The U.S. Congress has recently diluted new proposed tighter sanctions against Lebanese militant group Hezbollah, following lobbying by Lebanese politicians and bankers, according to media reports. The “U.S. Hezbollah International Financing Prevention Act of 2017” aims to sever the group’s funding routes around the world.

About 65% of deposits in Lebanon are in U.S. dollars, and 72% of loans are denominated in U.S. dollars. Lebanese banks are in need of correspondent banks in the U.S. to clear their transactions in U.S. dollars.

The recent toning down of the bill comes to allay fears of major damage to Lebanon’s economy, and the proposal will also not be discussed and voted on until later this autumn when Congress reconvenes.

While this may be a sign that Washington is interested in Lebanon’s economic stability, media reports quoted U.S. banking figures as saying Lebanese authorities should not be complacent as U.S. President Donald Trump’s future stance on Iran and its allies “cannot be predicted”.

The main concern for Lebanese authorities has been that U.S. banks – which face huge fines if found to be dealing with sanctioned people or companies – might deem Lebanese banks too risky to do business with. This would undermine the Lebanese economy which relies on dollar deposits transferred chiefly from Lebanese expatriates.

Impact of Sanctions

The Lebanese financial sector is concerned with all these laws, and had to absorb in a record time these sanctions and their potential impact on economic growth. If new tougher sanctions are enacted, growth is expected to decline as people hit by the sanctions may move their businesses to other parts of the world.

Of course when the sanctions are against a country and multi-lateral, the economic impact will be maximized. When sanctions are against individuals and unilateral, the economic impact will be lesser. Lebanese banks were very keen on quickly abiding by all sanctions and new regulations, simply because the Lebanese economy is heavily dollarized and Lebanese banks could not function without their U.S. correspondent banks.

New sanctions could therefore be a major destabilizing factor for the Lebanese economy. In the end the sanctions prove to damaging the Lebanese people, instead of Hezbollah.

Beirut Today / AA Magnum Analyst Blog Site News 2017.


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