Lebanon’s battle for sovereignty must extend to its banks

Last week, the International Monetary Fund and World Bank Annual Meetings were held in Bangkok, where Lebanon was represented as a country grappling with a larger issue than just a bailout: the question of whether the state can regain control over both force and finance. While Hezbollah's independent arsenal has historically denied the state full control over war and peace, sovereignty in the modern era is closely tied to the state's ability to regulate finance, safeguard savings, generate revenue, provide credit, and enforce the law.

This is why economic reform must be a central part of Lebanon's sovereignty debate, not an afterthought. Nearly seven years after the country's financial collapse, depositors are still bearing the cost of a crisis they did not cause. The state, central bank, and commercial banks have collectively incurred losses exceeding $70 billion.

Despite progress, such as the approval of an amended Bank Resolution Law in August, the issue remains unresolved as political disagreement persists over who should bear the burden. Although Prime Minister Nawaf Salam has argued that Lebanon is committed to reform and ready for an IMF program, recent developments, such as President Joseph Aoun referring article 3 of the law to the Constitutional Council, have cast fresh doubt on the reform message.

The next major challenge is the Financial Stabilisation and Depositor Recovery Law (or Gap Law), which will determine how losses are allocated and how depositors will be treated. This decision will be as much about politics as it will be about technical matters. The Lebanese banking lobby, represented by the Association of Banks in Lebanon, remains a formidable force, wielding significant political and media influence to shape restructuring, loss allocation, and shareholder accountability, often leveraging their connections in Parliament, including within the Finance and Budget Committee.

The banking lobby's persistent efforts to influence reform highlight the political dimension of the issue, while delays in addressing the crisis also pose a security risk.