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الدولة ومسرحية صندوق النقد الدولي...
منذ انهيار الازمة المالية والدولة والمجلس النيابي،يتقاطرون وفود لصندوق النقد الدولي للاقتراض،ولكن الصندوق يضع الشروط الواحد تلو الأخرى،وذلك لعدم الثقة بالدولة وبالنظام المالي والمصرفي الذي اساتولى على أموال المودعيين وجنى عمرهم،دون ان يرف له جفن،بعد كل هذه الرحلات والاقامات على حساب أموال المودعين لاستقراض ثلاث مليارات دولار وبفوائد،هذا مبلغ ذهيد للمغتربين،والتحويلات السنوية لهم تصل الى سبعة مليارات.
انها مضيعة للوقت وتسويف واهدار للمال العام واموال المودعيين،وللأسف شم هوا للمسؤولين،دون أي انجاز .

الى جميع المودعيين المنهوبة والمسروقة اموالهم من المصارف وبمساعدة الدولة,هل الصراخ والخطابات الرنانة,أسفرت عن اي تقدم,أواثرت على سير الدولة أو المصارف؟لا بل بالعكس,الدولة تسير ومصالحها مؤمنة ورواتب موظفيها تدفع وبزيادات وعلاوات,أما المصارف فهي أيضا تسير,وتخصم من اموال المودعيين لقاء خدمات لا تقدمها,والخاسر الوحيد هو المودع.فيا ايها المودعيين, يجب التفكير بعمل يهز أصحاب القرار,مثلا العصيان المدني,والامتناع عن دفع الضرائب,حتى يتم اعادة الاموال والودائع المسروقة لاصحابها.

# An Open Letter to the President of the United States

# # President Donald J. Trump

**From: Lebanese Depositors Seeking Justice and the Recovery of Their Lawfully Owned Savings**

**Your Excellency, President Donald J. Trump,**

We extend to you our highest respect and write on behalf of hundreds of thousands of Lebanese depositors whose life savings have remained inaccessible for years following the unprecedented collapse of Lebanon's financial and banking sector.

Many of us spent decades working in Lebanon and abroad, entrusting our earnings to Lebanese banks in good faith. Today, these deposits—amounting to tens of billions of U.S. dollars—remain frozen, while countless families have suffered severe financial hardship, lost businesses, interrupted education, and diminished access to healthcare and dignified living.

We recognize the longstanding commitment of the United States to promoting financial transparency, combating corruption, strengthening the rule of law, and protecting the integrity of the international financial system. Because a significant portion of the affected deposits is denominated in U.S. dollars and many international financial transactions pass through the global U.S. dollar system, we respectfully appeal for your support in encouraging transparency and accountability regarding the fate of these funds.

We respectfully request that the United States, through its appropriate institutions and in cooperation with the relevant international authorities, consider supporting efforts to:

* Encourage full transparency regarding the movement and disposition of funds related to Lebanon's financial crisis.
* Support international cooperation aimed at tracing financial flows where permitted under applicable laws and regulations.
* Promote accountability for any proven cases of corruption, fraud, money laundering, or illicit transfers connected to the financial collapse.
* Encourage reforms that protect depositors' rights and contribute to restoring confidence in Lebanon's financial system.
* Support initiatives that facilitate a fair, lawful, and equitable resolution for all depositors.

Our appeal is not political. It is humanitarian, legal, and economic. We are not seeking preferential treatment or intervention in Lebanon's sovereignty. Rather, we seek support for the universal principles of justice, transparency, accountability, and the protection of private property.

We believe that recovering confidence in Lebanon's financial sector is impossible without restoring the legitimate rights of depositors. Justice for depositors would not only help countless Lebanese families but would also strengthen confidence in international financial standards and the rule of law.

Your Excellency, millions of ordinary people continue to bear the consequences of decisions they neither made nor controlled. We respectfully ask that you lend your voice and influence to efforts that promote truth, accountability, and a fair resolution to one of the largest banking crises in modern history.

We thank you for your attention and for your continued commitment to justice, transparency, and economic stability around the world.

