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Cablegate: Lebanon: Labor Strikes and New Tax On Syrian Border Affect

VZCZCXRO5143
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0478/01 0981239
ZNR UUUUU ZZH
R 071239Z APR 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 1456
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 04 BEIRUT 000478

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: LABOR STRIKES AND NEW TAX ON SYRIAN BORDER AFFECT
ECONOMY (ECONOMIC WEEK IN REVIEW, MARCH 31 - APRIL 6, 2008)


CONTENTS
--------

-- TEACHERS HOLD ONE-DAY STRIKE, GENERAL STRIKE SCHEDULED FOR MAY 7
-- GENERAL LABOR CONFEDERATION VICE PRESIDENT CONSIDERS STRIKE
POLITICIZED, DETAILS ILLEGAL LABOR ELECTIONS
-- SYRIAN DIESEL TAX CAUSES CONGESTION ON LEBANESE-SYRIAN BORDERS
-- GOL TO SWAP REMAINING 2008 EUROBOND MATURITIES
-- CORE GROUP MEETING TO BE HELD ON SIDELINES OF WORLD BANK/IMF
SPRING MEETINGS
-- LEBANESE ECONOMY WILL NOT COLLAPSE, ARAB ECONOMIC FORUM TO BE
HELD IN MAY
-- DUE DILIGENCE FOR INDEPENDENT POWER PRODUCER COMPLETED, MORE
TRAINING UNDERWAY
-- POLITICAL WILL KEY TO POWER SECTOR REFORM
-- BANKING SECRECY LIFTED FOR 54 CASES SUSPECTED OF MONEY
LAUNDERING
-- PARTICIPANTS IN CROSS BORDER CASH SMUGGLING SEMINAR ASK FOR ICE
TRAINING
-- THE ECONOMIST INTELLIGENCE UNIT LOWERS GROWTH FORECASTS FOR 2008
AND 2009
-- MERRILL LYNCH INCLUDES LEBANON IN NEW FRONTIER INDEX
-- LEBANON DROPS IN KNOWLEDGE ECONOMY INDEX

TEACHERS HOLD ONE-DAY STRIKE,
GENERAL STRIKE SCHEDULED FOR MAY 7
--------------------

1. (U) The Teachers' Union (including public, private and technical
school teachers, and Lebanese University professors) held a
"warning" strike on April 3 demanding higher wages, citing dramatic
increases in the cost of living. Teachers' wages have been
unchanged since 1996. Organizers stressed the strike is not
political, as representatives of both March 8 and March 14 have
separately expressed support for the teachers' demands.

2. (U) The General Labor Confederation (GLC)'s executive council
announced that it would hold a strike on May 7, following the
failure of the Cost of Living Index Committee to reach an agreement
to increase both the minimum wage and current salaries. Head of
the GLC and pro-March 8 Ghassan Ghosn and resigned Labor Minister
Trad Hamadeh, who presides over the Committee, blamed the Siniora
government and pro-government members of the Committee for the
impasse. Ghosn called on all GLC members and labor syndicates to
put their differences aside and work together, alluding to pro-March
14 members who have unofficially boycotted GLC meetings since the
June 2007 board elections.

GENERAL LABOR CONFEDERATION VICE PRESIDENT CONSIDERS STRIKE
POLITICIZED, DETAILS ILLEGAL LABOR ELECTIONS
--------------------

3. (SBU) GLC vice president, pro-March 14, and head of the GLC
"Salvation Committee" Maroun Khawli believes that the proposed May 7
strike is being prepared in direct coordination with the opposition
Amal Movement (to which Ghosn is close) and Hizballah, which makes
the strike highly politicized. Khawli claims to have been
threatened if he and the pro-March 14 GLC members do not join the
May 7 strike. Moreover, Khawli stated that the GLC has been
secretly and illegally reshuffling positions within its board,

SIPDIS
sidelining Khawli among others and increasing pro-March 8 members'
influence. This would enable March 8 to use the GLC in its future
activities if it wishes to do so, for example to "topple the GOL,"
according to Khawli.

