Lebanon central bank official detained over currency probe

BEIRUT (AP) — A top Lebanese central bank official has been detained pending investigation into the country’s financial crisis, including the free fall of the Lebanese currency, a judicial official said Friday.

Lebanon's financial prosecutor ordered the detention of Mazen Hamdan, the head of cash operations at the bank, late Thursday. He is the most senior official to be named in an ongoing probe into possible financial wrongdoing. Hamdan was ordered to appear for questioning about what Lebanon's official news agency called “the manipulation of the dollar exchange rate.”

The central bank denied charges of manipulation in a statement that detailed recent transactions with money traders.

The probe reflected a growing clash between the central bank and the government at a critical time, as Lebanon launches talks with the International Monetary Fund to negotiate a rescue plan amid an unprecedented economic and financial crisis. The talks come against the backdrop of a deepening liquidity crunch, negative economic growth, soaring inflation and a massive state debt.

The judicial official, who spoke on condition of anonymity because he was not authorized to discuss the investigation, said Hamdan has been asked to respond to the accusations but has not been formally charged. An investigative judge would be in charge of the formal interrogation.

It's unclear when that will start and Hamdan for now remains in detention.

In a statement, the central bank said it was lifting banking secrecy rules to show transactions between the bank and private money traders, to respond to the prosecutor's allegations. It said the transactions with private traders over one month were of a limited quantity and were no match to the fluctuations witnessed in the market. It added that no transactions with exchange bureaus occurred after May 5.

“There are no manipulations in the exchange market as a result of transactions with the central bank,” it said.

Meanwhile, the central bank's staff union called for the release of Hamdan, denouncing a “continuous attack on the central bank" and saying Hamdan was only carrying out his administrative duties.

In recent days, authorities have cracked down on currency exchange bureaus as the Lebanese pound, pegged to the dollar for more than 20 years, lost 60% of its value in weeks. A number of money dealers and the head of their union were arrested and officials closed down some bureaus for operating without licenses. They accused others of violating orders from the central bank to trade at a new controlled rate.

The measures to contain the currency's free fall, including a cap on external transfers and adjusted exchange rates for dollar withdrawals from banks and money transfer bureaus, have created chaos on the black market and sowed panic among the public.

The central bank said it will provide dollars to importers at the rate of 3,200 pounds to the dollar — more than double the official pegged rate — to control the price of food. The black market rate has reached over 4,200 pounds to the pound in recent days.

The interrogation of Hamdan comes amid an unprecedented public spat between the head of the government and the governor of the central bank. Prime Minister Hassan Diab has held the governor, Riad Salameh, responsible for the pound's downward spiral. Salameh says he has been taking all necessary measures to contain the crisis and blames politicians for misspending bank finances to pay down massive state debt.