Sovereign fund… Is it a salvation for the economic crisis or is it just an illusion in the shadow of the corrupt political class? – Maysa Atwi

In light of the severe shocks to which the Lebanese economy has been exposed as a result of the collapse of all sectors to unprecedented levels, and the state’s mismanagement of this economic and monetary crisis, which has had a catastrophic impact on the lives of Lebanese citizens, talk and debate began about the necessity of establishing a sovereign fund and showing it as salvation from this crisis.

What is the truth about this matter and its repercussions on the Lebanese reality?

After the demarcation of maritime borders, the importance of establishing a sovereign wealth fund to manage oil and gas revenues, given its importance for economic investment, became clear. A comparative study with some countries that have adopted the sovereign fund formula to benefit from their experience. The commission discussed the three proposals of Cesar Abi Khalil, Taymour Jumblatt and Ali Hassan Khalil on the regulation of the law on the fund, which means that without political and sectarian calculations, the fight over the management of the fund and its presentation to any authority will be fiercely fought over who will take over the management of this fund, and thus the import of oil.

And since the economic crisis in Lebanon is at the root of the existing problem, there are fears that there are no controls underpinning the work and role of this fund, and it seems that parts of the government in Lebanon are in no rush to establish this fund anytime soon, given that oil and gas extraction it will not start before at least three years, and before a new government is formed after the election of the President of the Republic.

It is important to note that Law no. 132/2010 provided for “the establishment of a state fund in which revenues collected from the state resulting from oil activities and rights will be deposited.” This was the first time that the principle of a state fund was adopted in Lebanon, in the Petroleum Resources Law, which was approved by the parliament in 2010, and which was then being worked on by the Ministry of Energy.

After the idea was revived after the collapse of 2019, this issue means that there is one goal, which is to compensate the depositors who lost their money in Lebanese banks, by selling or “investing” some land and common property, provided that the income from this “liquidation” goes to a state fund that compensates depositors, they get their money, not to the state treasury, and thus large depositors guarantee their rights, and state assets are liquidated.

In an exclusive interview with the Al Diyar website, Professor Jassem Ajaka indicated that part of the Sovereign Fund’s income goes outside the Lebanese economy, which allows it to operate in better natural conditions, in addition, all revenues from gas extraction must go to the Sovereign Investment Fund. In the Lebanese economy, and allows for an increase in its size, and is not used in any way to cover current consumption, or to repay debts under penalty of burning this wealth, but also with the aim of investing in foreign investments that provide diversified income.

Ajaka added: “This fund is owned by the Lebanese state, but its management belongs to the board of directors, and this board has a guiding role in terms of setting limits on the type of investments, their geographical diversification and asset currencies. The audit of the fund’s accounts and its management is entrusted to an international audit to the house that puts the annual report in the hands of the board of directors, but also in the hands of the Lebanese people, in order to ensure the absolute transparency of the management of this fund. As for the return on investment of the fund, they go exclusively to the state treasury and are invested in the economic and health sector, educational and social .

Ajaka stressed: “The sovereign fund is a salvation for the economic crisis in Lebanon, because it will allow the state to gain credibility, especially after not paying its debts, and to enter the global markets with wide doors, which will allow the reduction of borrowing costs, because the presence of the fund reduces the interest rate. On treasury bonds. Also, this fund will enable the issuance of treasury bonds in favor of depositors to guarantee their rights in banks that the government has borrowed and spent without reducing the account, and will also help protect the economy from inflation. Entry of foreign currencies from abroad into the national economy as a result of oil and gas exports will reduce the inflation affecting the Lebanese economy in the first phase, but this inflation, and in the absence of an appropriate economic structure, will rise again thanks to domestic consumption arising from gas revenues and capital inflows in banking sector.

Ajaka pointed out that “the state fund pushes the preservation of wealth in hard currencies abroad, thus easing the pressure on the national currency, which means improving the state’s ability to export. Investing the fund’s income in productive sectors has a positive effect in terms of strengthening the economic machine that will benefit And if the injection of these revenues into the economy is accompanied by an economic plan that enables the diversification of the economic machine and its fair distribution among all regions, the gross domestic product will increase significantly as a result of these investments, so the resulting budget surplus is used to bridge the public debt and increasing the income of the state fund, in such a way as to enable an even development that undoubtedly leads to better social justice. , through the creation of jobs in all regions, and thus the distribution of wealth through the economic machine in a fair way to all members of society. In addition, investments in infrastructure ensure great social prosperity from which eg citizens benefit.

