Lebanon planning to impose capital controls amid crisis

Bloomberg

Calls are mounting for Lebanon to impose formal restrictions on the movement of money to defend the country’s dollar peg and prevent a run on the banks when they open their doors after nationwide protests.
Banks have been closed since the start of the uprising two weeks ago and only plan to reopen once the political situation stabilises. The longer they remain shut, however, the more a backlog in dollar demand builds and speculation swirls about the measures the banks will need to take to avert financial collapse.
In a sign of crumbling confidence, banks have been getting calls from clients asking to move their money abroad while others are working at a frantic pace to transfer funds to Swiss accounts as soon as lenders resume operations, local and foreign bankers said.
As tensions intensify, influential local economists have raised the alarm — calling for limits on the transfer of funds outside the country. Two senior banking executives, speaking on condition of anonymity due to the sensitivity of the issue, have said emergency measures were the logical next step given there is no political solution to the crisis in sight.
Capital controls are again becoming the weapon of choice for embattled governments in need of breathing room, with Argentina tightening its restrictions after a left-leaning populist won the presidential elections. Such a step — even if temporary — would mark a turning point for Lebanon since it’s likely to cause a backlash among diaspora investors, the country’s financial lifeline.
Lebanon’s central bank Governor Riad Salameh told Reuters that there would be no capital controls. But a day of violence, followed by the resignation of Prime Minister Saad Hariri, has added to the uncertainty among investors.
To keep its lenders stable and defend the dollar peg, Lebanon relies on inflows from the millions of Lebanese living abroad.