain change declined for the first time in
a decade. Certainly, exter-
for the worse
nal aid under Paris II and
III aided in lowering inter-
est rates and in improving the debt dynamics. Fis-
cal deficits reductions were supported by growth
rates, lower interest rates, and stable expenditure.
Following 2011, the period witnessed political
and economic terrain change for the worse, along-
side the backdrop of political instability in Syria,
growth rates declined as well as state revenues, and
interest rates started rising again, leading to higher
deficits. Debt accumulation escalated since then
and the BOP recorded large deficits.
Several factors have pointed to the fact that the
beginning of 2011 was a turning point for both the
fiscal and the balance of payments. In 2011 and
2012, a commitment was made to increase wages
and retirement payments by more than 10 per-
cent. But at the same time, no revenue measures
were taken to compensate for the wage increases.
Resultingly, deficits started escalating due in part
37
 August - September 2022
SPECIAL REPORT
Banking & Finance
to irregular recruitment on a contractual basis
without recurrence to official standards. Increased
spending and deficits coincided with a slower pace
of growth. Deficits continued to rise in excess of 7
percent of GDP in most years.
In 2017, another decision was taken to increase
wages and retirement payments by more than 20
percent, though it was not implemented until the
following year. Electricity sector subsidies, espe-
cially in years of higher oil prices, posed an addi-
tional burden on spending and the deficits.
The debt profile was on an unsustainable path
even before the beginning of the crisis in 2019.
Lebanese banks were already hesitating to lend to
the government in the ten years prior. The central
bank with induced interest rates became the major
debtor to banks, instead of the government. Higher
interest rates attracted banks to lend their foreign
exchange reserves that were placed in international
markets to BDL and benefit from their higher in-
terest rates. BDL became a main source of financ-
ing for the government and most domestic debt
was financed by BDL, as well as a sizable portion of
the dollar debt issued as Eurobonds.
Banks then would deposit most of their dol-
lar reserves with BDL and in turn BDL would lend
the government. The higher interest rates, induc-
ing slower growth, contributed to the worsening of
the fiscal and debt outlook. Banks did not respect
prudential guidelines nor did the Banking Con-
trol Commission impose any. Nearly 70 percent of
bank deposits were channeled to BDL and the gov-
ernment, in violation of the guidelines of the Code
of Money and Credit. Banks, as well as depositors,
came under the absolute control of BDL. Higher
interest rates were provided for longer maturity
CDs, which made bank operations rather simple
but involving much higher risk, due to the concen-
tration of their loans in the public sector at a time
when net reserves of BDL were declining.
The government’s access to easy financing, in
spite of its higher cost, lured it away from engaging
in genuine reform. To the contrary, it continued its
pattern of high spending without any concern for
the consequences.
Certainly, the debt build-up that evolved to a
crisis level in October 2019 reflects mismanage-
ment of the economy on every level. Expenditure
strategy and government plans were not designed
to achieve a clear framework objective. Often eco-
nomic targets were disengaged from the needed
policies to achieve them, while government budget
38
Comment
responded to the needs of politicians.
The major causes of debt build up and derailed
debt policy can be summed up as follows:
• The political spectrum revealed deep divisions
that ended in a protracted formation of the legisla-
tive body as well as the executive body. Formation
of parliaments suffered a cumulative delay of 2,321
days between 2006 and 2018.
• The parliament which was supposed to end its
term in December 2006 was extended until June
2013, and the parliament that ended it term on
June 20, 2013 was extended until the May 6, 2018.
Government formation at the Council of Ministers
level during the same period took 1,449 days.
• Presidential elections were delayed 1,073 days in
2007-08 before the election of President Michel
Suleiman and in 2014-16 before the election of
President Michel Aoun.
• The continued deficit in the power sector.
• The size of the debt itself.
• The previous two actors absorbed nearly 90 per-
cent of the debt service.
• The number of public sector workers has expand-
ed exponentially during the past decade.
• Currency stabilization often required higher in-
terest rates to attract a continued inflow of capital,
which constituted an increased cost.
The confrontation between the public and gov-
ernment came heads on when, on October 17, 2019,
a proposed policy to impose
Lebanese banks levies on voice-over-IP calls
of the popular application,
were already WhatsApp, was the climax in
hesitating to lend to a culmination of mismanage-
the government in ment and state distrust. The
the ten years prior public expressed its anger in a
nationwide protest movement
demanding political upheaval
and revealing major state and governmental mistrust.
Fiscal and debt problems peaked when the
government defaulted on its Eurobond debt in the
spring of 2020.The default induced banks to sell
Eurobonds in order to generate liquidity as BDL
announced that it no longer supports the peg.
As the government suspended payment of debt
amortization and interest on Eurobonds to domes-
tic and foreign holders, debt accumulation built
up. Since then, arrears on debt service have been
accumulating and the debt issue has worsened to-
day. The issue of debt service in dollars resulted
in sizable balance of payments deficits since 2011
and the decline in BDL reserves. Under pressure to
executive-magazine.com
 DEBT PROFILE (BILLION LL) USING OFFICIAL EXCHANGE RATE
OF LL 1507.5 TO THE DOLLAR
Dec 2019
Total debt 138150
Local currency 87279
BDL 50712
Com,Bnks 25316