SYRIAN DIESEL TAX CAUSES CONGESTION
ON LEBANESE-SYRIAN BORDERS
--------------------

4. (SBU) Syrian authorities imposed on April 1 a new "diesel tax" on
trucks and buses running on diesel and crossing into Lebanon,
Jordan, Iraq, and Turkey, in order to prevent diesel smuggling.
Diesel prices are subsidized in Syria and are much cheaper than in
neighboring countries. This new tax has caused congestion on both
sides of the Lebanese-Syrian borders, as every truck crossing into
Lebanon now must pay a flat fee ranging between $600 and $860,
Customs sources told us. At the same time, trucks on the Lebanese
side of the borders opted to wait, fearing that they will be subject
to this tax when returning back to Lebanon.


BEIRUT 00000478 002 OF 004


GOL TO SWAP REMAINING 2008
EUROBOND MATURITIES
--------------------

5. (SBU) The Finance Ministry has mandated international financial
institution Credit Suisse and local Audi Bank as lead managers to
re-finance the remaining Eurobonds that mature in 2008, head of the
Econ Unit at the Ministry of Finance (MOF) told us. In early March,
Credit Suisse and Audi bank successfully refinanced $875 million to
meet March 12 Eurobond maturities. Remaining Eurobond maturities
for this year amount to about $1.2 billion.

CORE GROUP MEETING TO BE HELD ON
SIDELINES OF WORLD BANK/IMF SPRING MEETINGS
--------------------

6. (SBU) Lebanon will hold a Core Group meeting Saturday April 12,
in Washington, D.C., on the sidelines of the World Bank/IMF Spring
meetings. The GOL will send invitations to Paris III donor
countries/institutions, Ministry of Finance (MOF) sources told us.
The MOF expects to send out its Paris III Fifth Progress report next
week.

LEBANESE ECONOMY WILL NOT COLLAPSE,
ARAB ECONOMIC FORUM TO BE HELD IN MAY
--------------------

7. (U) On April 1, Governor of the Central Bank of Lebanon (CBL)
Riad Salameh discarded the possibility that Lebanon's economy will
collapse, with assurances of current monetary stability and IMF
projected growth rates of around three to four percent in 2008. The
fact that the Lebanese banking sector was not affected by the US
subprime crisis was attributed to a series of circulars issued by
the CBL four years ago, limiting financial institutions' investment
in such financial instruments. At the same time, Salameh also
announced that the 16th edition of the Arab Economic Forum would be
held on May 2-3 in Beirut, organized by al-Iktissad wal-Aamal
business group, CBL, and the IFC.

DUE DILIGENCE FOR INDEPENDENT POWER
PRODUCER COMPLETED, MORE TRAINING UNDERWAY
--------------------

8. (SBU) A Higher Council for Privatization (HCP) source told us on
March 31 that the due diligence (technical, accounting, and legal)
for the construction of a new 450 MGW power plant in Deir Ammar
(north Lebanon) has been completed and will be discussed with the
consultants this week. Three separate consultancy firms -- K&M
(U.S) for the technical; Grant Thornton (British/Lebanese) for
accounting, and Dewey LeBoeuf (U.K.) for the legal aspects -- worked
on the due diligence.

9. (SBU) Meanwhile, K&M held a two-day seminar on March 31-April 1
for staff from the national power company, the Ministries of Energy
and Water and of Finance, and from the Council for Development and
Reconstruction (CDR). Topics covered included training on
Independent Power Producers (IPP), identifying risks associated with
IPP projects, basic power plant engineering factors, fundamentals
for structuring and bidding for IPPs, and characteristics of Power
Purchase Agreements.

POLITICAL WILL: KEY FOR
POWER SECTOR REFORM
--------------------

10. (U) At the conference, "Can we reform the power sector,"
organized by the Issam Fares Center for Lebanon on April 2, advisor
to Hizballah resigned Minister of Energy and Water (MEW) Mohammad
Fneish noted that the GOL adopted the Fneish power sector reform
program because "there was a political will and a government that
supported this political will." Advisor to Acting MEW Minister
Mohammad Safadi noted that "there is no reform without political
will and a unified vision." SYG of the Higher Council for
Privatization (HCP) Ziad Hayek stressed that successive governments
must stick to this reform program and move forward on
implementation. Speakers stressed the need for appointing the Power
Regulatory Authority, amending power sector privatization Law 462,
and passing legislation for gas exploration.