Respectfully,

**Lebanese Depositors**
Represented by Depositors' Associations and Civil Society Organizations
Beirut, Republic of Lebanon

# Chapter Two

# The Financial Gap in Lebanon

# # How Tens of Billions of Dollars Disappeared

# # # Introduction

The collapse of Lebanon's financial system was not merely a liquidity crisis or a temporary shortage of foreign currency. At its core lay a far more profound problem: a massive financial gap that revealed the banking sector and the state collectively owed far more money than they could realistically repay. This imbalance became one of the most complex and controversial aspects of Lebanon's economic collapse and remains central to any discussion of financial recovery and reform.

The term **financial gap** refers to the difference between the financial obligations of institutions and the assets available to meet those obligations. In Lebanon's case, this gap emerged primarily within the interconnected balance sheets of the government, the Banque du Liban (BDL), and the commercial banking sector. For many years, these institutions operated within a financial model that depended on continuous inflows of foreign currency, growing public borrowing, and sustained confidence among depositors and investors. As long as fresh capital continued to enter the system, the underlying weaknesses remained largely concealed. Once those inflows slowed dramatically, the imbalance became impossible to ignore.

Public debate often simplified the issue by asking, *"Where did the money go?"* While understandable, this question can be misleading if interpreted literally. In most financial crises, money does not simply disappear. Rather, it is transformed through a complex series of financial transactions, losses, debt obligations, exchange rate movements, declining asset values, and liquidity shortages. Understanding the Lebanese financial gap therefore requires examining how resources were allocated, how risks accumulated, and how losses ultimately emerged across multiple institutions.

One of the defining characteristics of Lebanon's crisis was the close interdependence between the government, the central bank, and commercial banks. Commercial banks accepted deposits from households, businesses, and the Lebanese diaspora. A significant portion of these funds was then invested in government debt or deposited at the central bank in return for attractive interest rates. The central bank, in turn, used these resources to support monetary stability, finance government operations, maintain foreign exchange reserves, and preserve the long-standing exchange rate peg.

For many years, this interconnected model appeared successful. Depositors earned relatively high returns, banks reported strong profitability, government borrowing continued without major disruptions, and the exchange rate remained stable. However, the model relied heavily on a continuous inflow of fresh foreign currency. As external confidence weakened and new deposits declined, the financial structure became increasingly unsustainable.

When the crisis intensified after 2019, institutions throughout the financial system faced simultaneous pressures. Depositors sought access to their savings, businesses required foreign currency for imports, the government confronted mounting debt obligations, and the central bank struggled to preserve remaining reserves. These competing demands exposed a reality that had previously remained hidden: the financial obligations of the system substantially exceeded the resources immediately available to satisfy them.

Determining the exact size of the financial gap proved extraordinarily difficult. Different institutions, international organizations, financial experts, and government agencies produced varying estimates based on differing accounting methodologies, assumptions regarding exchange rates, asset valuations, future recoveries, and expected restructuring outcomes. Although estimates varied, there was broad consensus that the losses amounted to many tens of billions of U.S. dollars, making the crisis one of the largest banking and sovereign financial collapses relative to the size of a national economy in modern history.

The emergence of this gap raised several fundamental questions that continue to shape Lebanon's recovery efforts:

* How did the financial gap accumulate over many years?
* What role did fiscal policy, monetary policy, and banking practices play?
* How should losses be measured and allocated?
* Who ultimately bears responsibility for absorbing these losses?
* What legal, economic, and ethical principles should guide financial restructuring?
* How can confidence be restored without undermining financial stability or social justice?

These questions extend beyond accounting exercises. They involve public policy, constitutional principles, economic efficiency, investor confidence, social equity, and political legitimacy. Decisions regarding the allocation of financial losses affect depositors, shareholders, taxpayers, pensioners, businesses, public institutions, and future generations alike.

This chapter does not seek to assign political blame. Instead, it aims to provide an objective and evidence-based explanation of how the financial gap emerged, why estimates differ, how international financial institutions assess such losses, and why accurately identifying the size and distribution of the gap is essential for designing a credible recovery strategy.

