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| Will Lebanon reconsider
selling its gold reserves? Soaring gold prices prompt call for sale of Beirut reserves BEIRUT, Lebanon - With gold prices reaching all-time highs in the international markets, some bankers and economists are asking whether Lebanon's Central Bank should reconsider their long-held view that the country's precious metals must remain untouched. The Central Bank owns a little over 9.2 million ounces of gold, making Lebanon the biggest holder of gold reserves in the Middle East. The price of an ounce of gold closed today at $800 per ounce after reaching more than $850 two weeks ago. Officials estimate the market value of the Central Bank's gold reserves at more than $7.2 billion, an increase of almost 50 percent compared to 2006. Brokers point out that the prices of gold fluctuate with the prices of oil and the US dollar. Observers say that the prices of gold and oil may slip slightly but they will never reach the levels hit three months ago. The gold reserves have always been seen as the last line of defense for the Lebanese pound and for this reason Parliament passed a law in the 1970s prohibiting the sale of gold without the approval of Parliament. But there were several calls to sell part of the gold to beef up the weak Lebanese pound in the 1980s. In 1987, Acting Premier Salim Hoss proposed selling 20 percent of the gold reserves in order to raise $800 million, which will be used to defend the pound against the dollar. But the proposal did not get the approval of the Parliament or most Cabinet members. "It's purely psychological. The government and the
Central Bank feel safer if the gold, which is partly sitting in the vaults of the Central
Bank and the rest at Fort Knox, remained untouched," Joe Sarrouh, the adviser to the
chairman of Fransabank, told The Daily Star on Thursday. "But the question is, what can we use this loan for?" Sarrouh asked. He added that a few years ago it would have been worth it if the government used the gold reserves as collateral for loans because this would have helped reduce the interest rate of borrowing by one percent or more. "But now the interest rates have fallen in Lebanon thanks to the Paris II and Paris III donor conferences," Sarrouh said. The interest rates of Lebanese pound deposits and treasury bills fell by more than 8 percent after the Paris II conference in February 2002. Donor states at the time provided Lebanon with more than $2.7 billion in soft loans to help reduce the cost of debt servicing. Another banker, who spoke to The Daily Star on condition of anonymity, said that none of Lebanon's politicians have the guts to ask for the sale of the country's gold reserves. "It seems that Lebanese politicians differ over everything but when it comes to the gold reserves most of them are not willing to make any bold proposal such as liquidating part of the gold," the banker said. He added that with the gold reserves and a large supply of foreign currency reserves, the Central Bank can easily weather any unforeseen crisis in Lebanon in 2008. "If worse come to worse, the Central Bank can preserve the Lebanese pound at the current rates without the need to sell a big chunk of the foreign currency reserves," the banker said. -Daily Star |
