FEATURE - Lebanon still finds comfort in gold reserves
07:32 p.m Jul 23, 1998 Eastern
By Jack Redden
BEIRUT, July 24 (Reuters) - While even gold producers like Australia
have been dumping the precious metal from national reserves, Lebanon
continues to sit on a treasure trove worth nearly $3 billion.
''There have been talks over the last decade but they did not do
anything because they wanted to provide the additional security for
investors,'' said Marwan Barakat, head of research for Banque Audi
(AUDI.BY).
''They would have earned a significant return if they had used the
gold,'' he said. ''But there is a trade off between optimising the
return on the gold reserves and securing a financial standing in hard
currencies that provides security for investors.''
For Lebanese, the 9,222,000 ounces of gold held for the country in U.S.
vaults and the central bank are not just an abstract item in reports on
the national reserves. The gold is the symbol of Lebanon's financial
survival through a 15-year civil war that destroyed much else in the
country.
Despite a battering that ended Lebanon's role as financial heart of the
Middle East and impoverished much of the population, the tiny country
squeezed between the Mediterranean and the Syrian desert never defaulted
on a foreign loan.
The policy of never selling gold -- which the Lebanese central bank had
maintained since its formation in 1947 -- was made into a formal law by
parliament in the mid 1980s when the country was descending into the
darkest days of the civil war.
''Under that law the bank cannot sell, lend or undertake any financial
operations on our gold. So it is an asset that we hold on our books but
which we cannot sell, lend or otherwise transact in any fashion,'' said
a senior banker.
''I think it was much more important back then than it is today as a
confidence factor. Peoples views have evolved, investors are becoming
much more mature.''
PSYCHOLOGICAL FACTOR
Some bankers would like at least an easing of the restrictions, allowing
such things as the loaning of gold that other central banks undertake to
at least cover the costs of storing the unproductive metal.
''It's not an earning asset it is true. That is a matter of law so we
can't have an independent policy,'' the banker said. ''It just sits
there and until there is a change in the law we cannot do anything.''
Even a gold producer like Australia has moved away from the precious
metal, which costs money to hold in a vault and does not produce even
interest income. Canada, with a population nine times that of Lebanon,
holds only $144 million in gold in its foreign reserves.
Barakat noted that the value of the gold, slipping anyway because of
weak prices, was declining steadily as a percentage of total state
obligations, which have been inflated by years of high budget deficits.
But no one is expecting a change in policy, which could come only by
Lebanon's fractious parliament altering the 1980s law, an unlikely event
when less controversial measures can take years of debate.
While other countries may be seeking more productive forms of reserves
than gold bars in a vault, Lebanon is still trying to ensure economic
stability eight years after the fighting stopped.
Economists believe the gold still provides at least a psychological
guarantee behind government promises. By law, Lebanese pound notes in
circulation must be backed by gold, which they are about seven times
over. And foreign investors need to be reassured as well.
Lebanon has raised $1 billion on international capital markets this year
-- following earlier net borrowing of $1.05 billion since the war -- and
hopes to raise at least another $500 million in the second half of 1998.
Central Bank sources say there has been no discussion of lifting the
restrictions on state gold transactions and they do not expect any in
the foreseeable future.
''It means that you have an asset there worth close to $3 billion which
has always been a source of confidence,'' said an official. ''And I
think that remains true.''
Copyright 1998 Reuters Limited |