The analysis begins by examining the concept of a financial gap in modern banking systems before turning to Lebanon's specific experience. It then explores the interaction between sovereign debt, central bank operations, commercial banking practices, exchange rate policies, and declining capital inflows that collectively produced one of the most significant financial imbalances in the country's history.

Understanding the financial gap is indispensable for understanding the broader Lebanese crisis. Without a clear assessment of the losses, policymakers cannot design fair restructuring plans, regulators cannot restore confidence in the banking system, and investors cannot evaluate future opportunities. Transparency regarding financial losses therefore constitutes not merely an accounting requirement but a prerequisite for national economic recovery.

Ultimately, the financial gap represents more than missing numbers on balance sheets. It reflects the cumulative consequences of policy choices, institutional incentives, governance practices, and economic assumptions developed over decades. By examining these factors carefully, this chapter seeks to move beyond simplified narratives and provide readers with a comprehensive understanding of one of the defining issues in Lebanon's financial history.

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# # # Chapter Structure

The chapter is organized into the following sections:

**2.1** What Is a Financial Gap?
**2.2** The Balance Sheets of the Lebanese State, Banque du Liban, and Commercial Banks
**2.3** How Financial Engineering Increased Hidden Losses
**2.4** Government Debt and Central Bank Financing
**2.5** Foreign Currency Liabilities Versus Available Assets
**2.6** Why Estimates of the Financial Gap Differ
**2.7** The IMF Assessment and International Perspectives
**2.8** Distribution of Financial Losses: Who Bears the Burden?
**2.9** Transparency, Auditing, and Financial Disclosure
**2.10** International Comparisons: Lessons from Other Banking Crises
**2.11** Challenges in Closing the Financial Gap
**2.12** Key Lessons and Transition to Chapter Three

# 1.15 Lessons for Future Financial Governance

The financial collapse that unfolded in Lebanon represents one of the most significant economic crises in the country's modern history. While the crisis inflicted profound financial, social, and institutional damage, it also provided valuable lessons for policymakers, financial institutions, regulatory authorities, and future generations. Understanding these lessons is essential not only for Lebanon's recovery but also for strengthening the resilience of financial systems facing similar challenges elsewhere.

Financial crises rarely emerge from a single event. Rather, they develop through the gradual accumulation of structural weaknesses that remain unresolved over extended periods. Lebanon's experience illustrates how fiscal imbalances, excessive public debt, inadequate institutional oversight, delayed reforms, and declining public confidence can reinforce one another until the financial system reaches a critical point.

# # The Importance of Fiscal Discipline

One of the clearest lessons concerns the necessity of sustainable public finances. Governments may rely on borrowing to finance development projects or respond to temporary economic shocks, but persistent deficits without corresponding economic growth eventually become unsustainable. Fiscal discipline does not simply require reducing expenditures; it also demands improving the efficiency of public spending, strengthening revenue collection, reducing waste, and ensuring that borrowing supports productive investment rather than recurring consumption.

Long-term fiscal sustainability requires realistic budgeting, transparent reporting, and continuous evaluation of public finances. Early corrective measures are generally less costly than emergency interventions after a crisis has already emerged.

# # Central Bank Independence and Accountability

The crisis also underscored the critical importance of a credible and independent central bank. Monetary authorities play a central role in maintaining financial stability, managing foreign exchange reserves, supervising banking institutions, and preserving confidence in the national currency.

Independence, however, must be accompanied by accountability. Effective central banking requires transparent decision-making, regular public communication, sound risk management, and robust oversight mechanisms. Clear institutional mandates and strong governance frameworks help ensure that monetary policy serves the long-term interests of economic stability rather than short-term political considerations.

# # Strengthening Banking Supervision

The Lebanese experience demonstrated that a banking system can appear financially sound while significant vulnerabilities accumulate beneath the surface. Effective banking supervision therefore requires more than compliance with minimum regulatory requirements. Supervisory authorities must continually evaluate asset quality, liquidity risks, concentration of exposures, foreign currency mismatches, and interconnected relationships between banks and the public sector.