Other local 11246
Foreign currency 50871
Bilateral (95)
Multilateral (2074)
Eurobonds (47225)
Banks’ holdings (20826)
Arrears (0)
Source: Ministry of Finance
preserve foreign exchange as much as possible, BDL
took the decision to terminate the exchange rate peg
prematurely. At that time, June 2019, BDL still held a
comfortable level of reserves at $34 billion, sufficient
to finance the BOP for another several years; although
the net reserve position of BDL was negative even be-
fore then. There was concern that in the absence of
any corrective fiscal adjustment and potential to cor-
rect the BOP deficit, BDL took a pre-emptive decision
to terminate its commitment to finance banks. Then,
over $60 billion were held as FX liabilities to banks.
It’s apparent that sovereign debt is on an upward tra-
jectory due to continued fiscal deficits and accumulation
of arrears on Eurobond principal and accrued interest.
The depreciation of the currency has certainly
changed the debt profile. The total debt in dol-
lars shrank from $100 billion to $42 billion, as the
pound lost 95 percent of its value. Since GDP data
in dollars remains dubious (according to the World
Bank it is in the $25 billion range), the debt ratio is
about 168 percent. The debt profile did not change
much from the pre-crisis period as a result of gains
recorded in Lebanese pound debt which compen-
sated significantly for the dollar drop in GDP.
The profile of debt financing sources has
changed since the crisis. Banks reduced their fi-
nancing of the government in both domestic and
foreign currencies. Commercial banks financing of
the government in Lebanese pounds declined from
LL25 trillion at the end of December 2019 to LL18
trillion at the end of April 2022. Domestic debt
held by BDL grew and its holdings of treasury bills
increased from LL51 to LL59 trillion.
Foreign currency debt holdings of banks
dropped sharply from LL20 trillion or $13 billion,
to LL6 trillion in an attempt by banks to obtain for-
eign exchange as the supply line of BDL dried up.
April 2022 Most of the decrease was absorbed by international
financial institutions. These bonds were offered at a
152337 highly discounted price; ranging from 15 percent to
92710 25 percent in the later transactions. Foreign finan-
59430 cial institutions, in spite of the government default,
18533 wanted to increase their holdings to above 40 per-
14742 cent of total issues in order to maintain a decisive
59667 role in a resettlement or rescheduling agreement.
(742)
(2450) NEED TO CHANGE
(56430) The view of successive governments, especially
(6018) those of the numerous Councils of Ministers headed
(15118) by Prime Minister Rafic Hariri between 1992 and
2005, did not foresee the complications that face Leb-
anon: the limited administrative capacity, weak gov-
ernment institutions, widespread corruption, deep
political divisions, and the long-term damage exerted
by the pegged exchange rate. The latter actually was
strongly supported as an anchor of stability, ignoring
the high cost of debt service that accompanies mas-
sive borrowing schemes. All these factors have hin-
dered the planned progress of any government.
The elder Hariri built his vision for Lebanon’s
reconstruction and development in the 1990s on the
assumption that peace in the Middle East is inevita-
ble and substantial aid could flow into Lebanon in
compensation for settling the Palestinian issue and
the return of internally displaced Lebanese to their
towns and villages. However, none of these optimis-
tic scenarios was fully realized. Lebanon was provided
with European financial support thanks to several
Paris agreements under the auspices of French Presi-
dent Chirac. But ineffective successive governments
did not make full benefit of such generosity. Billions of
dollars were wasted due to both mismanagement and
corruption. Policies were never fully implemented
and many were not in the proper frame for Lebanon.
It became apparent that debt build up would continue
year after year, into the future. Since the current crisis
began, no significant reform has taken place and debt
has reached the LL152 trillion.
To get out of its dilemma, Lebanon has to em-
bark on a serious and massive reform plan first,
rather than reschedule its debt without it. Reform
has to take place in all branches of the public sec-
tor, fiscal, monetary, civil service, and the public
enterprise sector. The energy sector alone has been
a major cause of foreign currency debt accumula-
tion. Simply rescheduling debt is not enough to
place Lebanon on a sustainable debt track.
Mounir Rached is a former IMF economist and currently the
president of the Lebanese Economic Association.
39
 August - September 2022
SPECIAL REPORT
Comment
Banking & Finance
By Mounir Rached
NO LEGAL LEGS TO STAND ON:
MIKATI’S PLAN FOR THE FINANCIAL CRISIS
The Government’s proposals are undesirable
for depositors
Since the start of Lebanon’s financial woes at
the end of 2019, the government has proposed
several measures to address the liquidity crisis
in banks. Yet all the suggested measures signify
blatant infringements on the financial assets and
deposits of individuals as well as those of institu-
tions. This means there is a possibility that meas-
ures, if adopted, will trigger judicial procedures.
Such court action might arise from Lebanese ex-
patriates and it could also harm relations with the
countries where these expatriates reside, including
in the Gulf and European nations. In another flaw,
the plan does not address the fate of deposits in
Lebanese pounds and the huge losses incurred.
Furthermore, while representing major in-
fringements to depositors, the government’s plan
does so without providing convincing justifica-
tions. The failure of Banque du Liban (BDL) and
the state to service its debts to commercial banks
and depositors is a violation of the Constitution,
40
In collaboration with
and the Code of Money and Credit. In fact, these
funds deposited with BDL by commercial banks
amounted to around $71 billion, of which $58 bil-
lion has been spent by the state in financing its defi-
