The political vacuum has become a fashion in Lebanon as it has lived through it many times, whether through a president or prime minister who has assumed the executive authority under the Taif Agreement, due to conflicts between political forces that are not interested in people’s affairs, grievances, problems and suffering.
At the level of the presidential vacancy, Lebanon witnessed long-term vacancies in the position of the president.
The first was between September 1988 and November 1989, when former Lebanese President Amin Gemayel decided, after the end of his term and after the Parliament failed to choose a replacement for him, to form a six-party military government headed by Army Commander Michel Aoun despite the presence of a civilian government headed by Dr. Salim Hoss.
The Muslim ministers, Major General Mahmoud Tay Abu Dargham, Brigadier General Muhammad Nabil Koraytem, and Colonel Lotfi Jaber decided immediately after the formation of the government to apologize for participating in it, due to the circumstances of the formation and their lack of consultation before the formation.
But Aoun went ahead with his government and occupied the presidential palace in Baabda and refused to recognize the existing government.
He waged wars of elimination against the Lebanese forces and ordered the bombing of his opponents in the western region of the capital, leading to the election of a new president: Rene Moawad.
Moawad was assassinated before assuming his duties and then Aoun refused to recognize the election of President Elias Hrawi because he refused to accept the Taif Agreement that ended the civil war which erupted in Lebanon in 1975.
Back then, he did not leave the palace until after the Syrian planes raided the palace when he fled in his pajamas towards the French embassy, seeking political asylum.
Between November 2007 and May 2008, Lebanon witnessed a presidential vacancy after the extended half-term of President Emile Lahoud ended at the behest of the Syrian regime.
The reason was the lack of agreement on a successor and the vacuum continued until the Doha Conference was held from May 16 to May 22, 2008, and led to the election of Army Commander Michel Suleiman as President.
The longest presidential vacancy was between May 2014 and October 2016, and amounted to 29 months. This vacuum began when the term of President Suleiman finished, and did not end until after the election of Aoun as president because of Hezbollah's insistence on his election.
The country has suffered from huge financial and economic losses as a result of these gaps in leadership.
As for the caretaker governments, Lebanon witnessed this situation more than once, especially during the era of Aoun.
* Fouad Siniora's government: This government became a caretaker from late 2006 until mid-2008, after the Shiite ministers resigned from the government.
*Najib Mikati's government (March 2013-February 2014): This government continued to manage Lebanon's affairs on a small scale after its resignation due to the sharp political division over elections and appointments to senior jobs.
* Tammam Salam government: This government became a caretaker government following the presidential vacuum in 2014, and remained in this situation until late 2016 after the election of Aoun as President.
* Saad Hariri’s second government (May 2018-January 2019): This government turned into a caretaker government because of the arduous consultations and the obstacles placed in the face of the president-designate by the President and his political team.
* The government of Hassan Diab, which was formed on January 21, 2020, and became a caretaker government after the port explosion on August 4, 2020, and continued until September 10, 2021, with the formation of the Najib Mikati government.
Today, Lebanon faces a new cycle of vacuums caused by the fact that Mikati's government, which was formed in September 2021, was considered to have resigned after the parliamentary elections that took place on May 14, 2022.
Although Mikati was commissioned by the new Parliament to form a new government on June 23, 2022, he did not succeed after the President rejected the formation presented to him by the president-designate because it would not achieve the ambitions of his son-in-law, Gibran Bassil.
Bassil wants to guarantee his control of a third of the portfolios of the cabinet and requires the dismissal of the Governor of the Banque du Liban, the Army Commander, the President of the Supreme Judicial Council, the Chairman of the Board of Directors of the Middle East Airlines, Muhammad Al-Hout and the Director General of the Tenders Administration Dr. Jean Al-Aliyah in order to enhance his administrative position after the end of his uncle’s term.
As a result, the caretaker government is continuing until today and it seems that it will remain until after the end of Aoun’s term on October 31, unless international and domestic pressures succeed in changing the current reality.
The question being asked today is how the faltering Lebanese economy and the faltering banking sector will survive in light of a presidential vacancy and a caretaker government, and who is affected by this reality, and whether an agreement will be reached with the International Monetary Fund.
These questions were posed by Majalla to prominent banking leaders who came up with the following answers.
Baasiri
The former deputy governor of the Banque du Liban, Dr. Muhammad Baasiri, stressed that one of the most dangerous things that Lebanon faced and is still facing is wasting opportunities and wasting time.
“Despite the existence of a plan or plans that were approved in the Hariri government years ago, they remained only ink on paper. The financial bleeding continued in this sector, while the deficit accrued to more than 40% of the public debt.