Stress testing, early warning systems, transparent financial reporting, and internationally recognized prudential standards are essential tools for identifying vulnerabilities before they become systemic threats. Independent external audits and effective regulatory enforcement further strengthen confidence in the financial system.

# # Diversification of the Economy

For many years, Lebanon's economic model relied heavily on banking services, financial inflows, remittances from the Lebanese diaspora, tourism, and consumption-driven growth. While these sectors generated important economic activity, they did not sufficiently diversify the country's productive base.

Future economic resilience depends upon encouraging investment in productive sectors such as manufacturing, agriculture, technology, renewable energy, logistics, education, healthcare, and knowledge-based industries. A diversified economy is generally better positioned to absorb external shocks and generate sustainable employment opportunities.

Supporting entrepreneurship, innovation, digital transformation, and export-oriented industries can reduce dependence on a limited number of revenue sources while expanding long-term economic potential.

# # Transparency and Public Accountability

Transparency is one of the most fundamental pillars of financial governance. Citizens, investors, businesses, and international partners require accurate and timely information to make informed decisions. Public confidence is strengthened when governments publish reliable financial data, disclose fiscal risks, explain policy decisions, and maintain open communication during periods of uncertainty.

Independent oversight institutions, parliamentary scrutiny, external auditing, anti-corruption measures, and access to public information contribute to greater accountability. Transparent governance not only reduces financial risk but also enhances institutional credibility and investor confidence.

# # Protecting Depositors and Financial Consumers

The crisis demonstrated the importance of protecting the rights of depositors. Public confidence in banks depends largely on the assurance that savings will remain secure and accessible under clearly defined legal frameworks.

Future reforms should strengthen depositor protection mechanisms, establish transparent procedures for crisis management, clarify the legal framework governing extraordinary banking measures, and improve consumer awareness regarding financial risks. Deposit insurance systems, where appropriately designed and adequately funded, may also contribute to maintaining confidence during periods of financial stress.

# # Crisis Preparedness and Early Intervention

Financial crises often develop gradually before becoming visible to the broader public. Effective governance therefore requires continuous monitoring of economic indicators, banking sector vulnerabilities, fiscal sustainability, and external financing conditions.

Governments and regulatory authorities benefit from establishing contingency plans, crisis management frameworks, and coordinated decision-making mechanisms before emergencies occur. Early intervention frequently reduces both the financial cost and the social consequences of future crises.

# # Restoring Confidence Through Reform

Economic recovery ultimately depends upon rebuilding confidence. Financial assistance, debt restructuring, and external support can provide important resources, but sustainable recovery requires credible institutions capable of implementing consistent and transparent policies.

Restoring confidence involves strengthening the rule of law, improving judicial effectiveness, modernizing public administration, combating corruption, and creating an environment in which investors, entrepreneurs, and citizens can plan for the future with greater certainty.

For Lebanon, rebuilding confidence will likely require sustained cooperation among public institutions, the banking sector, private businesses, civil society, and international partners. Recovery is not a single event but a long-term process requiring commitment, patience, and consistent implementation of reforms.

# # The Human Dimension of Financial Governance

Perhaps the most enduring lesson is that financial governance is ultimately about people. Budget decisions influence public services. Monetary policy affects purchasing power. Banking regulation protects household savings. Fiscal reforms shape employment opportunities and economic growth.

When governance succeeds, citizens gain confidence to invest, save, innovate, and contribute to national development. When governance fails, the consequences extend beyond financial markets to affect families, education, healthcare, businesses, and future generations.

The Lebanese experience serves as a reminder that sound financial institutions are built not only on laws and regulations but also on public trust, professional integrity, and responsible leadership.

# # Conclusion

The collapse of Lebanon's financial system was not the result of a single policy error or isolated event. It emerged from years of accumulated structural weaknesses, delayed reforms, institutional shortcomings, and declining confidence. The crisis demonstrated how deeply interconnected fiscal policy, monetary stability, banking regulation, governance, and public trust truly are.

