VZCZCXRO3273
PP RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0618/01 1221359
ZNR UUUUU ZZH
P 021359Z MAY 07
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC PRIORITY 8071
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHNO/USMISSION USNATO 1063
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 03 BEIRUT 000618
SIPDIS
SENSITIVE
SIPDIS
NSC FOR ABRAMS/SINGH/MARCHESE/HARDING
E.O. 12958: N/A
TAGS: ECON EFIN LE PGOV PREL SY
SUBJECT: LEBANON: MINISTRY OF FINANCE STAFF REVIEWS
MEETINGS IN WASHINGTON
SUMMARY
-------
1. (SBU) In separate meetings with Ministry of Finance
staff, the common view of their recent meetings in Washington
was positive. While MOF Director General Alain Bifani gave a
sharp, insightful readout of the meetings, his working level
finance team were already focused on the next event, a
Eurobond offer. It appears that non-technical discussions
were somewhat overshadowed by events at the World Bank. The
IMF EPCA will require local oversight by the IMF, which might
not be welcome. End summary.
BIFANI OVERVIEW
---------------
2. (SBU) On April 25 Econoff and Econ Specialist met with
Director General of the Ministry of Finance Alain Bifani to
discuss his recent trip to Washington with Minister of
Finance Jihad Azour. Bifani, always candid and usually
somewhat cynical, was surprisingly upbeat about the
delegation's reception in Washington. He noted that the tone
was considerably different than any of the previous "possibly
as many as twenty" official visits he has made to DC. He
characterized their reception as "all positive" with complete
political support. He did point out, however, there was very
little in the way of technical discussions, and that the core
group meeting was an opportunity for clarification rather
than vision. Bifani (who is politically connected to
President Emile Lahoud and Michel Aoun, not the March 14
majority represented by his minister) elected not to attend
any meetings which were purely political, pointing out that
by doing so, he would not be accused of being the source of
any leak of information. He did attend the meeting with
Timothy Adams, which was "more than he expected," but too
brief to discuss conditionality "triggers" in detail.
THE VIEW FROM THE MOF TEAM
--------------------------
3. (SBU) On April 26 we met with the MOF finance team,
always calm and relaxed despite their busy workload. They
were pleased with the results of the many meetings in
Washington, attended by two of their six-member team. They
characterized the meetings as "touching base" with the
donors, and providing a progress update. Although they were
concerned about the bill to authorize the USG portion of the
donations -- "Is it signed yet?" was the first question --
the discussions in Washington were perceived as positive.
Those at the meetings believe the USG understands their
concerns about triggers and possible linkage with the
unpopular gasoline tax. They are preparing a proposal to
outline conditionality, and to cover the order of
disbursement for the funds to be used for debt reduction.
They did not have a deadline for delivering the proposals to
the Department.
BIFANI ON THE EPCA
------------------
4. (SBU) Bifani said that he attended nineteen meetings
during the fast-paced three-day trip. The majority were with
groups or individuals from the International Monetary Fund
(IMF) and the World Bank (WB). Regarding the IMF, Bifani
repeated what we have heard previously: the IMF staff was
not in favor of the Emergency Post Conflict Assistance
program (EPCA), which they indicated was "forced on them" by
the IMF board. In fact, he heard rumors that the staff had
tried to elicit guarantees from the member countries for the
$77 million EPCA. Because of this resistance, he suggested,
the staff were exceedingly supportive, offering any
assistance in shifting the weight of responsibilities away
from the IMF and toward the donors. His final reading of the
situation was that IMF's staff continue to have reservations
about Lebanon, believing that the country "can't make it,"
and would be content to avoid confronting those concerns.
5. (SBU) The delegation from the GOL, which included the
Ministers of Finance and Economy and Trade and their staffs,
made a "commitment" to a Stand-by Agreement, which assuming
successful negotiations should follow the EPCA next year.
They suggested to the IMF that negotiations of terms should
begin immediately. Bifani told us that because the Central
Bank (BDL) was not represented at these meetings and most of
the conditionality involves the BDL, this stance may not be
BEIRUT 00000618 002 OF 003
completely sincere. Bifani, himself a member of the BDL
board, understands the "delicacy" of this position. If the
new conditions are presented to the BDL as a fait accompli,
there are two possible outcomes: acceptance, or a rejection,
with the latter jeopardizing any progress achieved. In his
opinion, the negotiation of any Stand-by Agreement requires a
functioning government. He guessed there might have been a
back-room deal, and said he does not know if the commitment
to the Stand-by is a maneuver or not - it could simply be a
ploy to keep some politicians in office.
