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Cablegate: Lebanon: Imf Sees Positive Outlook for 2008 Despite

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RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0418/01 0851401
ZNR UUUUU ZZH
R 251401Z MAR 08 ZDK CTG NUMEROUS SVCS
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 1358
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BEIRUT 000418

SIPDIS

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

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: IMF SEES POSITIVE OUTLOOK FOR 2008 DESPITE
POLITICAL SITUATION (ECONOMIC WEEK IN REVIEW, MARCH 17 - 19, 2008)

BEIRUT 00000418 001.2 OF 002


CONTENTS
--------

-- IMF EXPRESSES POSITIVE 2008 OUTLOOK FOR LEBANON
-- GOL CONSIDERING LICENSING LOCAL AVIATION COMPANIES, AIRPORT STAFF
THREATENS OPEN STRIKE
-- POST LAUNCHES 2008 LEBANON COUNTRY COMMERCIAL GUIDE
-- MERRILL LYNCH RECOMMENDATION ON
EUROBONDS REMAINS UNCHANGED
-- CREDIT SUISSE PUBLISHES 2008-2009 ECONOMIC AND FINANCIAL
FORECASTS FOR LEBANON
-- LEBANON IMPROVES IN CREDITWORTHINESS SURVEY

IMF EXPRESSES POSITIVE 2008
OUTLOOK FOR LEBANON
--------------------

1. (SBU) IMF resident representative Edward Gardner told us on March
18 that the outlook for 2008 looks positive even if the political
situation remains unresolved, forecasting two to four percent GDP
growth, continuing rise in deposit inflows, and a small drop in the
debt to GDP ratio. On the fiscal side, he expects "another holding
period" in the absence of a state budget. However, he does not
foresee a financing problem due to high banking liquidity that
allows banks to lend to the GOL to meet its financing needs.
Gardner also noted that the IMF is discussing with the GOL options
to replace the Emergency Post-Conflict Assistance (EPCA) program
that ended in 2007.

GOL CONSIDERING LICENSING LOCAL AVIATION COMPANIES,
AIRPORT STAFF THREATENS OPEN STRIKE
--------------------

2. (U) The employee syndicates of Lebanon's national passenger
carrier Middle East Airlines (MEA) and MEA affiliated companies
(providing ground services and maintenance) threatened to hold an
open strike at Beirut's international airport (BIA) if the Cabinet
authorizes the licensing of additional local passenger carriers,
thus violating MEA's monopoly for passenger traffic until 2012. On
March 18, the syndicates held a one-hour sit-in at BIA, closing
access to the departure lounge, and issued a communique indicating
that "this decision is also a step towards MEA privatization and
threatens the jobs of about 800 employees."

3. (SBU) On March 18, the Cabinet decided to hold a special session
to discuss Transport Minister Safadi's proposal for the licensing of
passenger carriers in the presence of Central Bank of Lebanon (CBL)
Governor Salameh - since the CBL owns 99 percent of MEA - and MEA
Chairman Mohammad El Hout. El-Hout told us on March 18 that this
same proposal was rejected by PM Siniora a year ago and wonders why
it is being discussed again. He said MEA handles 35 percent of
airport activity, and that the international trend is towards
merging air carriers, noting the merger of U.S. Delta and Northwest.
(Note: Safadi's proposal will affect MEA's activity at a time when
MEA is expanding its fleet and preparing to list some of its shares
on the Beirut Stock Exchange. End note.)

POST LAUNCHES 2008 LEBANON
COUNTRY COMMERCIAL GUIDE
--------------------

4. (U) On March 18, Post hosted a roundtable of leading economic
journalists to officially launch the 2008 Country Commercial Guide
for Lebanon. During the event, Econoff gave a brief overview of the
guide itself, highlighting Lebanon's investment-friendly environment
and promising sectors such as Information and Communications
Technology (ICT), while bearing in mind impediments such as red
tape, corruption, weak IPR legislation, and political and security
instability. Econoff also noted the high potential for business and
investment in Lebanon, if political stability prevailed.

MERRILL LYNCH RECOMMENDATION ON
EUROBONDS REMAINS UNCHANGED
--------------------

5. (U) Merrill Lynch maintained its recommendation on Lebanon's
external debt at "Underweight" in its model portfolio of emerging
markets debt for March, based on its continued negative political
outlook and Lebanon's failure to elect a new president. According
to Merrill Lynch, debt sustainability is not an issue in the

BEIRUT 00000418 002.2 OF 002


short-term due to the strong banking sector and local holdings of
external debt. However, continued political stalemate could affect
medium-term outlook and debt sustainability could become a
significant issue.

CREDIT SUISSE PUBLISHES 2008-2009
ECONOMIC AND FINANCIAL FORECASTS FOR LEBANON
--------------------

6. (U) Global finance and investment firm Credit Suisse forecast
Lebanon's real GDP growth at 3 percent in 2008 and 4 percent in
2009, the second lowest among 12 Emerging Europe, the Middle East
and Africa (EMEA) surveyed. Meanwhile, it forecast Lebanon's
inflation rate at 6 percent in 2008, 4 percent in 2009; fiscal
deficit at 5.7 percent of GDP for 2008 and 4.6 percent of GDP for
2009; and GOL debt at 160 percent of GDP at end - 2008 and 157
percent of GDP at end - 2009.

LEBANON IMPROVES IN
CREDITWORTHINESS SURVEY
--------------------

7. (U) In the Institutional Investor's semi-annual survey on
creditworthiness, Lebanon ranked 115 out of 174 countries worldwide,
up from 121 in the previous September 2007 survey. Lebanon remained
ranked 17 among 20 MENA countries compared to the pervious survey.
The survey rates the creditworthiness of countries based on the
input provided by senior economists and sovereign risk analysts at
leading global banks and money management and securities firms.

SISON

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