The lessons presented in this chapter provide a framework for understanding both the origins of the crisis and the principles required for sustainable recovery. They emphasize the importance of transparency, accountability, fiscal responsibility, independent institutions, and effective regulation as essential foundations of long-term financial stability.

As this book now turns to the next stage of the analysis, attention shifts from the chronology of the crisis to one of its most challenging and controversial questions: the emergence of Lebanon's massive financial gap. Understanding how tens of billions of dollars effectively disappeared from the financial system is essential for evaluating responsibility, designing fair recovery policies, restructuring the banking sector, and rebuilding confidence in the country's economic future.

This transition forms the basis of **Chapter Two: "The Financial Gap in Lebanon: How Tens of Billions of Dollars Disappeared,"** where the focus moves from the evolution of the crisis to the financial losses that reshaped Lebanon's economy and continue to influence its path toward recovery.

# 1.14 Economic, Social, and Human Consequences

The financial collapse that unfolded in Lebanon after 2019 extended far beyond banking institutions and government finances. What began as a monetary and fiscal crisis gradually evolved into a multidimensional national emergency affecting nearly every aspect of economic activity, public services, and daily life. Its consequences were felt not only in financial indicators but also in the experiences of millions of individuals and families struggling to adapt to rapidly changing circumstances.

# # Economic Contraction

One of the most immediate consequences of the crisis was a severe contraction in economic activity. Businesses across multiple sectors experienced declining revenues as consumer purchasing power weakened and investment slowed dramatically. Companies that depended on imported raw materials faced shortages of foreign currency, making it increasingly difficult to maintain production or replenish inventories.

Small and medium-sized enterprises, which form the backbone of Lebanon's private sector, were particularly vulnerable. Many reduced operations, postponed expansion plans, or closed entirely. The decline in commercial activity affected retail trade, manufacturing, tourism, hospitality, construction, transportation, and professional services, contributing to a prolonged economic recession.

The depreciation of the Lebanese pound further intensified these challenges. As the value of the national currency declined, the cost of imported goods increased substantially. Since Lebanon relies heavily on imports for food, fuel, medicine, industrial equipment, and consumer products, inflation accelerated rapidly, reducing the purchasing power of households across the country.

# # Rising Inflation and Currency Depreciation

Inflation became one of the defining features of the crisis. Prices of essential goods rose repeatedly within short periods, making financial planning increasingly difficult for both households and businesses. Families found that salaries which had once provided a comfortable standard of living could no longer cover basic necessities.

The rapid depreciation of the Lebanese pound created uncertainty throughout the economy. Businesses struggled to determine appropriate prices, employers found it difficult to adjust wages at the pace of inflation, and consumers faced continual increases in the cost of daily necessities. Multiple exchange rates added further complexity, creating distortions in markets and complicating commercial transactions.

For many citizens, inflation effectively reduced lifetime savings and fixed incomes. Pensioners, public-sector employees, and individuals with salaries denominated primarily in Lebanese pounds experienced significant declines in their real purchasing power.

# # Employment and Poverty

As economic activity contracted, unemployment increased substantially. Businesses seeking to reduce operating costs implemented hiring freezes, salary reductions, shortened working hours, or workforce reductions. Young graduates entering the labor market encountered particularly limited employment opportunities, while experienced professionals often accepted lower-paying positions simply to remain employed.

The rise in unemployment was accompanied by increasing poverty. Families that had previously considered themselves financially secure found it increasingly difficult to afford food, housing, transportation, healthcare, and education. Many households adopted coping strategies such as reducing consumption, postponing medical treatment, relying on financial assistance from relatives abroad, or taking on multiple jobs.

Income inequality also widened. Individuals with access to foreign currency earnings or overseas financial resources generally adapted more successfully than those whose incomes depended entirely on the domestic economy. This divergence contributed to growing social disparities.

# # The Healthcare System Under Pressure

The healthcare sector faced extraordinary challenges throughout the crisis. Hospitals struggled to import medical equipment, pharmaceuticals, and essential supplies due to shortages of foreign currency. Rising operating costs placed additional financial pressure on healthcare providers already dealing with declining reimbursement values.

