Lebanon News

Lebanese Cabinet raps Salameh over decision to end subsidies

Cars and scooters queue for gasoline at a gas station in Beirut, June 29, 2021. (The Daily Star/Mohamad Azakir)

BEIRUT: The Lebanese government criticized Central Bank Governor Riad Salameh Thursday over his decision to halt fuel subsidies, saying Lebanon could not bear the consequences and that other measures needed to be implemented first to help the poor.

A loss of fuel subsidies would open a new phase in the financial crisis that has decimated the value of Lebanon's currency by more than 90% since 2019 and thrown more than half the population into poverty.

Salameh's decision triggered scattered protests, though fuel prices were unchanged on Thursday and many petrol stations shut.

The central bank defended the move, saying it had told the government a year ago that legislation would be needed to use the mandatory reserve, a portion of deposits that must be preserved by law.

The government accused Salameh of acting unilaterally.

The public dispute at the very top of the Lebanese state captured the failure of the ruling elite to set policies to get the country out of its worst crisis since the 1975-90 civil war, even as supplies of fuel and medicine have run out.

"They made us lose everything in Lebanon: no fuel, no electricity, no water, nothing. House rents now cost millions. Where should we go from here?" said Hussein Ibrahim, who was protesting against the decision in Sidon.

President Michel Aoun summoned Salameh to the presidential palace for a meeting at which the governor refused to back down, saying use of the mandatory reserve required legislation, the ministerial source said.

The caretaker cabinet led by Prime Minister Hassan Diab held an emergency meeting where a ministerial source said there would be discussions on such legislation, though a statement read after the meeting made no mention of a new law.

Diab said progress was being made towards rolling out a prepaid cash card for the poor and the decision could have waited until it was available.

"The country cannot bear the dire consequences of this type of decision," Diab said at the start of the cabinet meeting.

"Its damages are much greater than the gains of protecting the mandatory reserves in the central bank" because it would take the country into the unknown.

Hezbollah MPs rejected Salameh's move, saying the prepaid cards must be rolled out before any action on subsidies.

Gebran Bassil, who heads the party founded by Aoun and is his son-in-law, called the move a sudden and unilateral step and urged his followers to get ready to mobilize.

Walid Jumblatt said however that subsidies would have to end, saying subsidized goods were being smuggled to Syria and warning that eventually not one penny would be left in the reserve.

Since the onset of the crisis, the central bank had been effectively subsidizing fuel by using its dollar reserves to finance imports at exchange rates well below the rates on the parallel market.

The fuel subsidy has been costing about $3 billion a year.

The central bank said that while it had spent more than $800 million on fuel in the last month and the bill for medicines had multiplied, those goods were still absent from the open market, and being sold at prices that exceed their value.

Tempers have frayed with motorists queueing for hours for petrol and often not being able to fill up. Three men died in altercations on Monday related to scarce fuel supplies.

The central bank said on Wednesday that it would offer credit lines for fuel imports at market rather than subsidized exchange rates.

Unsubsidized, the price of 95-octane gasoline was projected at more than four times its previous price in a schedule reported by a broadcaster.

Most recently, the central bank had been extending credit for fuel imports at a rate of 3,900 pounds to the dollar, compared with a parallel market rate of more than 20,000 pounds.

The reserves have sunk from more than $40 billion in 2016 to $15 billion in March

 

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