cit and subsidies with hard currency, and over the
past two years, used by BDL to manage the fluctua-
tions in the parallel market rate.
The $71 billion estimate is a residual figure cal-
culated from the balance sheet of the central bank
and the commercial banks. BDL intervened in
the currency market with its negative net foreign
exchange positions. Under such circumstances, it
must have abandoned the policy of pegging the ex-
change rate of LL1,500 to the dollar to save deposits
and the banking sector.
The financial rescue plan composed by Care-
taker Prime Minister Najib Mikati and approved by
the Council of Ministers in May 2022, just before
the government dissolved prior to the parliamenta-
ry elections, targeted the write-off of all categories
of deposits, even the smallest ones. The write-off
and discounts of depositor’s money can be summa-
rized below. However, it should be noted that these
figures, though lifted from the government’s plan,
have to be viewed with room for error.
Mikati’s plan for the distribution of $104 bil-
lion in losses is as follows (all exchange rates are
hypothetical):
• $16 billion is to be converted to deposits in
Lebanese pounds (LBP) at the exchange rate of
LL5,000/$1, and this amount can be withdrawn by
the respective depositors over a period of 15 years.
When using an exchange rate of LL20,000 to the
dollar for calculation of the aggregate loss of this
action to depositors, the result is $12 billion, which
means that the equivalent of $4 billion will be pre-
served as LBP. This amount’s present value, at a 7
percent discount, is $2 billion.
• $35 billion, also withdrawable over a period of 15
years, will be converted into deposits in Lebanese
pounds calculated on an exchange of LL12,000/$1.
This would be the equivalent of $21 billion, so the
loss will be $14 billion on the exchange rate. Its cur-
rent value is $10.6 billion.
executive-magazine.com
• $25 billion will be paid in dollars on depos-
its below $150,000. With a ceiling per deposit of
$150,000, these deposits would also be withdraw-
able over a 15-year period. This tranche’s current
value is $12.5 billion.
• $6 billion dollars will be paid for deposits between
$150,000 and $500,000 and transferred in lira at the
rate of LL20,000/$1 and paid within 15 years. Its
current value is $3 billion.
• Perpetual bonds, without checking their current
value, will be subjected to bail-in at $22 billion
turned into bank shares ($12 billion)
• Perpetual interest-bearing bonds (unspecified)
from banks ($10 billion)
The total that will be converted into Lebanese
pounds is $79 billion out of $104 billion ($104 bil-
lion minus $25 billion). The present value of all
deposits after these measures reaches only $28.2
billion. By excluding stocks and bonds, only $12.6
billion in dollar deposits will remain of the total
$104 billion, and the remainder is converted into
the lira, and its current value reaches the equivalent
of $15.6 billion. Therefore, 88 percent of dollar de-
posits will be written off.
WHAT THE PLAN FAILS TO ADDRESS
The calculation of the accumulated interests
since 2015 includes all the interests that exceed a cer-
tain percentage (which has not been specified). As
such, there are many unanswered questions: Does it
include the interest that was transferred abroad and
if so, why is it not included? Are those who trans-
ferred their money abroad required to return the
excess interest? And does this, therefore, mean that
whoever kept his money in Lebanon will bear the
burdens of money transferred outside by others?
The fault, of course, is not on the part of the
depositor, but on the part of the banks and BDL,
the latter is responsible for showering the markets
with high interest rates. These interest rates accord-
ingly tempted deposits, which were then deposited
at BDL by banks with high interest rates.
As for the deposits that were converted into US
dollars (estimated at $35 billion), $14 billion will be
lost through the exchange rate of LL12,000 to the
dollar. Although, it is possible that this money was
originally converted from dollars to pounds and
then to dollars. How are we going to deal with it?
The amount of $91.4 billion has been written
off from deposits (calculated by deducting $12.6
billion in current value from $104 billion), is equiv-
alent to 88 percent of the total. Therefore, only 12
percent of the dollar accounts will remain and 88
The economic impact of this
measure will be devastating
percent of all dollar deposits will be subject to be
converted into Lebanese pounds. All the money
converted into pounds and the rest in dollars will
be withdrawn from banks over a period of 15 years.
This means more write-offs are incurred due to the
regressive time value of money.
It is necessary to review the risks of this plan be-
cause the government intends to place the burden on
the depositors. It should be noted that Caretaker Prime
Minister Mikati has reiterated on several occasions
that the biggest burden will be on the citizen and an-
nounced that the cancellation of deposits will be mostly
for accounts exceeding $100,000, but in fact, the write
offs of deposits impact all categories of accounts.
A WRITE-OFF FOR THE ECONOMY
The economic impact of this measure will be
devastating; depleting citizen’s purchasing power,
alongside the lost trust in the state and the banking
system. There are simple alternatives to this that are
useful and confidence-building in the economy. The
most important of which is the complete liberaliza-
tion of the exchange rate, which in turn will contrib-
ute to reducing the deficit, which must be reduced
to the lowest levels in the first year, and then move
towards balance afterwards. Public sector debts, as
well as the assets and liabilities of banks must be
rescheduled based on the practices that prevailed
before the crisis. This will allow deposit holders to
withdraw from their deposits in dollars or in pounds
from dollar accounts on the free currency rate if the
dollar is not available in sufficient quantity.
Mounir Rached is a former IMF economist and currently the