Medical professionals—including physicians, nurses, pharmacists, and specialists—faced deteriorating working conditions and declining real incomes. Many chose to pursue employment opportunities abroad, contributing to a significant loss of skilled healthcare personnel. The resulting shortages affected both public and private healthcare services, increasing waiting times and reducing the availability of specialized medical care.

Patients also encountered increasing financial barriers. The cost of medications, diagnostic procedures, and hospital treatment rose considerably, placing healthcare beyond the reach of many families and increasing dependence on charitable organizations and humanitarian assistance.

# # Challenges in Education

Lebanon's education sector, historically regarded as one of the country's greatest strengths, also experienced significant disruption. Schools and universities faced rising operational costs while many families struggled to pay tuition fees. Educational institutions confronted difficulties maintaining facilities, compensating faculty members, and adapting to rapidly changing economic conditions.

Teachers and university professors experienced substantial declines in the real value of their salaries. Many sought additional employment or emigrated in search of more stable professional opportunities. This migration of educators created concerns regarding the long-term quality and sustainability of the educational system.

Students likewise faced increasing uncertainty. Some postponed higher education because of financial constraints, while others sought scholarships or educational opportunities abroad. Families increasingly viewed education not only as a means of personal advancement but also as a pathway toward future emigration.

# # Migration and the Brain Drain

One of the most enduring consequences of the crisis was the acceleration of emigration. Lebanon has long experienced waves of migration, but the post-2019 period witnessed a renewed departure of highly educated professionals, entrepreneurs, engineers, academics, healthcare workers, and skilled technicians.

The loss of human capital represented a significant challenge for future economic recovery. While remittances from Lebanese living abroad continued to provide an important source of foreign currency for many households, the departure of experienced professionals reduced the country's productive capacity and weakened institutional development.

Young people, in particular, increasingly viewed migration as the most realistic path toward professional stability and financial security. This shift reflected not only economic concerns but also uncertainty regarding future governance, employment prospects, and public services.

# # Social and Psychological Effects

The crisis affected more than financial well-being; it also imposed considerable psychological and social strain. Continuous economic uncertainty, declining living standards, unemployment, and concerns regarding personal savings contributed to elevated levels of stress and anxiety among many citizens.

Families adapted by postponing major life decisions, including marriage, home purchases, business investments, and retirement planning. Social support networks became increasingly important as relatives and communities assisted one another through financial hardship.

Civil society organizations, charitable institutions, and volunteer groups played an essential role in providing food assistance, medical support, educational programs, and emergency relief. Their contributions highlighted the resilience and solidarity that emerged despite the severity of the national crisis.

# # Public Confidence and Institutional Trust

Perhaps the most significant long-term consequence was the erosion of public confidence in national institutions. Trust in the banking system, public administration, monetary authorities, and political leadership declined considerably. Rebuilding this confidence would require more than economic stabilization; it would depend upon transparency, accountability, consistent policymaking, and meaningful institutional reform.

Confidence is a fundamental component of every modern economy. Investors require confidence before committing capital. Depositors require confidence before placing savings in financial institutions. Entrepreneurs require confidence before launching new businesses. When confidence weakens, economic recovery becomes significantly more difficult, regardless of the availability of financial resources.

# # Looking Beyond the Crisis

Despite the severity of these challenges, the Lebanese experience also demonstrated remarkable resilience. Businesses adapted through innovation, families supported one another through difficult circumstances, and the Lebanese diaspora continued to provide financial assistance and investment opportunities. These sources of resilience constitute valuable foundations upon which future recovery can be built.

The economic, social, and human consequences of Lebanon's financial collapse illustrate that financial crises are never merely accounting problems or banking failures. They affect livelihoods, institutions, opportunities, and the social fabric of an entire nation. Sustainable recovery therefore requires not only financial restructuring but also policies that promote inclusive growth, strengthen public institutions, protect vulnerable populations, and restore confidence in the country's economic future.

The lessons derived from this period will remain relevant for generations to come, informing future decisions regarding fiscal responsibility, financial regulation, governance, and crisis management in Lebanon and beyond.