Lebanon’s cabinet has taken a significant step in addressing one of the world’s most severe financial crises by approving a draft law known as the “gap law.” This legislation aims to facilitate the return of funds to depositors who have been unable to access their savings since the economic collapse began in 2019, when the Lebanese Lira plummeted in value, losing approximately 98 percent of its worth.
The gap law is expected to be signed by Prime Minister Nawaf Salam and the president before moving to parliament for further debate. If enacted, the law would allow individuals with deposits of up to $100,000 to receive their money back within four years, a notable improvement over previous proposals that extended repayment periods to over a decade. However, the current proposal has drawn criticism for its limitations, particularly from members of the Depositors Union.
According to lawyer and union member Fouad Debs, past proposals from the government of former Prime Minister Hassan Diab promised depositors the possibility of recovering up to $500,000. Debs remarked, “This was probably the biggest lost opportunity, and it was done to protect the banks.” He emphasized the necessity of a comprehensive financial audit, which would scrutinize banks’ operations and financial decisions made during the crisis.
Challenges and Criticisms of the Gap Law
Despite the potential benefits, the gap law has faced substantial scrutiny. One primary concern is that the $100,000 reimbursement is limited to each depositor, not per account. Therefore, individuals with multiple accounts exceeding this limit will only receive a maximum of $100,000 in cash. The remainder of their funds will be compensated with bonds backed by the Central Bank of Lebanon.
Critics argue that banks and politicians associated with them have largely avoided accountability under the draft law. Currently, banks are only required to cover 40 percent of withdrawals, a figure many believe is inadequate given their pivotal role in precipitating the financial crisis. Despite efforts to lobby for more favorable terms, banks have continued paying dividends to shareholders and bonuses to executives, even as depositors struggle to access their funds for basic necessities.
Debs highlighted the disparity, stating, “Depositors should be last on the list to have to pay.” The state will be responsible for covering the remaining financial “gap,” estimated to be around $70 billion, between what banks owe to depositors and what the financial system can provide.
Financial Implications and International Perspectives
The draft law raises uncomfortable questions about accountability and financial ethics. Bankers claim that the state should shoulder the burden of repayment, arguing that they entrusted their funds to the Central Bank of Lebanon, which subsequently mismanaged the finances. Critics counter that banks have used depositors’ money without proper consent, benefiting from their misallocation.
How the state plans to finance these repayments is another point of contention. Public funds will be utilized to reimburse depositors, with additional payments made in bonds supported by state assets, including Lebanon’s gold reserves. This approach has drawn criticism, as many state bonds were sold to foreign vulture funds, potentially leading to a scenario where state assets are used to repay these entities at the expense of the Lebanese population.
The International Monetary Fund (IMF) has weighed in on the situation, aligning with civil society in emphasizing that depositors should not bear the brunt of the financial crisis before bankers. Debs noted the IMF’s position reflects “how greedy and vicious the ruling elites are here.”
As Lebanon navigates this complex landscape of financial recovery, the fate of the gap law remains uncertain, with significant implications for both depositors and the broader economy. The situation continues to evolve, and the response from lawmakers and financial institutions will be critical in shaping the country’s path forward.