president of the Lebanese Economic Association.
41
 August - September2022
BUSINESS ESSENTIALS
Dunlop, the international
tire manufacturer, launched
its brand in Lebanon during
its annual dinner held at the
Hilton Beirut Habtoor Hotel.
Hyundai Motor Group an-
nounced the release of three
automotive brands - Genesis,
Hyundai Motor and Kia.
The American University of
Beirut revealed a new logo to
reaffirm its identity and role in
the region.
Toni Makhoul, the Leba-
nese international artist and
composer, launched a music
clip with a message from
Lebanon to the whole world,
to say that the Lebanese
people do not give up and are
stronger than all the crises
that they have been through
and will go through.
The Chartered Institution of
Building Services Engineers, a
global network of building ser-
vices professionals, outlined
its objectives in the Middle
East as it celebrated 125 years
of being one of the highest
authorities in the domain.
WorldRemit announced
the results of its 2022 Cost of
School study, observing how
the changing macroeconomic
42
THE BULLETIN
environment has impacted
the true cost of education
across 21 global markets,
including Lebanon.
Grey Mackenzie Retail
Lebanon enrolled in the
Lebanon ESG Stewardship
Program, led by the United
States Agency for International
Development’s (USAID) Trade
and Investment Facilitation
project in partnership with
Capital Concept S.A.L..
In support of tourism and
local talents, Coral Oil col-
laborated with the Lebanese
singer Aline Lahoud on the
occasion of the “Mix and
Match” concert that was held
at Casino du Liban.
Emirates became the of-
ficial airline of the US Open
Tennis Championships for the
eleventh consecutive year.
Leading water manage-
ment and risk prevention
specialist Offshore Water
Management Ltd (OWM)
announced the expansion
of its in-house Technical
Supply service. OWM is
committed to providing an
industry-leading Technical
Supply offering as part of its
widely recognised portfolio
of services.
MSI Global, the informa-
tion technology corporation,
launched its laptop buying
guide, where they allow gamers,
families, students, and profes-
sionals to purchase a wide range
of the brand’s new devices with
a back-to-school promotion on
MSI Premium laptops.
Abu Dhabi Maritime an-
nounced licensing more than
1,000 jet skis via its Musaf-
fah-based Licensing and
Inspection Centre for Jet Skis,
established by an agreement
between AD Ports Group and
the Department of Municipali-
ties and Transport.
UNICEF’s latest report
showed that much of the pro-
gress towards achieving chil-
dren’s basic rights, including
the right to health, education,
protection, play and recrea-
tion, has been harmed by the
economic crisis and the impact
of the COVID-19 pandemic.
“Rouh El Mina” campaign
was launched as part of a
program called “New Begin-
nings” funded by The Euro-
pean Regional Development
and Protection Program for
Lebanon, Jordan and Iraq. It
was made to encourage Leba-
nese residents and expats
visiting Lebanon to discover
executive-magazine.com
and experience El Mina city
as part of a much larger com-
munication and destination
marketing strategy elaborated
and executed by Sharks Crea-
tors agency.
AD Ports Group, the leading
facilitator of global trade, lo-
gistics, and industry, won 17
awards at The Stevie Interna-
tional Business Awards 2022.
LAU Medical Center-Rizk
Hospital sponsored the annual
‘Pulse 5K Run’ in Faqra Club
under the slogan “Run for a
Cause, Run for Education” to
spread a message of hope.
Ashtead Technology signed a
rental agreement with RTS, an
international provider of elec-
tronic engineering equipment
for the underwater industry.
Infor, the software cloud
company, announced that
Mooneh, a third-party logistics
storage and distribution pro-
vider operating on behalf of
international pharmaceutical
corporations, has deployed
Infor WMS (warehouse man-
agement system) to deliver
traceability of all inventory.
The Public Relations and
Communications Association
Middle East & North Africa
announced leading creative
PR agency The Romans as its
latest corporate member.
Digital marketing group,
Incubeta MENA, announced
a change in management
structure to provide clients
with a fully integrated, end
to end digital offering and
access to Google Marketing
Platform solutions.
Dahua Technology, a world-
leading video-centric smart
IoT solutions and service pro-
vider, announced a strategic
partnership with Dubai-head-
quartered ABCOM Distribution
LLC. The partnership between
the two companies was argu-
ably one of the biggest industry
developments in the pandemic
aftermath in MENA.
Fondation Diane organized
the first private screening of
“Costa Brava, Lebanon” film
by Mounia Akl, where she
shed light once again on the
waste crisis in Lebanon with
the aim of presenting radical
and long-term solutions.
ICR Integrity, global provider
of specialist maintenance, in-
tegrity and inspection solutions,
has been awarded a long-term
hire contract with TAQA Bratani
Limited (TAQA), for the provision
of its Quickflange™ weldless
connections for TAQA’s UK-
based operations.
The Italian Agency for Devel-
opment Cooperation (AICS) and
the United Nations Human Set-
tlements Programme, signed a
two-year agreement to rehabil-
itate and revitalize the public
space of Mar Mikhael railway
station in Beirut and restore
damaged housing units within
the blast-affected area.
Finastra in partnership with
Connect Global Group, brought
together senior stakehold-
ers in financial services for a
virtual event, to discuss the
most common mistakes made
when launching a digital bank
and how to avoid them.
Mastercard’s New Pay-
ments Index 2022 found that
85 percent of people in MENA
have used at least one emerg-
ing payment method in the last
year, including tappable smart-
phone mobile wallets, BNPL,
biometrics, and payment-ena-
bled wearable tech devices.
Samsung Electronics Co., Ltd.
participated in Home Connec-
tivity Alliance standard based on
its integrated home appliance
solution smart-things for better
connectivity in the home.
43
 August - September 2022

