UPDATE 1-Lebanon c.bank governor rejects PM's criticism, says no need for deposits haircut

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BEIRUT, April 29 (Reuters) – Lebanese central bank governor Riad Salameh defended his record on Wednesday, rejecting criticism from the prime minister that he was to blame for a financial crisis and assuring savers there was no need for a haircut on their deposits.

Salameh has come under fire from critics including the powerful, Iran-backed Shi’ite group Hezbollah in recent days amid a rapid decline in the pound currency that has fuelled new protests and threatens broader unrest.

In a near hour-long televised address, Salameh deflected the blame back towards Lebanese governments for the unprecedented financial meltdown.

“Yes the central bank financed the state but it is not the one that spent the money. There are those who spent the money,” Salameh, in office since 1993, said. He said he was being targeted in a “systematic campaign”.

Lebanon, one of the world’s most heavily indebted states, defaulted on its foreign currency loans last month. The financial crisis which came to a head last October has led inflation and unemployment to soar. Savers have been frozen out of their dollar deposits amid a hard currency liquidity crunch.

Salameh said the central bank did not hide information and that policies of financial engineering have helped buy Lebanon time to enact reforms and finance critical imports.

“There is absolutely no need for a haircut and a haircut should not be adopted,” Salameh said. “We confirm to the Lebanese that their deposits are there and are in the banking sector and are being used.”

The Lebanese pound has lost more than half its value since October, falling away from the pegged rate of 1,507.5 pounds on a parallel market. Its descent picked up steam over the past week, hitting over 4,000 pounds to the dollar.

“We were not sitting watching,” Salameh said of the currency crash. “We worked with the exchange dealers and tried as much as possible to control the movement of the (dollar) price.”

The central bank is still provding dollars at the official rate for imports of wheat, medicine and fuel. Salameh said this helped purchasing power.

Hezbollah’s deputy leader said on Tuesday Salameh was responsible for the pound’s collapse though not on his own. (Writing by Eric Knecht/Tom Perry/Samia Nakhoul; Editing by Toby Chopra, William Maclean)

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