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Cablegate: Lebanon: Stocks Soar/Investments Pick Up Following

VZCZCXRO3883
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0772/01 1481247
ZNR UUUUU ZZH
R 271247Z MAY 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2047
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 03 BEIRUT 000772

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/DEMOPOLOUS

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: STOCKS SOAR/INVESTMENTS PICK UP FOLLOWING
POLITICAL AGREEMENT (ECONOMIC WEEK IN REVIEW, MAY 19 - 25, 2008)

CONTENTS
--------

-- STOCKS SOAR AFTER ANNOUNCEMENT OF POLITICAL AGREEMENT
-- POLITICAL STABILITY BOOSTS INVESTMENTS AND TOURISM
-- BEIRUT PORT LOSSES ESTIMATED AT TWO MILLION DURING WEEK-LONG
CRISIS
-- WTO ACCESSION BY SPRING 2009; USAID FUNDING REMAINS A NECESSITY
-- LEBANON IMPROVES IN GLOBAL PIRACY RANKING, VALUE OF LOSSES
INCREASE
-- IMPLEMENTING DECREE FOR PHARMACEUTICAL REGISTRATION LAW PASSED,
COPYCAT REGISTRATION REMAINS AN ISSUE
-- FINANCE MINISTER FORECASTS THREE PERCENT GDP GROWTH FOR 2008
-- ...WHILE THE IMF FORECASTS THREE PERCENT GROWTH AND HIGHER
INFALTION IN 2008
-- MERRILL LYNCH UPGRADES EXTERNAL DEBT RECOMMENDATION TO "MARKET
WEIGHT"

STOCKS SOAR AFTER ANNOUNCEMENT
OF POLITICAL AGREEMENT
--------------------

1. (SBU) Prices of Lebanese stocks soared on the Beirut Stock
Exchange (BSE) on May 21 and 22 after Lebanese political leaders
reached an agreement in Doha. Real estate consortium Solidere and
some bank shares reached the BSE cap on daily price fluctuations.
The market saw some profit-taking on May 22, and prices of shares
stabilized on May 23. Total value of transactions remained
substantial compared to the average daily value of trading, and the
BSE recorded a new record in number of transactions on May 22. BSE
president said international foreign funds, mostly western, are also
investing in Lebanese instruments, and he expects "the momentum to
remain positive, with some profit taking at certain levels."

POLITICAL STABILITY BOOSTS
INVESTMENTS AND TOURISM
--------------------

2. (U) With the lifting of the sit-in, Beirut downtown district
(Solidere) came back to life. Restaurants were full; expectations
about a prosperous summer were high, and investors are again moving
forward with their projects. Kuwaiti CEO of Levant Holding returned
to Beirut to re-start a $1.3-2 billion "Phoenician Village" project,
consisting of attraction centers, restaurants, and shops in
Solidere. Owner of high-end apparel store Aishti, Tony Salameh,
will inaugurate a Fendi designer store in Solidere next week, with
future plans including a new 32,000 square meter department store in
Beirut downtown.

3. (U) Tourism Minister Sarkis said on May 22 that tourism this
summer will exceed the Ministry's earlier expectations, developed
prior to the recent events. He said that several aviation companies
informed the Ministry that they are considering operating additional
flights to meet increased demand by tourists and expatriates coming
to Lebanon this summer. He also said the schedule for the annual
Beiteddine Festival (in the Druze-dominated Chouf region) will be
publicly announced next week.

BEIRUT PORT LOSSES ESTIMATED AT
TWO MILLION DURING WEEK-LONG CRISIS
--------------------

4. (SBU) On May 20, Chairman of the Beirut Container Terminal
Consortium (BCTC) managing the Port of Beirut Ammar Kanaan told us
that losses in projected revenues for the port during the week-long
crisis were estimated at $2 million. Earlier press reports in
French language daily L'Orient le Jour had quoted an undisclosed
source as saying that Beirut Port losses were as high as $7 million
each day.