BUSINESS ESSENTIALS
EVENTS

CONFERENCES

ORGANIZERS CONTACT WEBSITE

LEBANON
INTERNATIONAL CONFERENCE ON EFFICIENT BUILDING DESIGN
20-21 Oct
Ashrae +961 3050515; a.elbitar@premiumec.com www.lebanese.ashraechapters.org

UAE - DUBAI
18-22 Sep FINANCIAL ACCOUNTING AND REPORTING
BMC Training -; training@ukbmc.org www.ukbmc.org
20 Sep GCC FINANCIAL MARKETS AND PUBLIC COMPANIES CONFERENCE
Datamix Group +971 43326688; info@datamatixgroup.com www.datamatixgroup.com
3-5 Oct AIRLINE ECONOMICS GROWTH FRONTIERS CONFERENCE
Aviation News Limited -; info@aviationnews-online.com www.aviationnews-online.com
10-13 Oct FINTECH SURGE
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com
5-8 Dec THE BIG 5 HEAVY
dmg :: events +971 44380355; info@dmgevents.com www.dmgevents.com
6-8 Dec MIDDLE EAST BUSINESS AVIATION ASSOCIATION
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com

UAE - ABU DHABI

7-8 Oct INTERNATIONAL RESIDENCY AND CITIZENSHIP
Dome Exhibitions +971 26744040; info@domeexhibitions.com www.citizenshipexpo.com
26-27 Oct MIDDLE EAST WASTE MANAGEMENT
Datamix Group +971 43326688; info@datamatixgroup.com www.datamatixgroup.com
31 Oct - 3 Nov ADIPEC
Society of Petroleum Engineers +971 44575800; registrationdubai@spe.org www.spe.org
22-24 Nov FINTECH ABU DHABI
Abu Dhabi Global Market +971 23338888; info@adgm.com www.adgm.com
12-14 Dec MENA INDUSTRIAL GASES CONFERENCE
Gasworld +441 872225031; conferences@gasworld.com www.gasworldconferences.com

SAUDI ARABIA
10-11 Oct ICIS MIDDLE EASTERN BASE OILS & LUBRICANTS CONFERENCE
ICIS support@icis.com www.icis.com
31 Oct - 1 Nov SAUDI WATER 2.0
Bricsa Consulting +912 249617073;
marketing@bricsaconsulting.com www.bricsaconsulting.com
8-9 Nov FINNOVEX SAUDI ARABIA
EXIBEX +971 585518437; info@exibex.com www.exibex.com
9-10 Nov HR TECH SAUDI SUMMIT
QnA International +971 43885545; info@qnainternational.com www.qnainternational.com
5-6 Dec RETROFITTECH KSA
Advanced Conferences & Meetings +971 45631555;
opportunities@acm-events.com www.acm-events.com

BAHRAIN
19-20 Sep LEAN SIX SIGMA YELLOW BELT CERTIFICATION TRAINING COURSE
Unichrone support@unichrone.com www.unichrone.com/
25-28 Sep GLOBAL WATER ENERGY CLIMATE CHANGE CONGRESS
iCONEX W.L.L +973 17402889; marketing@iconexgulf.com www.iconexgulf.com
3-4 Oct ANNUAL INTERNATIONAL SUSTAINABLE ENERGY EVENT
Sustainable Energy Authority +973 1781 0733; info@isee.bh www.isee.bh
- Kingdom of Bahrain
10-13 Oct BAHRAINTECH STARTUPS @ NORTH STAR
Worksmart for Events Management +974 1771 7200; info@worksmartbh.com www.worksmartbh.com
10-14 Oct BAHRAIN PAVILLION @ GITEX
Worksmart for Events Management +974 1771 7200; info@worksmartbh.com www.worksmartbh.com

44 executive-magazine.com
 ORGANIZERS CONTACT WEBSITE

15-17 Nov GULF CHEMISTRY ASSOCIATION INTERNATIONAL CONFERENCE AND EXHIBITION

Saudi Arabian International Chemical Sciences Chapter
amanialhalwani@gmail.com www.saicsc-acs.com
27-30 Nov MIDDLE EAST MAINTENANCE & RELIABILITY CONFERENCE
Bahrain Society Of Engineers +973 17727100; conferences@bse.bh www.mohandis.org
4-8 Dec MENOG FORUM
Menog +971 43649459; menog@menog.org www.menog.org

