Cablegate: Lebanon: Promises, but No Firm Commitments, for Egyptian

VZCZCXRO7969
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1246/01 2381450
ZNR UUUUU ZZH
R 251450Z AUG 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2840
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHAAA/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BEIRUT 001246

SENSITIVE

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR
TREASURY FOR MNUGENT AND SBLEIWEISS
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR ABRAMS/SINGH/YERGER/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: PROMISES, BUT NO FIRM COMMITMENTS, FOR EGYPTIAN
ELECTRICITY, IRAQI OIL (ECONOMIC WEEK IN REVIEW, AUGUST 18 - 24,
2008)

CONTENTS
--------

-- IRAQ WILLING TO SELL OIL TO LEBANON AT PREFERENTIAL PRICES
-- EGYPT OFFERS TO SELL LEBANON ELECTRICITY AND GAS AT HIGH PRICES
-- PUBLIC DEBT OVER $44 BILLION BY END OF JUNE
-- CENTRAL BANK GROSS FOREIGN CURRENCY ASSETS REACH RECORD HIGH
-- BALANCE OF PAYMENTS POSTS $83 MILLION SURPLUS IN FIRST HALF OF
2008
-- LEBANON REMAINS TOP HOLDER OF GOLD AMONG ARAB COUNTRIES
-- INWARD REMITTANCES REACH $5.5 BILLION IN 2007
-- TRAVEL AND TOURISM BOOST ECONOMY AND EMPLOYMENT IN 2008

IRAQ WILLING TO SELL OIL TO
LEBANON AT PREFERENTIAL PRICES
--------------------

1. (SBU) During his visit to Baghdad on August 20, PM Siniora
discussed reinforcing bilateral economic ties with Iraq. Iraq has
long been one of Lebanon's major export markets, but it has exported
only a trickle of goods to Lebanon in recent years, and no oil.
Daily An Nahar reported that during the visit, Iraqi PM Nuri
al-Maliki told PM Siniora that Iraq is willing to sell oil to
Lebanon at preferential prices, whether by sea, land or pipeline.
While the existing pipeline needs only minor repairs, the pumping
station on the Iraqi-Syrian border was hit by a U.S. airstrike
during the war and will require at least six months to rebuild, a
senior Lebanese Energy Ministry source told us.

EGYPT OFFERS TO SELL LEBANON ELECTRICITY
AND GAS AT HIGH PRICES
--------------------

2. (SBU) Minister of Energy and Water Alain Tabourian failed to
improve the Egyptian offer to supply Lebanon with electricity and
gas during his meeting with Egyptian Ministers of Electricity and
Gas on August 16 in Alexandria, Tabourian's advisor told us. He
said Tabourian asked the Egyptians to sell Lebanon electricity at
the same price as they sell it to Egyptian industries, i.e., with no
subsidy, while Egypt asked for much higher prices. Egypt also
offered Lebanon natural gas at a higher price that what it charges
neighboring countries. The Egyptian Minister of Electricity will be
meeting with Tabourian and his regional counterparts in Jordan on
August 26-27 to discuss details regarding the supply of Egyptian
electricity to Lebanon, Syria, and Jordan. Lebanon needs to
purchase electricity to reduce power cuts, Tabourian's advisor
remarked.

PUBLIC DEBT OVER $44
BILLION BY END OF JUNE
--------------------

3. (U) According to the latest figures from the Ministry of Finance
(MOF), gross public debt reached $44.4 billion at the end of June
2008, representing an eight percent increase compared to the end of
2007. Local currency debt rose by 10.5 percent, to around $23
billion, while foreign currency debt increased by 5.4 percent to
$21.4 billion. Public debt stood at 173 percent of GDP.

CENTRAL BANK GROSS FOREIGN CURRENCY
ASSETS REACH RECORD HIGH
-----------

4. (U) The Central Bank of Lebanon (CBL) balance sheet for
mid-August 2008 showed a record high $16.9 billion in gross foreign
currency assets. This positive trend is expected to continue as the
CBL remains the largest buyer of surplus dollars in the market.

5. (SBU) Meanwhile, a senior banking source at Audi Bank told us the
CBL also has recorded a small, positive net foreign currency assets
position, estimated at approximately $50 million in mid-August 2008,
for the first time since mid-2006, when CBL interventions in the
foreign exchange market to maintain currency stability drained its
foreign currency reserves. (Note: Audi Bank's estimate does not
take into account $1.5 billion in Arab deposits at the CBL, which
are considered as long term deposits to support CBL foreign currency
reserves. End note.)

BALANCE OF PAYMENTS POSTS $83 MILLION

BEIRUT 00001246 002.2 OF 002

SURPLUS IN FIRST HALF OF 2008
--------------------

6. (U) According to the CBL, Lebanon's balance of payments posted a
cumulative surplus of $83 million in the first half of 2008,
compared to a deficit of $207 million in the first half of 2007. The
cumulative surplus was attributed to a $2.62 billion increase in
CBL's net foreign assets, combined with a $2.54 billion decrease in
those of banks and financial institutions.

LEBANON REMAINS TOP HOLDER OF
GOLD AMONG ARAB COUNTRIES
--------------------

7. (U) Pro-opposition daily Al Akhbar on August 18 quoted the World
Gold Council as stating that Lebanon remained on top of the list of
Arab countries in terms of gold reserves. Lebanon was estimated to
have around 9.2 million ounces of gold valued at around $7.5
billion.

INWARD REMITTANCES REACH
22.3 PERCENT OF GDP IN 2007
--------------------

8. (U) According to the World Bank's 2008 "Migration and Remittances
Factbook," Lebanon had the highest share of remittances as a
percentage of GDP (22.3 percent) in the region. Remittances are an
important source of external funding for the Lebanese economy, as
they constitute a large portion of investments in the country, the
report said. The flow of inward remittances to Lebanon reached $5.5
billion in 2007, up by 6.2 percent in 2006. The value of Lebanon's
remittances ranked 16 out of 192 countries worldwide included in the
survey. Out of 14 MENA countries, Lebanon ranked third in terms of
remittances received or 19.3 percent of inward remittances into the
region.

TRAVEL AND TOURISM BOOST ECONOMY
AND EMPLOYMENT IN 2008
--------------------

9. (U) The World Travel and Tourism Council (WTTC) estimated that
the travel and tourism (T&T) industry would contribute directly
$1.36 billion to the Lebanese economy in 2008, or 5.7 percent of
GDP. As a result, direct industry employment will reach 80,000 or
5.9 percent of total employment in 2008. Given that T&T touches all
economic sectors, its real direct and indirect impact is forecasted
to generate $4.43 billion or 18.7 percent of overall economic
activity in Lebanon in 2008, as well as 252,000 jobs, representing
18.4 percent of total employment in 2008.

GRANT

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