“This also applies to the water resources, which could have contributed to the transfer of Lebanon from a creditor country to a prosperous country. There are many examples of lost time and opportunities. What was the fate of the CEDRE Conference and how was the subject of the series of ranks and salaries dealt with?
“No political or economic observer can but conclude that the main reason for the current crisis is the absence of the political will for reform, and that the absence of a political solution remains one of the biggest causes of the crisis afflicting Lebanon.
“What about the repercussions if Lebanon falls into the forbidding presidential vacuum?
“There is fear of political repercussions and their consequences, the danger of a social explosion and the possibility of the country being exposed to security risks as well as financial and monetary repercussions in the event of lack of confidence in the banking sector by the Lebanese people and other residents.
“The banking situation will become more critical in light of the growing distrust and it will be difficult to move forward with banking restructuring in light of the lack of regularity in government work.
“It is also certain that the presidential vacuum under a caretaker government will multiply the dangers resulting from the vacuum and prevent astute shareholders and investors from banking recapitalization and investing in the banking sector. As for deposits and depositors, this issue is likely to be without any prospects in light of the increasingly dangerous situation as a result of this vacuum.
“The lack of investment resulting from the presidential vacuum will cast a heavy shadow on the value of the national currency and the deficit in the trade balance and payments is likely to increase, which will directly affect the value of the local currency.
“This is in addition to the decrease in the foreign reserves of the Banque du Liban, which remains the main financier of the state and the financing of imports.
“I believe that it is natural for negotiations with the International Monetary Fund to slow down with the presidential vacancy, and thus the cost of recovery will increase with the possibility that the country will continue to be in a clinically dangerous situation, surviving on the humanitarian aid provided to it, even if temporarily and limitedly.
“The hope of reaching a final agreement with the Fund is not important in lending Lebanon some billions of dollars, but rather in persuading or encouraging donor countries to invest in the country’s infrastructure, as was the objective of the CEDRE Conference.
“In conclusion, the presidential vacuum will result in increased costs for the revival and restoration of confidence, and consequently the possibility of Lebanon to prosper, and also to continue as a natural country that its children would like to live and stay in.”
Boldakian
In turn, the former Deputy Governor of the Banque du Liban, Dr. Makrdish Boldakian, considered that, from the end of the fifties to 2019, the Lebanese banking sector formed a main lever for the Lebanese economy, and made Beirut in particular an important financial center in the Middle East. It was the focus of attention of the Arab Gulf countries and the West alike, as enhanced by its banking secrecy which attracted the attention of financiers and owners of huge capital.
“The Lebanese banking sector, like the international banking sectors, was known for its ‘ups and downs’ for many years, affected by political factors and the security turmoil it witnessed in the seventies, i.e., the civil war. Then it was affected by the Israeli wars on Lebanon as well as the wave of political assassinations in 2005, especially the assassination of former Prime Minister Rafik Hariri.
“Lebanese banks succeeded due to the strength of their administrations and their commitment to international banking standards, as well as a result of the presence of a strong central bank and the most important period of political relaxation from 2007 to 2011 amid a fire that ignited all neighboring countries.
“This year, suddenly and dramatically, this great downfall was manifested by the banks stopping to pay deposits to customers and adopting the policy of ‘rationing’ and setting limits on withdrawals.
“The situation of the banks was worsened by the exposure of the Banque du Liban to high financial losses, a significant decline in the bank’s liquidity, and the exposure of the state’s finances, which had stopped paying its international dues since 2019.
“As we mentioned, the banking crisis is worsening and growing as the pace of the financial collapse accelerates, and the life and living crises of the Lebanese people increases.
“Politics in the past three years played a negative role that contributed to the exacerbation of the banking sector crisis and other crises, as the level of political instability increased at the national level, disrupting the work of constitutional institutions and administrations, reducing the volume of local and international confidence in Lebanon, and raising the level of internal political differences that contributed to hindering any decision-making that could rescue the country and the people.
“Today, when we are close to the election of a new president in October, hope has returned to the Lebanese people that they can get out of the crises that have exhausted them over the past three years, provided that our politicians choose the appropriate president, who enjoys the confidence of the Lebanese and the world.
“It would be the person who is able to reunite the Lebanese around a single national rescue political project. The president is the decision-maker who is far from corruption and the corrupt.
“Based on the foregoing, the Lebanese people, as well as the international community, are watching the tracks of the presidential elections in Lebanon, and they all hope to complete this election on time, so that Lebanon can benefit from an additional opportunity to begin facing its serious crises, foremost of which is the crisis of its banking sector.