KUWAIT
24 Sep WORLD CONFERENCE ON SOIL, WATER, ENERGY AND AIR
Eurasia Web +919 007375847; info@eurasiaweb.com www.eurasiaweb.com
28-30 Nov TIMES HIGHER EDUCATION MENA UNIVERSITIES SUMMIT
Times Higher Education communications@timeshighereducation.com www.timeshighereducation.com

EGYPT
19-20 Sep GLOBAL CLIMATE CHANGE CONFERENCE
Biofora +918 895188931; papers.biofora@gmail.com www.biofora.org
22 Sep DEVOPSDAYS CAIRO
DevOpsDays cairo@devopsdays.org www.devopsdays.org
16-19 Oct CAIRO WATER WEEK
MWRI +002 35449417; rcService@mwri.gov.eg www.mwri.gov.eg
20 Oct GTR EGYPT
Global Trade Review +440 2086739666; events@gtreview.com www.gtreview.com
5 Nov EGYPT ECONOMIC FORUM
Smart Vision +022 7988000; info@smartvisioneg.com www.smartvisioneg.com
6-7 Nov INTELLIGENT CITIES EXHIBITION & CONFERENCE
ROOT Technologies sales@root-technologies.com www.platforms-root-technologies.com
10-11 Nov WORLD CONFERENCE ON SCIENCE ENGINEERING AND TECHNOLOGY
IFERP World +918 895188998; info.iferp@gmail.com www.iferp.org
12-13 Nov INTERNATIONAL CONFERENCE ON ECONOMICS FINANCE AND ACCOUNTING
AcademicsERA +919 692200892; info@academicsera.com www.academicsera.com
7-18 Nov UN CLIMATE CHANGE CONFERENCE
European Commission info@oppla.eu www.ec.europa.eu
15 Nov WORLD BIODIVERSITY SUMMIT
World Climate Foundation info@worldclimatefoundation.org www.worldbiodiversitysummit.org

OMAN
5-6 Oct ANNUAL CONFERENCE OF FINANCIAL AND BANKING PERSPECTIVES
Oman College of Management & Technology +968 24051000;
omancollege@omancollege.edu.om www.omancollege.edu.om
17 Oct IFN OMAN FORUM
REDmoney events infoevents@redmoneygroup.com www.redmoneyevents.com
17-18 Oct GLOBAL FORUM
ITEMS International items@items.fr www.items.fr
14-15 Nov MIDDLE EAST GCCM OMAN
Carrier Community Limited info@carriercommunity.com www.carriercommunity.com
14-17 Nov UFI GLOBAL CONGRESS
UFI-The Global Association of the Exhibition Industry +971 043317180; mea@ufi.org www.ufi.org
1-2 Dec INTERNATIONAL CONFERENCE ON NANO SCIENCE AND NANOTECHNOLOGY
Conferencefora +919 692200892; info@conferencefora.org www.conferencefora.org

JORDAN
IEEE MIDDLE EAST & NORTH AFRICA COMMUNICATIONS CONFERENCE
6-8 Dec
AL-Zaytoonah University +962 64291511; alert@zuj.edu.jo www.zuj.edu.jo.com

IRAN
31 Oct - 2 Nov INTERNATIONAL CONFERENCE ON PORTS, COASTS AND MARINE STRUCTURES
Ports and Maritime Organization +982 184932738; icopmas@pmo.ir www.icopmas.ir
11-12 Dec INTERNATIONAL CONFERENCE ON MANAGEMENT, ECONOMICS & SOCIAL SCIENCE
Researchfora +919 078053939 ; info@researchfora.com www.researchfora.com

45
 August - September 2022

BUSINESS ESSENTIALS
EVENTS

CONFERENCES

ORGANIZERS CONTACT WEBSITE

QATAR
10 Nov DIGITAL TRANSFORMATION SUMMIT
Exito Media Concepts enquiry@exito-e.com www.exito-e.com
10-11 Nov INTERNATIONAL CONFERENCE ON E-EDUCATION, E-BUSINESS, E-MANAGEMENT AND E-LEARNING
The Institute of Research Engineers and Scientists
+917 606986371; info@theires.org www.theires.org
23-24 Nov RECYCLING AND WASTE MANAGEMENT SUMMIT
Science Technology Engineering and Mathematics/Management International Organisation
secretariat@rwmconference.com www.rwmconference.com

EXHIBITIONS

ORGANIZERS CONTACT WEBSITE

LEBANON
E-MOTOR SHOW
13-16 Oct
EcoSolutions info@e-motorshow.com www.e-motorshow.com
1-3 Dec BEIRUT COOKING FESTIVAL
Hospitality Services +961 1 480081; info@hospitalityservices.me www.beirutcookingfestival.com

