The ratification of a capital control law in Lebanon’s Parliament is a necessary and urgent measure even if it is coming late. It is a prerequisite for any recovery in Lebanon, as the country’s economy cannot go back to positive growth and regain its health without a capital control law that normalizes financial and banking activity.
It is very surprising that despite the domestic consensus on its need and necessity, this capital control law has not seen the light of day yet in any of its different versions during the past couple of years.
The need for such a type of measures is tied to the exceptional economic and financial conditions that Lebanon is passing through amid a confidence crisis at the economic and financial levels.
The current phase requires the ratification of exceptional and transitory measures to put temporary restrictions that would reinforce the banking capacities to withstand the crisis and eliminate discrimination across the sector. It is important to recall that capital controls are official restrictions on capital transfers through a law that will be issued on behalf of legislative authorities.
We believe that the ratification of official capital controls is a necessary step towards economic, monetary and banking stability, allowing the free use of new transfers without any restrictions, which regains back gradually confidence in Lebanon’s financial sector, with what this entails in terms of stimulating the Lebanese economy in general. This would reinforce economic activities and help restore some of the growth forgone and leave favorable imprints on the economic cycle at large.
What remains to be said is that capital control is a necessary but not sufficient step to restore the confidence factor. Financial and banking adjustment is tied to overall economic adjustment, with the corollary requirement of a government plan to get out of the crisis, launch structural, fiscal and financial reforms and facilitate the access to international assistance that Lebanon needs badly.
This in turn requires an agreement with the IMF that would consist of a Memorandum of Economic and Financial Policies and a staff-level agreement between Lebanon and the Fund to be followed by an IMF board approval of a full-fledged program with the country.
Within this framework, all eyes are focused on the recovery plan that would be adopted by the government and that would distribute national losses over the different economic agents, unify the multiple exchange rates, reform the public sector and restructure the financial sector.
Capital control stands amid core IMF prerequisites for the program with Lebanon that would put an end to the atypical economic and financial crisis that the country has fallen into over the past couple of years. It should help to reestablish a positive economic growth momentum and reach a trend reversal in the huge socioeconomic pressures on Lebanese households at large.