Lebanon's central bank faces uncertainty without appointment of new governor

By Maya Gebeily

BEIRUT (Reuters) - Lebanon's central bank faces leadership uncertainty from Monday when the governor steps down with no appointed successor, risking new dysfunction in a state already hollowed out by years of political paralysis and financial collapse.

Riad Salameh leaves office after 30 years in the post, his reputation tarnished by the catastrophic financial collapse that began in 2019 and charges of corruption in France, Germany and Lebanon. He denies any wrongdoing.

The leadership crisis reflects divisions among the ruling elite that has been unable to install a president or fully empowered cabinet for over a year, while leaving the financial crisis to fester, largely unaddressed, since 2019.

The cabinet was meant to meet on Thursday to choose Salameh's successor, but it was cancelled following political disputes and there is little sign of a long-term solution on the horizon.

Under Lebanese law, that means the most senior of Salameh's deputies, Wassim Mansouri, is to replace him in the interim. But he - and the other three deputy governors - will only do so reluctantly and they are pushing for policy guarantees.

The bank's new leaders will have to grapple with a more-than $70 billion hole in the financial system, uncertain political support in a deeply fragmented state and seething public anger at the evaporation of national and private wealth.

For Lebanon, it means another key post will officially sit empty, hostage to the breakdown in Lebanon's sectarian power-sharing politics that has already driven chaos in most functions of the state.

POLITICAL PRESSURE

Caretaker prime minister Najib Mikati and parliament speaker Nabih Berri tried to forge an agreement this week after months without any progress towards finding Salameh's successor.

But the armed Shi'ite Muslim party Hezbollah and its Christian ally the Free Patriotic Movement, which are both part of the governing coalition, have rejected the moves, saying a caretaker cabinet lacks authority to make the appointment.

Thursday's cabinet meeting was abruptly cancelled when ministers affiliated to those parties did not turn up.

The governor's post, like the vacant presidency, is reserved for a Maronite Christian and the FPM has accused Mikati of trying to usurp the powers of the president by pushing through an appointment.

Mansouri and the other three deputy governors last month threatened to quit if forced to take over. They want powers to lend more money to the government if needed and to phase out a complex exchange platform for the much-devalued pound.

Mikati met the deputy governors on Thursday and his office said he viewed their demands as legitimate and their proposals as consistent with his government's plan in an apparent effort to keep them in place.

But it is not clear if Mikati could implement such changes, given Lebanon's political standoff. Mansouri declined to comment, but another of the deputies, Salim Chahine, said he expected Mansouri to be running the bank from next week.

He told Reuters the deputy governors were giving the political class six months to institute meaningful reforms, but he would not say if they would reinstate their threat to resign if no changes were enacted.

"Our condition is that you complete the required reforms, starting with a capital controls law that is very fast," he said.

Mike Azar, an expert on Lebanon's financial crisis, said the deputy governors were caught in a bind.

"The question is, will they do the right thing and act independently as the law allows them, even in the face of what will surely be fierce political pressure," he said.

(Reporting by Maya Gebeily and Laila Bassam; Writing by Angus McDowall; Editing by Toby Chopra)