UAE-DUBAI
21 Sep CYBERX MENA
Ibento Global mena@cyberxglobal.com www.ibentoglobal.com
27-29 Sep WETEX & DUBAI SOLAR SHOW
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com
19-20 Oct FOREX EXPO DUBAI
HQMENA +971 504380264; info@hqmena.com www.hqmena.com
23-24 Oct SEAMLESS MIDDLE EAST
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com
25-26 Oct AGRAME
Informa Connect - Middle East +971 44072500; info-mea@informa.com www.informa-mea.com
9-10 Nov EDEX MENA
Informa Connect - Middle East +971 44072500; info-mea@informa.com www.informa-mea.com
14-15 Nov MIDDLE EAST INVESTMENT SUMMIT 2022
Terrapinn Pty Ltd +971 44402500; enquiry.me@terrapinn.com www.terrapinn.com
15-16 Nov HR SUMMIT & EXPO
Informa Connect - Middle East +971 44072500; info-mea@informa.com www.informa-mea.com
15-17 Nov PAPERWORLD MIDDLE EAST
Messe Frankfurt Middle East GmbH +971 43894500; info@uae.messefrankfurt.com www.ae.messefrankfurt.com
21-23 Nov DUBAI CITYSCAPE
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com
22-24 Nov AUTOMECHANIKA DUBAI
Messe Frankfurt Middle East GmbH +971 43894500; info@uae.messefrankfurt.com www.ae.messefrankfurt.com
6-8 Dec GULF TRAFFIC
Informa Connect - Middle East +971 44072500; info-mea@informa.com www.informa-mea.com

UAE-ABU DHABI
20-24 Sep INTERNATIONAL REAL ESTATE AND INVESTMENT SHOW
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com
7-8 Oct CITIZENSHIP EXPO
Dome Exhibitions +971 26744040; info@domeexhibitions.com www.domeexhibitions.com

46 executive-magazine.com
 ORGANIZERS CONTACT WEBSITE

17-18 Oct MIDDLE EAST PRODUCED WATER MANAGEMENT CONFERENCE AND EXPO
IQ Hub info@iqhub.com.au www.iq-hub.com
31 Oct - 3 Nov ADIPEC
dmg :: events +971 44380355; info@dmgevents.com www.dmgevents.com

SAUDI ARABIA
6-8 Sep INDEX SAUDI ARABIA
dmg :: events +97144380355; info@dmgevents.com www.dmgevents.com
25-26 Oct CYBERX SAUDI
Ibento Global enquiry@cyberx-saudi.com www.ibentoglobal.com
2-3 Nov SEAMLESS SAUDI ARABIA 2022
Terrapinn Pty Ltd +971 44402500; enquiry.me@terrapinn.com www.terrapinn.com
7-9 Nov BIOFACH SAUDI ARABIA
1st Arabia Tradeshows & Conferences +966 920020025; info@1starabia.com www.1starabia.com
22-24 Nov SAUDI HORECA
Hospitality Services +971 585098057; info@hospitalityservices.me www.hospitalityservices.com.lb

BAHRAIN
27-29 Sep BAHRAIN HEALTH REGULATORY CONFERENCE & EXHIBITION
BDA Conferences and Exhibitions +973 37772247; registration@bdacenter.net www.bdacenter.net
11-13 Oct RECSO ENVIROSPILL 2022
iCONEX +973 17402889; marketing@iconexgulf.com www.iconexgulf.com
25-26 Oct SPE MIDDLE EAST ARTIFICIAL LIFT CONFERENCE AND EXHIBITION
Society of Petroleum Engineers +971 44575800; spedub@spe.org www.spe.org
9-11 Nov BAHRAIN INTERNATIONAL AIRSHOW
Ministry of Transportation and Telecommunication +973 17337878; pr@mtt.gov.bh www.bahraininternationalairshow.com


EGYPT
18-20 Oct MEDITERRANEAN OFFSHORE CONFERENCE & EXHIBITION
IES Group -; ies@ies.co.it www.ies.co.it
3-6 Nov SMART VISION INVESTMENT EXPO
Smart Vision +201 222688770; info@smartvisioneg.com www.smartvisionexpo.com
30 Oct - 1 Nov EGYPT ENERGY
Informa Markets - Egypt +202 23228388; Info@egypt-energy.com www.egypt-energy.com
4-6 Nov AUTOTECH EGYPT
Informa Markets - Egypt +202 23228388; informamarkets@informa.com www.informa.com
17-20 Nov MACTECH EGYPT
International Fairs Group +202 25264499; info@ifg-eg.com www.mactech-eg.com
30 Nov CYBERX EGYPT
Ibento Global +316 47748330; egypt@cyberxglobal.com www.ibentoglobal.com

OMAN
12-13 Sep FUTURE TECH EXPO & SUMMIT
Muscat Expo +968 24788476; info@muscat-expo.com www.muscat-expo.com
26-28 Sep FOOD & HOSPITALITY OMAN
Connect +968 24660124; info@connectthroughus.com www.connectthroughus.com
24-26 Oct PROJECT OMAN
IFP Group +961 1511977; projectqatar@ifpqatar.com www.project-oman.com

JORDAN
10-13 Oct INTERBUILD JORDAN FAIR 2022
Golden Gate Exhibitions +964 65658501; info@jordanfairs.com www.jordanfairs.com
16-17 Nov MENA ICT FORUM
The Information and Communications Technology Association of Jordan
+962 65812013; info@intaj.net www.intaj.net

