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Cablegate: Lebanon: Mobile Privatization Delayed (Economic Week In

VZCZCXRO9058
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0448/01 0911342
ZNR UUUUU ZZH
R 311342Z MAR 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 1394
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 000448

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: MOBILE PRIVATIZATION DELAYED (ECONOMIC WEEK IN
REVIEW, MARCH 24 - 30, 2008)


CONTENTS
--------

-- DELAYS EXPECTED IN MOBILE PRIVATIZATION,
MANAGEMENT CONTRACT TO BE RENEGOTIATED
-- GENERAL LABOR CONFEDERATION WARNS OF STRIKE IF MINIMUM WAGE IS
NOT RAISED
-- LEBANON'S BANKING SECTOR NOT AFFECTED BY U.S. FINANCIAL CRISIS
-- MOODY'S RAISES LEBANON'S CREDIT RATING OUTLOOK...
-- ...AS WELL AS THE OUTLOOK FOR FOUR TOP BANKS
-- YOUTH SHADOW GOVERNMENT TO BE TRAINED ON CONSUMER RIGHTS
-- NATIONAL SOCIAL SECURITY FUND INAUGURATES FIRST COMPUTERIZED
BRANCH
-- S&P REPORT EVALUATES LEBANON'S BANKING SECTOR
-- TRAVEL AND TOURISM ECONOMIC ACTIVITY EXPECTED TO FALL BY 7.4
PERCENT IN 2008

DELAYS EXPECTED IN MOBILE PRIVATIZATION,
MANAGEMENT CONTRACT TO BE RENEGOTIATED
--------------------------------------

1. (SBU) Senior contacts at the Ministry of Telecommunications (MOT)
and the Higher Council for Privatization (HCP) told us on March 28
that mobile privatization will be delayed. The deadlines for
submitting bids and for conducting the auction for the sale of
Lebanon's two mobile companies expire on May 1 and 21, respectively.
The MOT source believes it would be best if the GOL does not set
new bid/auction deadlines, but instead indicates that "a new date
will be announced in due time." Telecom Minister Hamadeh has
repeatedly said publicly that the privatization of the two mobile
companies will not take place under the current government.

2. (SBU) The MOT source pointed out that the management contract for
the two mobile companies, which was extended from May 2008 until
November 2008 by the Council of Ministers on February 28, 2007,
needs to be re-negotiated, adding that negotiations could start in
the coming weeks. By virtue of the contract, the MOT has to inform
the two management companies of any extension six months before the
expiration of the contract. He also said that neither company is
willing to extend under the same terms.

GENERAL LABOR CONFEDERATION WARNS OF
STRIKE IF MINIMUM WAGE IS NOT RAISED
--------------------
3. (U) The General Labor Confederation (GLC) warned on March 26 that
it would prepare for a general strike if the minimum wage is not
raised to $640/month, from the current $200/month (unchanged since
1996). In addition to that, it is asking for a 63.3 percent wage
raise above the minimum wage hike. Employers have only accepted a
single $50 increase to the minimum wage. According to
pro-opposition Al-Akhbar newspaper, the strike would take place
sometime after April 22, the next scheduled date for presidential
elections. The GLC also expressed support for the protest that
Lebanese University teachers and teachers' unions and syndicates
will stage on April 3 to call for salary increases.

LEBANON'S BANKING SECTOR NOT
AFFECTED BY U.S. FINANCIAL CRISIS
--------------------

4. (SBU) A senior member of the Banking Control Commission (BCC)
told us on March 25 that Lebanon's banking sector has not been
affected by the financial crisis in the U.S. The source explained
that the Central Bank of Lebanon (CBL) prohibits banks from
subscribing in foreign funds and papers except in sovereign papers
of OECD countries. The BCC found only one bank that had lost money
(less than half a million dollars) because of products related to
the U.S. credit crisis; this is a very small amount given that this
bank has total assets of several billion dollars, the source
remarked.

