Lebanon's central bank had a $4.7 billion hole in its reserves by the end of 2015 that was not disclosed to the public, an early warning sign of the financial collapse that has since all but wiped out many people's savings.
The figure is contained in an April 2016 report drawn up for Lebanese financial authorities by the International Monetary Fund and seen by Reuters.
The confidential report, known as an aide memoire, said that while the gross reserves of the Banque Du Liban central bank (BdL) were high at $36.5 billion, "reserves net of the commercial banks' claims on BdL and gold were negative USD 4.7 billion in December 2015".
Lebanon's central bank has been headed by Riad Salameh since 1993. In late 2016, it began what it called "financial engineering" - funding a ballooning fiscal deficit and keeping banks buoyant by paying ever higher interest rates for dollars.
By the time investor confidence wore out amid civil protests against the ruling elite in 2019, the central bank's losses had multiplied.
Three people with knowledge of the matter said Salameh himself had insisted to IMF officials that the figure not be published by the IMF on the grounds it would destabilise the financial market.
Asked why the negative net reserves figure was not published in a January 2017 IMF report, a central bank spokesperson, speaking on behalf of Salameh, said "the central bank does not have the power to change IMF reports" and declined to elaborate further on that point.
"The misrepresentation of the causes of the crisis to concentrate (blame) on the BdL is unprofessional and being used to throw responsibility onto one institution, the only civil institution still keeping the (financial) system alive despite the acute crisis," the spokesperson added.
An IMF spokesperson, asked by Reuters why the figure was left out of published reports and whether the Fund should have been more proactive in demanding remedial action, declined to specifically address the omission of the $4.7 billion, but said the report "provided an early warning as well as possible solutions to strengthen the financial system".
"It emphasized the need to reduce economic and financial risks, including the reliance on new deposit inflows to cover large fiscal and external deficits," the spokesperson said. "It also pointed to significant resources that would be needed to ensure banks remained capitalized in the event of a severe shock."
When foreign exchange inflows dried up in 2019, the banks, many of them with leading politicians as shareholders, shut depositors out of their accounts. Withdrawals have since been limited, mostly made in Lebanese pounds which have lost 90 per cent of their value.
By 2020 the central bank deficit had grown to $50 billion with total bank losses to $83 billion, according to a rescue plan prepared by the finance ministry in April that year. Both the central bank and the banking association dispute these figures but have not publicly given alternatives.
A forensic audit of the central bank is a condition for Lebanon to secure an urgent IMF rescue package.
The audit resumed last week after an almost year-long hiatus due to disagreements over access to information.
The crisis, described by the World Bank as one of the deepest depressions in modern history, has propelled 74 percent of the population into poverty, according to the United Nations.
"The social impact, which is already dire, could become catastrophic," the World Bank said in April. Even during Lebanon's 1975-1990 civil war, the banks remained solvent and functional.
Salameh has repeatedly said he was acting only to buy time for Lebanese politicians to agree reforms to cut the budget deficit and that it was not his fault that they failed to do so.
Asked if the IMF had a duty to be more proactive in pushing for the $4.7 billion negative net reserves figure to be published, the IMF spokesperson referred Reuters to the fund's transparency rules.
These say that a country may ask for non-public material to be removed from a report if it is: "Highly market-sensitive material, mainly the Fund's views on the outlook for exchange rates, interest rates, the financial sector, and assessments of sovereign liquidity and solvency."
The IMF spokesman declined to say whether Lebanon specifically made this request and also did not address whether there is a formal limit on the size of net reserves.
Earlier this year, Swiss authorities launched an investigation into "aggravated money laundering in connection with possible embezzlement to the detriment of the Banque du Liban (central bank)".
Salameh has denied any wrongdoing and said the investigation is part of a campaign against him.
Swiss newspaper Le Temps first reported earlier this month that key information had been kept out of the public eye by the central bank in 2015. The central bank had said the report "had nothing to do with the truth".
