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Alan Bollard – Reserve Bank – Te Ara Encyclopedia of New Zealand
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Get our weekly newsletters. By proceeding, you are agreeing to our Terms and Conditions. Getty Images. Jul 19, Mohamed A. El-Erian Following the global financial crisis, central banks bet that greater activism on the part of other policymakers would be their salvation, helping them to normalize their operations. Show More Contact Us. Your name Your email Friend's name Friend's email Message. Cancel Send. Please select an option. Choose an option Please wait, fetching the form. Cookies and Privacy. Email required Password required Remember me?
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Enter your password to confirm. Cancel Yes, cancel. Bank Audi's Barakat says banks also keep loans to a minimum.
Ten years after the global financial crisis, Alan Bollard warns of new risks
So they don't take too much credit risk. If Lebanon's banking sector were to fail, it would have a "doomsday" affect on Lebanon's economy, Barakat says. The Central Bank is one of the few institutions, along with the army, that functioned during the last three years of political crisis, and its role is just as important as any security organ. And with deposits in Lebanon's domestic commercial banks totaling more than three times the country's GDP, Lebanon's banking sector owns more than 50 percent of the public debt. In other words, Lebanese commercial banks are the government's largest creditor.
That role, according to Axel Schimmelpfennig and Edward H. Gardner of the International Monetary Fund in a working paper last month, means Lebanon's banks are "an important pillar of stability, since their large exposure to the sovereign creates strong incentives to stay the course, even during times of financial pressures. But financial pressures on Lebanon are not limited to political instability. The federal budget is depleted by inefficiency, corruption and theft.
And at the center of Lebanon's budget problems is electricity.
With no natural fuel resources, Lebanon must subsidize the state-run electricity company and import fuel to run power plants. Yearly, this process costs the government more than a billion dollars — and the sector has contributed to one third of Lebanon's public debt. The grid is in terrible shape, with daily blackouts of up to 12 hours at a time.
Skyrocketing fuel costs in and forced the government to shell out even more, and the budget deficit widened, which in turn increased the public debt. As oil prices rose, money that could have been contributed to servicing the debt had to be dedicated to just keeping the lights on. But just as the rest of the world's prospects look bleaker, Lebanon's have begun to brighten. Lower oil prices have brought down electricity costs and lowered inflation. A stronger U. But Lebanon may yet be hit by the financial crisis in indirect ways.
Byblos Bank's Ghobril said the slowdown in other countries may help Lebanon in the long run. He didn't expect Lebanese working abroad to return en masse. But he did expect Lebanese university graduates, who would normally go to jobs in the Gulf, to remain in Lebanon. He said brain drain had become a major problem, even for banks. There are jobs in Lebanon for people with experience, for fresh graduates.
But they have to have realistic expectations. There are still plenty of questions about Lebanon's future. Although a new president was elected in May, , and the internal political turmoil of has quieted, Lebanon is still in a very unstable neighborhood. Bickering politicians can't agree on an economic plan, and parliamentary elections are due to be held in June. Bank Audi's Barakat expects to be a "challenging" year for Lebanon's banks, due to lower returns on investments overseas. But if Lebanon's past is any indication, the banks will continue to be one of the few Lebanese institutions that act as a touchstone in times of instability.