Cronyism and the Banking Sector in Lebanon

Abstract

Lebanon faced several cascading crises that led to the economic collapse of the country. As per the World Bank, the Lebanese crisis is considered as the worst crisis during the last 150 year. The financial crisis caused by a “Ponzi scheme”, financial policies, and Cronyism in the different sectors of the government started before the Lebanese civil war and were culminated in the Taef agreement.

In this paper, I focus on cronyism in the banking sector, and propose a new framework for mapping cronyism. I chose this sector particularly as the banking sector is the heart of the economy and played a major role in the financial collapse of the country. To do so, I first shed light on the development of the banking sector throughout the era that followed the independence from the French colonization in 1943 till today. It is worth mentioning that the civil war that occurred in 1975 and lasted for 15 years shaped the financial sector in a way or another. In order to better understand the evolution of the banking sector and its link to the political apparatus, I divided the timeline according to the civil war. In other words, I first discussed the nature of the economic and financial sectors that were based on the merchant mercantile prior to the civil war, and how the financial and political sectors become linked. In the part that follows, I discussed the change that occurred in the banking sector after the civil war and its relationship with the political apparatus.

The last part is about proposing a new framework on mapping cronyism. It is worth mentioning that cronyism is a form of corruption where politicians assign their cronies in posts of authority regardless of their qualifications, as it is for their personnel interests. In Lebanon, cronyism has been mapped in different sectors. However, this paper, focuses on cronyism in the banking sector. In my opinion, mapping cronyism in the banking sector is necessary especially in a country where corruption has had significant repercussions on its economy. In fact, this procedure, gives data and analysis not only to scholars interested in the field, but to every citizen in the country as it is his/her right to be aware of how leaders or politicians who have their support, are enjoying or having “special privileges”.

In order to suggest a new map on cronyism, I consulted three studies done by different scholars, on cronyism in the banking sector. Two of them focuses on cronyism in the Lebanese banking sectors and the third study was done on mapping cronyism in the Moroccan banking sector . Although Morocco has a different political regime, however, this study enabled me to enrich my proposed framework. The studies that were done on the Lebanese banks, focus on the relationship or connections between the banks and the political apparatus. It is worth mentioning that many shortcomings are faced when doing such an exercise: the bank secrecy law is a major challenge as not even authorities have the right to look at suspicious accounts, which makes it difficult to identify the source of wealth of some politicians or the profit gained from the financial engineering introduced by the governor of the central bank or from the public projects.

The methodology in this paper relied on literature review, newspapers, case studies and two interviews: one with a banker who occupies a significant post in one the most famous banks in the country, and the other with the economic advisor of one of most prominent Lebanese politicians.

This paper shows that the ongoing economic crisis is deep-rooted in the past. For that reason, I aimed to shed light on the different events and people that impacted the financial sector in the country after the independence of the French colonization, to better understand the economic situation of today. On another note, the aim of the interview with a banker was to dig more and learn information concerning the banking sector that are not mentioned on the official websites of the banks. This information was essential to come up with an innovative framework on mapping cronyism as the banker had a different way of analyzing facts.