BEIRUT — Lebanon’s incoming finance minister signed a contract on Friday with a New York-based company to conduct a forensic audit of the country’s central bank, a key demand of the international community to restore confidence in the crisis-struck Mideast nation.
Alvarez & Marsal had pulled out of an earlier deal late last year, complaining that after months of work, the company was unable to acquire the information it needed to conduct its audit. This was an attack on accountability calls in Lebanon. Many blame decades of corruption for the country’s economic collapse.
Lebanon was without a fully functioning government for over a year as rival groups haggled over the shape of the new Cabinet and the economic and financial crises escalated.
Now, a week since it was named, the 24-minister Cabinet said it will make negotiations with the International Monetary Fund its priority. Subsidies, which take billions from the pockets of cash-strapped governments, will be removed.
On Friday, the new energy minister, Walid Fayad, raised gasoline prices by nearly 40% as reports swirled that subsidies would be fully lifted by the end of the month. According to the central bank, it has not enough foreign currency in order to pay for the bill.
A forensic audit of the Lebanese central bank has been a key demand by the IMF and international donors who have said that they will not give money to Lebanon without major reforms to fight corruption and widespread waste in state institutions. An internal power struggle within Lebanon made the aborted audit more difficult, as political groups differed on the extent of the financial problem and traded accusations.
Reinstating the forensic audit was among the first order of business for Finance Minister Youssef El Khalil. An ex-official of the central banking since 1982, El Khalil served as the last executive director for the bank’s financial operation department.
But for experts, little has changed since the last audit fell apart. Mike Azar is an independent advisor on debt. He said that the lingering problems include a lack of independent oversight and direct access to central bank accounting systems, staff, and information technology systems.
The fact that the current minister is a former central bank official appears to be a conflict of interest, Azar also said. Azar said that he should not be responsible for overseeing the audit. “If these issues are not addressed, the audit is unlikely to be successful.”
El Khalil’s office said the auditors will present a report 12 weeks after they start their review. They have not yet set a date.
The country’s current economic and financial crisis, considered by the World Bank as one of the world’s worst in the last 150 years, is rooted in decades of corruption and mismanagement. As foreign reserves shrink and the economy contract, this small nation of six million has struggled to find fuel, medicines, and other basic necessities.
Following Friday’s gas price hikes, Lebanese will have to pay 174,300 Lebanese pounds, or $116, for 20 liters of the 95-octane gasoline, and 180,000 Lebanese pounds, or $120, for the 98-octane gasoline, according to the official exchange rate.
But there are multiple exchange rates, including an exchange rate set by the central bank to organize imports. The Lebanese currency, pegged for 30 years to the dollar at 1,500 Lebanese pounds for $1, was trading Friday on the black market at nearly ten times that rate.
Long queues outside gas stations have often descended into chaos or violence and caused major traffic jams. The gasoline stations had to limit the quantity of gasoline that they sold. The prices of diesel to power generation have risen more than 10 times, making it difficult for many households to get electricity. Numerous businesses were forced to close.
Georges Brax, a spokesperson for Lebanon’s gas station owners’ association, said Friday’s price hikes would be the last before the full lifting of subsidies.