BEIRUT, Lebanon -The Lebanese pound's peg to the U.S. dollar will remain, ensuring currency stability amid political unrest triggered by Hezbollah's attempts to topple the government, said central bank Governor Riad Salameh.

``The stability of the pound has been reconfirmed,'' Salameh said in an interview in Beirut yesterday. ``It is an anchor of confidence and stability in prices, necessary to create the proper environment for consumption.''

Lebanon's foreign currency reserves are at a record $13 billion even after the bank spent $2.5 billion defending the pound during the month-long war between Hezbollah and Israel last year. The bank also has $6.5 billion in gold and owns more than $1 billion in real estate, Salameh said.

The peg that has kept the pound trading between 1500 and 1515 per dollar since 1999 will stay, the governor said. A devaluation may lead to a flight of funds from the country, crippling banks and pushing the government of Prime Minister Fouad Siniora to default on debt that represents 180 percent of gross domestic product.

A donor conference held in Paris in January, which garnered $7.6 billion in grants and loans, boosted confidence in the pound. A stable currency and high interest rates have helped attract the foreign currency needed to finance the government budget deficit, which swelled last year to about $3 billion.

Living Abroad

The currency peg helps ensure that many of the 12 million Lebanese living abroad deposit much of their savings in local banks. Lebanese banks reported profits of $687 million last year and increased their deposits by 6 percent, Salameh said. Around 76 percent of deposits at Lebanese banks are in dollars and $5 billion is transferred every year from Lebanese living abroad, he said.

``The markets are more confident in our ability to weather a hard crisis,'' Salameh said. ``We have lived a real crisis in the aftermath of the assassination of Prime Minister Rafiq Hariri, the Israeli aggression on Lebanon and a constitutional fight in the country. The markets have realized that we were able to provide the necessary liquidity in local and foreign currency.''

Lebanon is saddled with public debt of $40.5 billion as the country borrowed money in the 1990s to rebuild the economy after a 15-year civil war. It rose again following the war with Israel that left about 1,200 Lebanese dead and damaged roads and bridges.

Inflation, which rose to 5.5 percent last year is forecast to be below 4 percent in 2007, Salameh said.

`Stable Rates'

The central bank intends to maintain interest rates at current levels even amid domestic political uncertainty that has culminated in a three-month political standoff between the pro-U.S. government of Siniora, a Sunni Muslim, and the Iranian- and Syrian-backed Shiite Muslim movement Hezbollah.

``The objective would be to have a lower interest rate structure in the country but for the time being our policy is to maintain stable rates,'' Salameh said. The benchmark interest rate is 11 percent while interest rates on Treasury bills range from 6.5 percent on the three-month bill to 9.5 percent on three-year debt.

The effect of the recent Paris donor conference on the Lebanese economy will be clearer as the domestic political situation evolves, Salameh said.

``There is now a financial platform of international financing, linked to the Lebanese reform program, which eventually as it's being executed is going to translate into favorable results for the economy in general,'' he said.