INCREASED IMF PRESENCE IN LEBANON A SURPRISE
--------------------------------------------
6. (SBU) One outcome of the discussions with the IMF was
GOL's reaction to the requirement for an IMF Resident
Representative (ResRep) to administer the EPCA. Although
this is a widely-known requirement in such arrangements, it
apparently came as a surprise to the delegation. There was
no immediate agreement to this requirement. The IMF
responded there could be some negotiation as to the selection
of the individual or the access by the press to the ResRep,
but it was not offered as an option. Bifani's speculation
was that the GOL is concerned with both the transparency
issue, and also the desire of the GOL to present only one
voice -- its own -- to the rest of the world. On a side
note, Bifani characterized the French representatives at the
meeting as helpful, very technical, but at the same time
aware of the difference that might come quickly based on the
French presidential outcome.
IMF ALREADY SOMETHING OF A BURDEN
---------------------------------
7. (SBU) The IMF is perceived as something of a burden to
the MOF team, which has already hosted several visits, and
have another one in two weeks. Characterizing the visits as
a series of all-day meetings, which take them away from other
work, they are nevertheless preparing for the next one.
Asked why the IMF EPCA did not need approval by Parliament,
they explained that up to $1.5 billion in loans for debt
reduction was previously approved under Law 476-2002 as a
part of Paris II. Until that amount is reached, loans for
debt reduction and budgetary support do not need approval by
Parliament. All other loans, however, and loans after that
total is reached will need approval. Grants do not require
Parliamentary approval.
WORLD BANK UNDER STRESS
-----------------------
8. (SBU) The meetings with the World Bank were in complete
contrast. Overshadowed by the breaking news about President
Wolfowitz, the meetings were not substantive in Bifani's
opinion. Many of their interlocutors were uncertain of the
future, or already on the way out, like Joseph Saba. Bifani
was pleased to see the basics of the 2005 agreement were
still a part of the discussions. The WB focused on the
issues of the power sector and the social security/pension
reform process. The GOL delegation announced that the Social
Security office had agreed to "open its book" to the WB.
However, when Bifani returned to Lebanon and checked, he says
that no one there knew anything about that agreement. In
fact, he believes neither side is "telling the full truth".
Bifani believes that Wolfowitz was instrumental in WB
commitments to Lebanon, which leaves up in the air the
question of what will happen if Wolfowitz leaves. Referring
to his meeting with Francois Bourgignon, whom Bifani
described as a non-political economist, Bifani felt there
was good discussion about the need to implement the planned
reforms. However, at no time was there any discussion about
a possible break-even point in the GOL finances, or exactly
what is going to be done with donor funds.
9. (SBU) The MOF team was not directly aware of the on-going
WB discord. The WB will be sending a team to sign the
Development Policy Loan shortly. The $200 million loan for
the power sector is before the WB board for approval now.
This loan will need Cabinet approval only. It is expected to
go to the Minister of Finance for approval by the end of May.
BIFANI ON REFORM
----------------
BEIRUT 00000618 003 OF 003
10. (SBU) Bifani is always willing to share his insight on
the current internal struggles in the GOL. He said that
recently French Ambassador Emie pointedly asked the Prime
Minister about the budget, which has still not been passed by
the cabinet. He received no direct answer, but Bifani, who
claims the budget as his own, feels that at least the Cabinet
could pass it, and then complain that it cannot be enacted
because the Parliament cannot meet and the President will not
sign it. The social security and pension reforms, on the
other hand, had already been submitted to Parliament and have
been discussed, with even opposition members in favor.
However, as for the EDL, Bifani believed that the GOL is not
even beginning to address the three key points, which he says
are the choice of a source of power, forecasting of future
requirements and investments, and the management issues.
These, he feels, should be addressed as soon as possible.
11. (SBU) The MOF team is already focused on the next step
in the program, which is the upcoming $400 million Eurobond
issue. Two RFPs are out, seeking two banks to handle the
sale, which they expect will be sold over three weeks,
largely to Lebanese investors.
FELTMAN