Middle East: Keeping Lebanon central bank's Salamé was the right call


Olivier Holmey
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After months of uncertainty, the Lebanese government has finally approved Riad Salamé’s renewal at the head of the country’s central bank. It was right to reappoint him; now he should be left to work unfettered by political interests.

Riad Salamé

When asked by Euromoney mid-May if he would be staying on as governor, Riad Salamé summed up his state of mind with the words: “I’m working.” By that he meant he was focused on the task at hand and did not want to lose himself in speculation over whether or not his term, due to end on July 31, would be renewed.

In Lebanon’s banking community, many hoped he would keep on working and be offered a further mandate. But for months, until May 24 when it was finally announced, his reappointment had been very much in doubt.

There are legitimate reasons to question Salamé’s actions. A central bank governor should always be held to account – doubly so one who has been in office as long as he has. His first appointment dates back to 1993.

But the reasons offered by those wishing to replace him were weak. The backlash against the governor picked up after last summer, when the central bank invited Lebanon’s banks to deposit dollars in its coffers, in exchange of which the banks were given the ability to discount at 0% the equivalent amount in treasury bills denominated in Lebanese pounds.

Rough patch

This piece of financial engineering substantially increased the banks’ revenues as well as the central bank’s foreign reserves – both of which had been in low supply. It helped Lebanon’s banking sector through an especially rough patch.

But some politicians, whether out of limited financial knowledge or of an ingrained distaste for Salamé, attacked the governor for it, accusing him of using state funds to shore up the country’s banks without authorization from government. In fact the move was perfectly legitimate and proved useful to the banking sector and the broader economy.

Another criticism – that he is affiliated to the party of Rafik Hariri, the first politician to have appointed him governor, and therefore averse to the new president Michel Aoun – also does not stand up to scrutiny. Salamé has worked with political leaders of various parties, without prejudice.

Over the last 24 years, Salamé has proven his worth as governor. Recently, following last summer’s decried piece of financial engineering, the central bank’s reserves reached an all-time high, at over $40 billion. During his tenure, the country’s banking sector has pulled through crisis after crisis – most recently the Syrian refugee crisis, a falling oil price and heightened US pressure on Hezbollah.

Lebanese bankers, both those working abroad and those in the country, are virtually unanimous in their approval of Salamé. They say his quiet, unassuming personality belies his strength of character and his ability to withstand the incessant pressures on himself and on the country. An employee of the central bank tells Euromoney that Lebanon owes its stability and peace as much to its central bank governor as to its standing army.

The banking community is so fond of him in fact, that for years they have suggested to anyone who would listen that Salamé would make a good president.

Put forward

Signs that Salamé had the support of Lebanon’s top politicians finally came mid-May, when the finance minister put the governor’s name forward for approval by the cabinet. Salamé also met with Aoun, although the subject of his reappointment was not officially on the agenda of that meeting.

Yet at least one prominent politician, foreign minister Gebran Bassil, appeared intent to use doubts surrounding Salamé’s chances of renewal to score political points. According to L’Orient-Le Jour (OLJ), Lebanon’s leading French-language newspaper, Bassil, who is also the leader of Aoun’s party, the Free Patriotic Movement, put three conditions to his backing Salamé.

The first of these was to have Cedrus Bank – whose chairman, OLJ notes, is an adviser to Aoun – benefit from the central bank’s financial engineering. The other two conditions were appointments in Middle East Airlines and investment company Intra, which are both majority owned by the central bank.

Clearly such moves should not be tolerated. The foreign minister should not be dictating to Salamé how to manage the central bank’s activities and investments. It is unclear what came of these requests – nothing we hope.

In the end Salamé was reappointed, to the great relief of the country’s banks. The government was right in doing so. Here’s hoping such attempts always fall through and that Salamé can carry on as before.