Cablegate: Lebanon: Finmin: All Parts of Govenment Support Economic

VZCZCXRO5720
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1529/01 2990236
ZNR UUUUU ZZH
R 250236Z OCT 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3370
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 03 BEIRUT 001529

SENSITIVE

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR FRANCESCKI
STATE PASS USAID BEVER/LAUDATO/SCOTT
TREASURY FOR MNUGENT AND SBLEIWEISS
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGO LE
SUBJECT: LEBANON: FINMIN: ALL PARTS OF GOVENMENT SUPPORT ECONOMIC

REFORM (ECONOMIC WEEK IN REVIEW, OCTOBER 20 - 26, 2008)

REF: BEIRUT 1523

CONTENTS
--------
-- FINANCE MINISTER SAYS GOVERNMENT UNITED ON ECONOMIC REFORM
-- CHATAH GIVES PRESS UPDATE ON SUPPORT PLEDGES, BUDGET ISSUES
-- LOCAL BANKS WILL ROLLOVER SOVEREIGN DEBT MATURING IN 2009
-- BANKS' LOSSES FROM GLOBAL CRISIS ARE SMALL
-- GOL NEEDS FUNDING FOR STATISTICAL MASTER PLAN
-- FIRST POWER PLANT RUN BY WINDMILL ESTABLISHED IN THE NORTH
-- BEIRUT PORT TO EXPAND DUE TO INCREASED TRAFFIC
-- IMF RAISES LEBANON'S 2008 GROWTH FORECAST TO SIX PERCENT
-- LEBANON RANKS 79 GLOBALLY IN PROSPERITY INDEX

FINANCE MINISTER SAYS GOVERNMENT
UNITED ON ECONOMIC REFORM
--------------------

1. (SBU) During a Paris III donor briefing on October 23, Finance
Minister Mohammad Chatah stressed the government's commitment to
improving the standard of living of the Lebanese people by fostering
an economic climate that encourages investment, creates jobs, and
supports its people through strong social services. He insisted
that the government does not view itself as a transition government,
and that it is cooperating across party lines to accomplish
significant reforms during its short mandate. To start, he said,
the cabinet would take up the 2009 budget law and a new IMF
Emergency Post Conflict Assistance (EPCA) program in its next
meeting October 30. Chatah's presentation provided a coherent
vision of how the Lebanese state should work on behalf of its
people, and could serve as a model for March 14's campaign platform
for the 2009 parliamentary elections (reftel).

CHATAH GIVES PRESS UPDATE ON
SUPPORT PLEDGES, BUDGET ISSUES
--------------------

2. (U) In an interview with LBC television on October 18, Chatah
said that $600-700 million of budgetary support from Paris III
pledges has not yet been dispersed by donor countries, and added at
the Paris III briefing that he expects Lebanon should get $500-600
million of that soon "if everything goes as planned." Arab
nationalist newspaper As-Safir said the GOL may review the 2009
budget figures due to a projected lower deficit for national power
utility Electricity du Liban (EDL) following the international drop
in oil prices.

LOCAL BANKS WILL ROLLOVER
SOVEREIGN DEBT MATURING IN 2009
--------------------

3. (U) In an October press conference, Chatah said the Finance
Ministry was coordinating with the Central Bank regarding Eurobonds
and T-bills maturing in 2009, which are estimated to total
(including yields) around $14 billion. The Ministry might
reschedule or exchange these maturities, Chatah said. Local banks
hold the bulk of these maturities, and according to Dr. Makram
Sader, SYG of the Association of Lebanese Banks, they are expected
to continue to subscribe to sovereign debt securities given the
Lebanese banking sector's strong liquidity position in the face of
the international financial crisis.

BANKS' LOSSES FROM GLOBAL
CRISIS ARE SMALL
--------------------

4. (SBU) Dr. Fadi Khalaf, President of the Beirut Stock Exchange,
told us that a senior Audi Bank official said that although the bank
lost $20 million in investments with Lehman Brothers, the bank still
recorded $70 million in profits in the last quarter. Amine Awad of
Lebanon's Banking Control Commission said Lebanon's banking sector
losses including unrealized profits are less than $50 million, while
profits reached $850 million at the end of September 2008.

5. (SBU) Audi Bank Strategic Advisor Chief Finance Officer Freddie
Baz told Reuters on October 18 that he expects deposits in Lebanese
banks, which he argues are "considered shielded from the global
financial crisis," to continue to rise. The Lebanese domestic

BEIRUT 00001529 002 OF 003

banking sector saw an $8 billion sector-wide increase in deposits
during the first eight months of the year. Baz said good
regulations and risk-aversion strategies by bank management have
protected Lebanese banks from the international financial situation.

6. (SBU) On October 22, Baz refuted press reports that the merger of
Audi Bank with Egyptian investment institution EFG Hermes has been
suspended for the time being as a result of the international
crisis. Baz told us that he cannot comment on this issue as he is
subject to strict disclosure restrictions, but confirmed that "talks
are continuing."

GOL NEEDS FUNDING FOR
STATISTICAL MASTER PLAN
--------------------

7. (U) On October 22, PM Siniora announced to donor country
representatives that Lebanon will start working on a Statistical
Master Plan (SMP) to reinforce Lebanon's statistical system and
assist the GOL in policy-making decisions. This project falls under
reform initiatives taken by the government, the PM said. The
preliminary study was funded though a World Bank grant, and the cost
of implementing the project is about $11.1 million over a five-year
period.

FIRST WIND POWER PLANT
ESTABLISHED IN THE NORTH
--------------------

8. (SBU) On October 22, press reported on the establishment of the
first power plant run by windmills in the northern region of Akkar.
The plant was built based on studies undertaken by a specialized
French company and financed by the Issam Fares Foundation (a former
Deputy PM who is also from Akkar), which determined that Akkar was a
suitable location for such power plants. Fares Foundation Director
General Sajih Attieh told us that this project is still in its trial
phase, and that more power plants will be built throughout the area
in the future.

BEIRUT PORT TO EXPAND DUE
TO INCREASED TRAFFIC
--------------------

9. (U) The Beirut Port Authority (BPA) announced plans to expand its
container terminal due to the rapid growth in the number of
containers currently being handled and a lack of space and storage.
Container traffic increased by 62 percent in 2007 compared to 2006.
BPA retained German consultant Sellhorn to conduct studies related
to the expansion, which also helped with the port's previous
expansion in 2005.

IMF RAISES LEBANON'S 2008 GROWTH
FORECAST TO SIX PERCENT
--------------------

10. (U) In its most recent World Economic Outlook (WEO), the IMF
revised its forecast for Lebanon's 2008 real GDP growth upwards to
six percent from an estimated three percent in the previous WEO
March issue. The IMF noted that Lebanon would likely prove
resilient to the global financial crisis, mostly because of the
higher-than-average liquidity of its banks and the Central Bank of
Lebanon's (CBL) leadership. The lack of direct links between
Lebanon and the current crisis would also render the country more
resilient than other emerging markets, according to the report.

LEBANON RANKS 79 GLOBALLY
IN PROSPERITY INDEX
--------------------

11. (U) The Legatum Institute's 2008 Prosperity Index ranked Lebanon
79 out of 104 countries worldwide and 11 out of 13 MENA countries in
terms of drivers of prosperity. The index is intended to reflect
the conditions that foster prosperity in a given country. It ranks
countries based on the strength of 44 variable drivers -- grouped
into the two main pillars of economic competitiveness and
comparative livability -- rather than according to simple measures
of income and life satisfaction.

BEIRUT 00001529 003 OF 003

SISON

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