BANKING SECRECY LIFTED FOR 54 CASES

BEIRUT 00000478 003 OF 004


SUSPECTED OF MONEY LAUNDERING
--------------------

11. (SBU) According to the annual report of the Special
Investigation Commission (SIC) Fighting Money Laundering, the SIC
lifted banking secrecy in 54 cases suspected of money laundering in
2007. A total of 234 suspected cases were received by the SIC in
2007, mainly from domestic sources, although the overwhelming
majority of cases for which banking secrecy was lifted were referred
from foreign sources. In cases related to terrorism, local sources
provided 237 names, the U.N. five names, and Embassy Beirut
forwarded three names (Saudis Abdul Rahim Al-Talhi, Muhammad
Abdallah Salih Sughayr, and Fahd Muhammad Abd Al Aziz Al-Khasiban),
most of which have been referred to the judicial authorities. No
accounts in the names of the three above-mentioned individuals were
traceable in Lebanon's banks, a senior SIC contact told us on April
6. The SIC asked the Ministry of Foreign Affairs on February to
inform Embassy Beirut that it had transmitted the results of its
investigation on this case to the UN Sanctions Committee specific to
al Qaeda and the Taliban, the source said.

PARTICIPANTS IN CROSS BORDER CASH
SMUGGLING SEMINAR ASK FOR ICE TRAINING
--------------------

12. (SBU) Lebanese participants in the U.S Treasury workshop on
Cross Border Cash Smuggling, which was held March 10-13 in Jordan
told us on April 1 that the program, particularly the case studies,
was "very good." They asked for training on how ICE (Immigration
and Customs Enforcement) in the U.S. operates and strategies to use
to counter terrorism.

13. (SBU) One of the participants at the seminar told us on March 1
that in 2007, 85 people randomly selected by Customs at Beirut
International Airport agreed to declare the amount of cash they
carried into Lebanon. The total amount was approximately $65-70
million -- not too much, the source remarked.

THE ECONOMIST INTELLIGENCE UNIT LOWERS
GROWTH FORECASTS FOR 2008 AND 2009
--------------------

14. (U) The Economist Intelligence Unit's (EIU) most recent report
on Lebanon revised expected real GDP growth rates forecasted earlier
this year for 2008 and 2009. Expected real GDP growth rate for
2008 fell from 1.3 percent to 1.1 percent mostly due to the lack of
political upturn since the last report. The EIU expects the
political deadlock to continue, if not worsen. The report
attributed the modest growth rate to a slight increase in exports as
represented by transshipment activity through Lebanon and the
government's efforts to control spending. Expected real GDP growth
for 2009 also fell slightly from 2.5 percent to 2.3 percent.
Meanwhile, the EIU forecasted inflation at 5.8 percent in 2008,
later to fall to four percent in 2009.

MERRILL LYNCH INCLUDES LEBANON
IN NEW FRONTIER INDEX
--------------------

15. (U) Merrill Lynch (ML) included Lebanon's real-estate company
Solidere's "A" shares in its newly created Frontier Index, which
contains the 50 largest and most liquid stocks from 17 developing
markets in Eastern and Central Europe, the Middle East, Africa, and
Asia. ML noted that these markets are less exposed to swings in the
global economy and less correlated with other equity markets.
Lebanon is given a 0.5 percent weight in the index, based on
Solidere stocks' liquidity-adjusted market capitalization. Overall,
the Middle East accounts for 50 percent of the index weight.

LEBANON DROPS IN KNOWLEDGE
ECONOMY INDEX
--------------------

16. (U) Lebanon ranked 66 out of 140 surveyed countries in the World
Bank's 2007 Knowledge Economy Index, down from 50 in the last survey
conducted in 1995. Within the MENA region, Lebanon ranked 8 out of
17 countries in 2007, compared to fourth place in the previous
survey. The index assesses whether a country's environment is
conducive for knowledge to be used effectively for economic
development by looking at four measures, economic incentive and

BEIRUT 00000478 004 OF 004


institutional regime, education and human resources, innovation
system, and information and communication technology (ICT). Lebanon
dropped in all measures except for a slight increase in the
education and human resources categories.

SISON

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