WTO ACCESSION BY SPRING 2009;
USAID FUNDING REMAINS A NECESSITY
----------

5. (SBU) Advisor to Minister of Economy and Trade (MOET), Lama
Oueijan, believes that Lebanon's accession to the WTO is possible by
spring 2009. Oueijan told us May 20 that the next Working Party
meeting will be held in July 2008, and expects negotiations to
conclude by year end. Oueijan expressed concerns about availability
of USG funds for the WTO accession project. Oueijan made a strong

BEIRUT 00000772 002 OF 003


pitch for additional USAID technical assistance funding. "There is
enough progress to justify continuing USG support for this project,"
she said, adding that USTR believes renewal of the USAID contract is
a good step. Oueijan argued that Lebanon is now in the accession
phase, and the next phase entails training of government staff
(ministries of Agriculture and Industry, customs, others) on
post-accession requirements. Embassy view has been that the GOL has
not made sufficient progress to justify additional USAID funding,
although in part that has been the result of the closure of
Parliament, preventing legislative action on some key provisions.

LEBANON IMPROVES IN GLOBAL PIRACY RANKING,
VALUE OF LOSSES INCREASE
--------------------

6. (U) In the Business Software Alliance (BSA)'s annual report on
piracy, Lebanon ranked 37 out of 108 countries with the highest
piracy rate worldwide in 2007, an improvement from 2006 when Lebanon
was ranked 30. Within the MENA region, Lebanon ranked six in 2007;
Lebanon has been in third place since 2003. Lebanon's piracy rate
remained constant at 73 percent since 2005. Meanwhile,
piracy-related losses totaled $44 million in 2007, up 12.8 percent
from $39 million in 2006. The BSA has been waging an anti-piracy
campaign in Lebanon since Parliament passed the intellectual
property rights law in 1999.

IMPLEMENTING DECREE FOR PHARMACEUTICAL REGISTRATION LAW PASSED,
COPYCAT REGISTRATION REMAINS AN ISSUE
--------------------

7. (SBU) During its last session on May 5, the Cabinet approved the
implementation decree for the 2003 Law 530 on the Import,
Registration, Marketing, and Categorization of Pharmaceutical
Products. This constitutes an important step forward in terms of
improving registration and import conditions, and at the same time,
MOET sources have told us that the decree is WTO-compliant. On the
other hand, some private sector research-based pharmaceutical
companies have noted their reservations in that the decree did not
incorporate their recommendation of requiring that drugs be
registered in "reference countries" before they are considered to be
registered in Lebanon. One source at Janssen-Cilag argued that this
will allow copycats and drugs of doubtful standards to remain in the
Lebanese market.

FINANCE MINISTR FORECASTS GDP OVER
$28 BILLION FOR 2008, THREE PERCENT GROWTH
--------------------

8. (U) Finance Minister Jihad Azour stated on May 21 that he expects
real GDP growth to reach three percent in 2008 and 4.5 percent in
2009, while inflation was estimated at 2.2 percent for the next
three years. Azour projected Lebanon's GDP at $28.4 billion in
2008, $30.4 billion in 2009, and $32.5 billion in 2010. Meanwhile,
government expenditures should represent 30.7 percent of GDP in 2009
and 27.5 percent of GDP in 2010. Debt servicing should also
decrease from 12.1 percent of GDP in 2009 to 10.8 percent of GDP in
2010, Azour noted.

...WHILE THE IMF FORECASTS THREE
PERCENT GROWTH AND HIGHER INFLATION IN 2008
--------------------

9. (U) In its semi-annual economic outlook for the Middle East and
Central Asia region, the IMF estimated Lebanon's real GDP growth at
three percent in 2008, down from four percent in 2007. Other 2008
IMF estimates for Lebanon included nominal GDP at $26.8 billion, 5.5
percent inflation, government revenues at 22.8 percent of GDP, and
public expenditures at 34.1 percent of GDP. The IMF projected the
current account deficit at 9.8 percent of GDP for 2008, down from
10.7 percent in 2007, whereas public debt is expected to decrease to
166.5 percent of GDP by end of 2008, compared to 170.6 percent of
GDP at end of 2007.

MERRILL LYNCH UPGRADED LEBANON'S
EXTERNAL DEBT RECOMMENDATION TO "MARKET WEIGHT"
--------------------

10. (U) Merrill Lynch (ML) updated its recommendation on Lebanon's
external debt to "market weight" in its new model portfolio of
emerging markets debt for May, due to the positive political

BEIRUT 00000772 003 OF 003


developments resulting from the Doha agreement. ML had retained its
recommendation of Lebanese external debt at "underweight" since
April 2007. Now Lebanon is in the same category as Argentina,
Columbia, Mexico, and Russia.

SISON

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