MOODY'S RAISES LEBANON'S
CREDIT RATING OUTLOOK...
--------------------

5. (U) On March 25, Moody's Investors Services raised Lebanon's
credit rating outlook from negative to stable. Moody's attributed
this improvement to the "impressive resilience of Lebanon's public
finances" in the face of ongoing political instability. Lebanon's
rating outlook fell to negative in November 2006, with the fears

BEIRUT 00000448 002 OF 002


related to the government's repayment capacity given the large
public debt. According to Moody's, since then public finances have
improved modestly, and the GOL's short-term funding needs are
manageable. This change of outlook applies to the GOL's B3 local
and foreign currency bond ratings, the B3 country ceiling for
foreign currency bank deposits, and the B2 country ceiling for
foreign currency bonds.

...AS WELL AS THE OUTLOOK
FOR FOUR TOP BANKS
--------------------

6. (U) Moody's also raised its outlook from negative to stable on
March 27 for Bank Audi, BLOM, Byblos Bank, and Bank of Beirut.
According to Moody's, this was a result of the outlook upgrade for
Lebanon's credit rating, since these banks hold significant amounts
of bonds. The banks' ratings however, remain unchanged.

NATIONAL SOCIAL SECURITY FUND
INAUGURATES FIRST COMPUTERIZED BRANCH
--------------------

7. (U) On March 26, the first fully computerized branch of the
National Social Security Fund (NSSF) was inaugurated in Beirut,
while the computerization of all branches is expected by June 2008,
at an estimated cost of $3.7 million. This is part of a wider NSSF
reform program aimed at streamlining procedures, increasing
productivity, coverage, and services provided, as well as balancing
NSSF finances. The World Bank is also involved with the reform
program at the NSSF; it provided technical assistance and a $750,000
grant last September for this purpose.

YOUTH SHADOW GOVERNMENT TO BE
TRAINED ON CONSUMER RIGHTS
--------------------

8. (U) On March 17, the Minister of Economy and Trade Sami Haddad
launched a cooperation project between the MEPI-funded youth shadow
government and the Consumer Protection Unit at the Ministry of
Economy and Trade. The project aims to train selected university
students on consumer rights over a two-month period to reinforce
their role in the development of public administration. Haddad
noted the Ministry is also looking at ways in which those trained
would use their spare time to participate directly in the Consumer
Protection Unit's activities.

S&P REPORT EVALUATES
LEBANON'S BANKING SECTOR
--------------------

9. (U) A Standard and Poor's (S&P) report entitled "Lebanese banks
plant cedars abroad while resisting the political impasse,"
published on March 17, noted that banks are expanding abroad to
avoid high direct exposure to the intrinsic risks of operating in
Lebanon. Meanwhile, the GOL's high indebtedness, fiscal deficit,
and political instability, along with the country's low ratings,
pose a serious threat to any bank in the system. S&P identified
four main characteristics of the Lebanese banking sector, including
the value of banks' assets (over three times the country's GDP),
high dollarization of deposits, the elevated number of banks, and
the improved quality of assets.

TRAVEL AND TOURISM ECONOMIC ACTIVITY
EXPECTED TO FALL BY 7.4 PERCENT IN 2008
--------------------

10. (U) The 2008 World Travel and Tourism Council (WTTC) report on
Lebanon noted that the political stalemate will continue in the
coming year and affect the travel and tourism sector accordingly.
Travel and tourism industry economic activity is on track to
register a negative 7.4 percent drop in activity. There was a 25.4
percent regression in industry activity in 2007. Total demand for
travel and tourism is expected to grow by 0.4 percent compared to
2007, while Lebanon's share out of total demand in the Middle East
is projected at 3.6 percent in 2008. The travel and tourism
industry contribution to GDP is estimated at 5.7 percent in 2008,
while the sector will account for 18.4 percent of total employment,
compared to 9.3 percent in 2007.

SISON

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