World Bank accuses Lebanese politicians of cruelty over deposit promises

© Reuters. FILE PHOTO: A participant stands near a logo of World Bank at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo

BEIRUT (Reuters) -The World Bank accused Lebanese politicians of being cruel by asserting that deposits in the country's collapsed banking sector are sacred, saying such slogans "flagrantly contradict the reality" in a report on Wednesday.

Lebanon is in the third year of a financial meltdown that has left eight in ten people poor and which the World Bank says is deliberate and may be one of the three worst in modern times.

The new report marked the second time this year the World Bank has berated Lebanon's ruling politicians, having accused them in January of "orchestrating" the country's catastrophic economic meltdown through their exploitative grip on resources.

The collapse has frozen depositors out of savings in the paralysed banking system, and led the local currency to lose more than 90% of its value.

"Political slogans for the sacrosanct of deposits are hollow and opportunistic; in fact, the constant abuse of this term by politicians is cruel," the World Bank said in a report.

"Not only does it flagrantly contradict reality, it prevents solutions to protect most, if not all small and medium depositors, in dollars and in cash," the report said.

Lebanese politicians often say depositors' rights must be preserved in any plan to address losses of some $70 billion in the financial system, even as their savings have lost around 80% of their value due to the collapse.

"Losses should have been accepted and carried by bank shareholders and large creditors, who have profited greatly over the last 30 years from a very unequal economic model," the World Bank said.

"This should have occurred at beginning of the crisis ... to limit the economic and social pain."

Lebanese banks lent heavily to the state, which wracked up huge debts largely due to corruption and bad governance. The World Bank report said "a significant portion" of people savings had been "misused and mispent over the past 30 years".

The former government drew up a plan to address the losses in 2020, but it was torpedoed by sectarian factions that have the final say in Beirut, and objections from the banking sector and the central bank.

A new plan approved in May has also run into objections.

The International Monetary Fund wants Lebanon to approve a banking restructuring plan as one of a list of preconditions to move forward with a draft funding agreement.

The World Bank report questions to what extent authorities met financing needs through a Ponzi scheme - a type of scam that pays back investors with money from new investors.

The earlier necessary "reforms will be initiated, the less painful the cost of Ponzi Finance will be on the Lebanese people", it said.

A Lebanese government spokesperson did not immediately respond to a request for comment.