IRAN
1-4 Oct PIPE & FITTING EXPO TEHRAN (IPEXO)
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com
17-21 Oct THE INTERNATIONAL EXHIBITION OF EXCHANGE, BANKING, INSURANCE AND PRIVATIZATION & INTERNATIONAL
EXHIBITION ON PRESENTING IRAN’S INVESTMENT OPPORTUNITIES
Baharan Tadbir Kish +982 188179790; info@baharantadbir.com www.kishinvex.com
19-22 Oct IRAN HVAC&R
Nama Negar Int. +982 188203020; info@nni.ir www.portal.nni.ir
20-23 Nov IRAN ELECTRICITY EXHIBITION
Ilikevents +982 146129013; info@ilikevents.com www.ilikevents.com

47
 August - September 2022
Thinking financial inclusion
Leveraging economic opportunities in a crisis-ridden climate
Financial inclusion is a corner-
stone of sustainable development.
The basic premise being that zero or
poor access to financial services makes
life a lot more complicated for people
trying to grow a business, take care of a
family and access the services they need
in day-to-day life. By improving the
quality of financial services and con-
nections for underserved populations,
we can help reduce poverty, improve
economic resilience, encourage inno-
vation and close equity gaps. As a start,
financial inclusion creates access to a
transaction account, allowing money
storage and to send and receive pay-
ments. But it also covers a whole range
of client-facing services, like savings,
insurance, lending, as well as broader
issues such as financial literacy, digital
identity and financial technology.
There are various industries that
are pushing the needle forward on fi-
nancial inclusion. In the Lebanese con-
text, the microfinance sector has been
a powerful driver; providing financial
services to micro and small businesses,
and low-income populations unable
to access traditional banking services.
Key to the success of the industry has
been the networks of agents and com-
mitted loan officers who build strong
relationships with end-beneficiaries.
This often comes along with a suite of
non-financial services that microfi-
nance institutions (MFIs) provide, such
as technical training on household in-
come management or agronomic sup-
port for smallholder farmers. Before
the onset of Lebanon’s multiple crises
towards the end of 2019, the Lebanese
microfinance sector had consistently
proven itself capable of performing on
par with or better than global bench-
marks, demonstrating strong opportu-
nities for growth while maintaining its
48
LAST WORD By Alexander Reviakin
commitments to its end clients and
international partners. According to
the Lebanese Micro-Finance Asso-
ciation, the sector reached a portfolio
of $220 million in 2018 while serving
153,000 clients.
However, the economic crisis has
crippled the industry; and today it op-
erates at a fraction of its capacity. This is
first and foremost because the unfold-
ing crisis, compounded by the COV-
ID-19 pandemic, has put microfinance
clients – a large number of whom are
women – under severe financial stress.
A study on the direct impact of Leba-
non’s economic and COVID-19 crises
on microfinance clients by CGAP, a
think tank housed at the World Bank,
indicated that turnovers of 90 percent
of microfinance clients have decreased
and that 40 percent of businesses have
closed. Moreover, 40 percent of micro-
finance clients are unable to meet their
basic needs, with 60 percent cutting
back on essential foods in 2020. Since
these figures relate to two years ago, we
can make a safe bet that these percent-
ages would be far greater now.
A SHRINKING PICTURE?
As a result of the downturn, the as-
set quality of MFIs has deteriorated and
the number of non-performing loans
has significantly increased. In addi-
tion, MFIs are facing severe liquid-
ity shortages and large mismatches of
their assets and liabilities in foreign
exchange, particularly as the economy
becomes dependent on dollars. Many
MFIs are not deposit taking and de-
pend solely on resources and borrow-
ing in US dollars from foreign lenders.
This is posing serious risks to the sus-
tainability of the microfinance sector
and its operations, with some MFIs
already facing insolvency.
However, in that same CGAP sur-
vey, 93 percent of microfinance bor-
rowers said that they would resume
borrowing once economic conditions
allowed. This is remarkable in these un-
stable times. The MFIs still in operation
are leveraging their relationships with
development organizations to explore
new channels to bolster economic re-
silience, despite the challenging condi-
tions of a financial meltdown.
Stakeholders from the internation-
al donor and lender community such
as the World Bank, European Bank for
Reconstruction and Development, US-
AID, and others are doing their best to
support the sector in the face of political
and regulatory intransigence. The tech-
nical assistance and grant funding they
continue to provide is vital to buoying
the sector. However, it does not solve
the existential issue of liquidity. MFIs
must find a way to unlock new funding
and capital for the sector, which at pre-
sent is being financially excluded.
This will require reform and new
regulations, but microfinance stake-
holders can also actively help their
partners in-country by exploring alter-
native sources of funding, beyond tra-
ditional debt financing. For example,
financial technologies, bond initiatives
and crowdfunding across the private
and public sector could provide liquid-
ity solutions that could even grow into
new development finance models for
countries in crisis. Such innovative
thinking and crowding of expertise
is necessary to ensure that the sector
is able to regain its position and once
again provide tangible, realistic eco-
nomic opportunities to large swathes of
the population.
Alexander Reviakin is the managing director
of Lebanese NGO Rakiza and an independent
consultant on financial inclusion.
executive-magazine.com
You see a bride playing a sonata.

At Fidus,
we see John Lennon’s USD 2.1 million
“Imagine” piano.

We know a good investment when we see one

49
Private Wealth Management • Trading and Capital Markers • Funds & Structured Products Advisory
+961.1.990600 • www.fidus.com.lb
 February 2019
BANKING & FINANCE
Q&A

50 executive-magazine.com