Some may also wonder why the Banque du Liban operates an essential facility such as Middle East Airlines. The reason for this was the bankruptcy of Intra Bank in the 1960s, which made the central bank the owner of the airline since then. When any institution in the world is liquidated, its physical assets are sold to fulfill the rights of its creditors, and this is what took place with Intra Bank at the time. In a simple monetary approach, we can say that the Lebanese state owes the Central Bank and the Social Security Fund more than 60 percentage of its public debt, while the total debt of the commercial banks of the state does not exceed 40 percentage as well as a very small percentage belonging to the non-banking private sector.
This reality is a safety valve for the public finances of the Lebanese state, as 60% of its debt is owed by the state itself, via the Central Bank. In spite of this fact, the fundamental issue going through Lebanon is the scarcity of liquidity in the dollar currency, which has persisted to cross the border to serve the electricity sector and to meet a very massive volume of imports that can be distributed by strengthening the local industry throughout sectors. The outcome of these difficult funds over the previous nine years (2011 to 2019) has made the balance of payments poor all through that duration in exchange for inward remittances acceptable but inadequate to fill the deficit in this balance and in light of an economic growth that did not exceed one percentage per year at its best.
Hence, the ‘liquidity-stress’ in foreign currency is the foremost challenge for the state at the current time and there is an statement on the government's capability to repay the debt due in the first two quarters of 2020 as it did last November, which is a positive indication that the default will not occur at least till the end of that period.
Thus, we see that the real estate sector is the lever that can promote the Lebanese economy and attract foreign investment. This comes from the reality that the Lebanese expatriate are always very eager and inclined to purchase real estate in the country. The solution we suggest to swap real estate property belonging to the Lebanese state for its debt to the Banque du Liban might also be viable. Nominally, the property remains owned by the Lebanese state, however we have transferred it to the central bank that may set up a real estate development company, could emerge as one of the richest in the Middle East for having a large and highly demanding land portfolio.
The ownership of this real estate portfolio makes it the only company in the world that has a real customer base to make investments in, namely, the existing giant Lebanese depositors. Some economists will argue that this is right economically, but I see it as a solution to the financial crisis in the country, since the Lebanese depositors, particularly from the category of large depositors, will never mind transferring their money to real estate in all its forms if this choice is granted by a relied on entity such as the Central Bank of Lebanon.
Banque du Liban operates an essential state facility, such as Middle East Airlines, which is directly managed by the bank and generates an annual income of more than USD 30million. What is incorrect with the bank additionally setting up a real estate improvement company that can manage the great lands owned by the Lebanese state country-wide?
Thus, the public debt, which constitutes more than 150 % of GDP, is decreased to 70 percentage by the central bank canceling its debt in favor of the Lebanese state, which will enhance our international credit rating by reducing the ratio of public debt in opposition to GDP.
By that, we will have a ‘Swap’of another kind, a brick-and-mortar real estate swap. The new company will be directly managed by the Central Bank and will be affiliated to it. In no way it will be a private organization or a public shareholding company and as a master developer, it will attract sub-developers to develop chosen projects and accordingly attract long-term foreign investment, which will enhance the national economy and enhance its negative growth.
This will make the Lebanese depositors more encouraged to trade their money to gather Lebanese properties sold to them within a unified pricing standards and with great deal of transparency and equality. To reassure Lebanese depositors, the new company ought to be subject to transparent auditing from an impartial international company to make sure transparency and integrity in its management.
The state-owned real estate development company, which owns the land, can develop all types of houses and apartments of exclusive categories and have a barter deal with depositors' cash as an alternative to them provided they agree on doing so.
This wouldn’t solely increase the GDP however it will also provide a shot in the arm of the balance of payments (BoP) of Lebanon via attracting foreign capitals from Lebanese expatriates, which would minimize the poor growth the economy’s deficit since 2011.