In a significant move to address one of the world's most severe financial crises, the Lebanese Cabinet has approved a draft law aimed at returning funds to depositors whose savings were wiped out during the country's 2019 economic meltdown. The decision, taken on Friday, December 26, marks the government's first concrete step towards reimbursing individuals whose bank accounts have been frozen for years.
The Draft Law and Its Contentious Passage
The proposed legislation, officially called the "financial gap law," seeks to formally determine the massive losses suffered by Lebanese banks during the collapse. It also establishes a structured mechanism for the gradual return of depositors' money. The vote in the Cabinet was not unanimous, with thirteen ministers voting in favour and nine against, highlighting the deep political divisions over how to handle the crisis.
During the Cabinet meeting, protestors held a sit-in outside the government headquarters in Beirut. They demanded urgent action but also expressed widespread scepticism about whether the new law would deliver meaningful relief or simply protect powerful banking interests.
A Staggered Plan for Repayment
Following the meeting, Lebanese Prime Minister Nawaf Salam outlined the repayment structure. He promised that once the law is enacted, smaller depositors, who make up 85% of all account holders, will receive their full deposits back over a four-year period.
For larger depositors, the process will be more gradual. They will first receive up to $100,000 in cash. The remainder of their deposits will be converted into tradable bonds backed by the Central Bank's revenues and assets, which Salam stated total approximately $50 billion.
Addressing criticism that these bonds might be worthless, Salam gave an example: a depositor with $3 million could recover about $60,000 per year from the bond mechanism. He emphasised that the law includes accountability clauses and denied it was a "forgive and forget" measure for banks.
Roots of the Crisis and International Pressure
The draft law represents a crucial legislative framework for restructuring Lebanon's shattered financial sector after years of political paralysis. The crisis, which began in 2019, is rooted in decades of corruption, financial mismanagement, and profiteering. It evaporated billions in savings, pushed over half the population into poverty, and caused the Lebanese currency to lose over 90% of its value against the US dollar.
The legislation touches on key measures long demanded by the International Monetary Fund (IMF), including clear rules for returning deposits, restructuring bank liabilities, and improving transparency. The IMF has repeatedly expressed frustration with Lebanon's slow progress on reforms despite years of talks.
A blame game continues over who is responsible. Banks point to government corruption, while critics accuse the banks of running a Ponzi-like scheme. Former central bank governor Riad Salameh, who is wanted internationally on corruption charges, has denied these allegations.
Lebanon's economic devastation was further compounded by the recent conflict between Israel and Hezbollah. A World Bank report estimates the cost of reconstruction from that 14-month war at about $11 billion.
With the draft law now heading to parliament, its passage faces potential delays, a common fate for reform bills in Lebanon. The country's recently elected President, Joseph Aoun, and Prime Minister Salam have pledged to implement reforms to rescue an economy that now operates largely on cash, with public trust in banks at a historic low.