“Some in Lebanon fear that the presidential elections will be disrupted and that this delay will affect the entire Lebanese situation.”
What about the repercussions of this disruption, if it specifically affects the banking sector?
Boldakian says, "It is clear that any major political crisis, such as a political vacuum in the presidency, will have negative repercussions on the general situation in the country and affect all components of the economy, especially the banking component, with negative repercussions, as this sector is affected more than other economic sectors by the factors of political and security stability.
“Any disruption in these two factors exposes banks to all kinds of risks, foremost of which is ‘trust,’ which remains the bank’s strongest guarantor, because any delay in electing a president within the constitutional time period means, frankly and clearly, an increase in risks to the banking sector.
“This matter is also reflected in the safety of deposits. Some even believe that the occurrence of this matter, especially if it continues for a long time, may lead to Lebanon’s exit from the global financial system, the bankruptcy of banks, and the loss of depositors’ savings, thus turning Lebanon into an economically isolated island.
“In my opinion, the presidential vacuum means: first, stopping the process of criminal scrutiny of cases related to looting public money. Secondly, stopping the implementation of the economic recovery plan leads directly to the loss of the agreement with the International Monetary Fund. Thirdly, stop the loss of local and global confidence.
“All these results mean first and foremost the extent of the great damage that will be inflicted on the banking sector if the country enters into a presidential vacuum crisis.
“In sum, Lebanon is facing the most important political event that can bring with it either the signs of restoring confidence and consequently the beginning of liberation from its crises, or we can expect more crises and aggravation of them with their political and economic dimensions.
“Lebanon is at a crossroads full of dangers which requires all of us to rise to the level of the challenges and dangers and to start providing policies and mechanisms to confront them in order to get out of the state of misery and disintegration we live in.”
Hammoud
The former head of the Banking Control Committee Dr. Samir Hammoud considered, “Any vacuum in any constitutional institution has repercussions on the exchange rate, meaning that the absence of the President cannot be considered the same as his presence and also the prime minister if he is the head of a caretaker government or a government that is fully operational.
“Lebanon has become accustomed to a vacuum, and not for short periods such as the years 2014 to 2016 until the election of a president. Since it has happened repeatedly in caretaker governments for irregular intervals, the country’s familiarity with such matters mitigates the risks to the banking sector.
“But the most important thing in my opinion is the imminent calamity that can occur after a year if a governor is not appointed to the Banque du Liban in August 2023, after the term of Governor Riad Salameh ends. This matter is a serious risk.
“If you no longer have a new governor, during this year the central bank must rearrange the banking sector and restructure it.
“We are coming quickly to a presidential vacuum and we see that the conduct of business will be prolonged and the banking sector is in crisis and the Central Bank has not elected a president.
“As for the impact of negotiations with the International Monetary Fund, negotiations will continue with the Central Bank and the government even if the final agreement remains subject to a legitimate government, because the Fund requires two things:
“The first: laws, and here the parliament remains active for any new legislation; and,
“The second: monetary policy and a banking system, and here even the caretaker government can secure it.”
The expert in banking risks, Dr. Muhammad Fahili, believes that even in the presence of a legislative authority in the Parliament and an executive authority in the Presidency of the Cabinet and in the presence of a President of a complete and integrated republic, the productivity of this political class is unreliable and the greatest evidence of this is the recovery plan from which no clause has been implemented. This comes in addition to the capital control law which has not yielded any results so far.
“Until today, the amendments made to the Banking Secrecy Law are not reliable because they do not meet the conditions for fighting corruption, but rather give a veiled immunity in the context of holding the perpetrator accountable.
“I believe that we have not yet seen the last chapters of these amendments.”
“As for the impact of not electing a president on the banking sector or on the economy in general, I think that the only problem that could occur in the lost time between the end of President Michel Aoun’s term and the election of a new president is that it will give space to monopolists and speculators in the exchange market, and may have produced turmoil that may be harmful in the exchange market and puts the country and the citizens at the mercy of those who own the banknotes.
“On the other hand, it is said that the Banque du Liban has been assigned to manage the economy and as long as its governor remains in office, the absence of a president or a caretaker government will not have a significant impact on the performance of the banking sector, because this sector is in a situation similar to autopilot.
“On the price of an exchange platform, my expectations are that the absence of a president, or a vacancy in the position of the President under a caretaker government, will not have a significant impact on the banking sector, noting that the banking and economic situation will continue to deteriorate because there has been a kind of adaptation to changes and turmoil.”