The fund belongs to a Lebanese

On the other hand, economist and university professor Ahmed Jaber indicated to the Al Diyar website that “a sovereign wealth fund is an investment fund owned by the state and therefore guarantees government assets arising from excess state-owned reserves (as long as it is owned by states, then owned by the Lebanese) and therefore hope to ensure cash flows for future generations, and there is also a proposal to invest and deposit the expected oil revenues into a sovereign fund, but this fund needs a law approved by parliament, and therefore does not make sense in a sovereign to the political fund in the absence of accountability and responsibility.

Jaber added: “Many countries in the world have sovereign wealth funds, including two, three and even four sovereign wealth funds. These imports are deposited and invested in certain areas.”

Jaber emphasized that “in the event that the state assets are sold and the situation remains as it is, in terms of mismanagement by the governments that took turns managing the state, and before the mismanagement we have bad intentions, which led us to mismanagement, collapse and corruption at all levels. So, in the case of Intentions, they remained the same, and state assets were sold, so we would lose the rest of the money.”

Jaber continued: “We had a reserve of hard currencies as a result of the misuse of this money under many headings, including the headings related to support, and we squandered this money, and this issue contributed more to the decline of the lira against the dollar, so if the government assets sell, we will lose for the second time.” This money, and the problem is not in state property, because the condition of the state can be improved by importing it, without damaging public property.”

Jaber said: “Improving the exchange rate of the national currency requires structural and economic policies that support production, reduce imports and increase exports, and reduce the deficit in the balance of trade and thereby also reduce the deficit in the balance of payments, which leads to an increase in foreign exchange reserves, and therefore will the exchange rate of the national currency will inevitably be fixed again.” .

Jaber pointed out that “there is no clear and transparent monetary policy, but there are circulars issued by the Banque du Liban, and all of them will not achieve the desired goals from three years ago to today, with the absence of any serious solution to face the crisis. The state fund is positive factor, but it is not the only solution for getting out of the crisis.” Economic crisis, because there must be a plan with clear goals and milestones. Getting out of the economic crisis requires a lot of measures, and work must be done to restore the competitiveness of the national economy, and the existence of a fiscal policy related to progressive taxes that respects the circumstances of the taxpayer, which helps to strengthen some of the capabilities. Also, at the level of monetary policy, we need some measures related to improving the exchange rate of the national currency, and thus improving the purchasing power of citizens, returning the country’s economic wheel to normal, economic growth. which leads to an increase in investment and a decrease in the unemployment rate, which are all positive factors that contribute to the growth of the economic situation.

Jaber continued: “The economic situation in Lebanon will not be correct if there is no stability in politics, and it is necessary that there is political stability, because it is the main factor for the return of economic life to the correct form, but unfortunately in Lebanon the interaction between politics and the economy is negative , so it must be reestablished.” Reviewing and redrawing the lines between politics and the economy, in the sense that politics must be separated from the economy, so who holds them accountable in Lebanon??.The judiciary is supposed to be held accountable.. but where is he now?

Jaber concluded: “Political interference prevents any accountability. We have not seen any of the Lebanese held accountable during this period, even real and effective accountability does not exist, and if accountability and responsibility are not resorted to, Lebanon will not move towards the right reform State property must not be sold, and in case it is sold in light of this situation, because that money will not go to compensate depositors and will not go to the state treasury, but will go into the pockets of those who are used to stealing in Lebanon. Therefore, work must be done on preventing the sale of state property, because it belongs to people under a political class that is not qualified and disqualified. In the event that the Law on Sovereign Fund is approved, the question remains who will manage this fund, how will its board of directors be distributed, is there a quota?

There is no doubt that the Lebanese state in this crisis left things open and reached for a state fund, and now it is being advertised that this fund is a lifeline to get out of the crisis, without any guarantee that it will not be like the many random decisions made during the crisis, which only worsened. .