Amidst a deepening economic crisis, Lebanon’s capital control law languishes in uncertainty. Originally expected by October 2019, the stalled law raises fears it won’t meet the International Monetary Fund’s (IMF) conditions or address Lebanon’s growing banking sector challenges. This delay has led to foreign currency reserves plummeting from $33 billion to a mere $9 billion in less than three years, threatening Lebanon’s economic future.

LIMS explained that various unconvincing excuses have delayed passing a capital control law over the years. If capital controls were implemented at the onset of the crisis, such measures could have effectively preserved Lebanon’s foreign exchange reserves. However, the continual wrangling among decision-makers, driven by a desire to tap into these reserves, has rendered the discourse on capital controls an empty slogan.

LIMS argued that, in the present circumstances, capital controls could impede growth by restricting the inflow of capital into the country. The apprehension among potential investors about the limitations on the free transfer of funds out of Lebanon diminishes the attractiveness of the nation as an investment destination. Consequently, this situation not only hampers investments but also exacerbates the challenges associated with economic recovery.

LIMS advocated for a strategic shift, suggesting the abandonment of the Capital Controls proposal in favor of a more nuanced approach— the introduction of limits on old dollars. This alternative framework would exclusively target old dollar deposits, imposing monthly withdrawal limits until a comprehensive bank resolution strategy is implemented. Importantly, this proposal ensures that fresh dollar flows remain unrestricted. Such a solution would be not only more straightforward to implement but also more conducive to fostering economic growth.

• A Loose Law… And Recovery Chances Are Nonexistent! December 18, 2023: Lebanon Debate, Article AR