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Cablegate: Lebanon: Stock Market Begins Correction Phase, Tourist

VZCZCXRO8952
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0819/01 1541551
ZNR UUUUU ZZH
R 021551Z JUN 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2142
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 000819

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: STOCK MARKET BEGINS CORRECTION PHASE, TOURIST
SEASON LOOKS GOOD (ECONOMIC WEEK IN REVIEW, MAY 26 - June 1, 2008)

REF: BEIRUT 809

CONTENTS
--------

-- SHARES ON THE BEIRUT STOCK EXCHANGE ENTER CORRECTION PHASE
-- RUMORS OF INVESTMENTS IN SOLIDERE
-- FISCAL DEFICIT DOWN IN THE FIRST QUARTER OF 2008
-- GROSS PUBLIC DEBT EXCEEDED $43 BILLION BY END OF MARCH 2008
-- EXPECTATIONS ARE HIGH FOR A PROSPEROUS TOURIST SEASON
-- POLITICAL WILL KEY TO MOVE ON WITH MOBILE PRIVATIZATION
-- MINISTRY OF CULTURE TO START AMENDING LAW ON LITERARY AND
ARTISTIC PROPERTY
-- INTERNAL SECURITY FORCES DESTROY MORE PIRATED GOODS
-- TELECOMMUNICATIONS PENETRATION LOW IN LEBANON FOR 2007
-- LEBANON'S ECONOMY VULNERABLE ACCORDING TO S&P


SHARES ON THE BEIRUT STOCK
EXCHANGE ENTER CORRECTION PHASE
--------------------

1. (SBU) The prices of listed shares on the Beirut Stock Exchange
(BSE) started to drop the beginning of the week of May 26, due to
technical factors and some profit taking, BSE president Dr. Fadi
Khalaf told us on May 28. Khalaf explained that the market is in "a
correction phase," after the substantial rise in prices of listed
shares immediately following the recent political crisis (reftel).


RUMORS OF INVESTMENTS
IN SOLIDERE
-----------

2. (SBU) Following rumors that Saudis and the Hariri family were the
main buyers of real estate company Solidere shares, BSE president
Dr. Fadi Khalaf said that, by regulation, the BSE cannot disclose
names of investors in the market, adding that this is equivalent to
bank secrecy. Khalaf explained that in the absence of a regulatory
body -- similar to the U.S. SEC -- the BSE cannot know who the
investors are when shares are acquired by large banks or financial
institutions through fiduciary accounts. By law, no investor can
hold more than ten percent of Solidere shares, but there are rumors
that some of the Solidere shares are held by front-men or
institutions.

3. (SBU) Meanwhile, prominent Sunni businessman Abdel Wadoud Nsouli,
who is also close to the Hariri family, told us on May 28 that
several Lebanese and foreign investors were buying Solidere shares;
not only Saudi investors and the Hariri family. He explained that
Solidere shares are undervalued, noting that Solidere holds 35
percent of Solidere International, a company that has large
successful development projects in Jordan and the Gulf. Nsouli
remarked that real estate in Lebanon is cheaper than in the
neighboring countries, and that investors from the Emirates and the
Gulf have been buying more Lebanese property recently (reftel).

FISCAL DEFICIT DOWN IN THE
FIRST QUARTER OF 2008
---------------------

4. (U) Figures released by the Ministry of Finance show that the
overall public fiscal deficit accounted for 24.7 percent of total
expenditures, down from 31.9 percent in the first quarter of 2007.
Overall government expenditures reached $2.18 billion, up by 5.6
percent relative to the same period in 2007, while total revenues
increased by 16.7 percent to $1.64 billion. Debt servicing
increased by 2.2 percent and totaled $724.5 million, accounting for
33 percent of total expenditures. The overall primary surplus
reached $258 million or 11.84 percent of total spending.

GROSS PUBLIC DEBT EXCEEDED
$43 BILLION BY END OF MARCH 2008
--------------------------------

5. (U) According to the Central Bank of Lebanon (CBL), Lebanon's
gross public debt reached $43.1 billion at the end of March 2008, up
by 2.5 percent compared to December 2007. Domestic debt rose by 3.8
percent in the first quarter of 2008, reaching $21.6 billion, while
external debt rose by 1.18 percent, reaching $21.5 billion in March

BEIRUT 00000819 002 OF 003


2008. Foreign currency-denominated debt accounted for 49.9 percent
of gross public debt, while local currency debt represented 50.1
percent of the total. Gross public debt amounted to 171 percent of
GDP at the end of 2007, down from 178 percent at the end of 2006.


EXPECTATIONS ARE HIGH
FOR A PROSPEROUS TOURIST SEASON
-------------------------------

6. (U) Local and international press has been reporting high
expectations for a prosperous tourist season following the political
agreement that ended Lebanon's most recent crisis. It has been
reported that hotels have been flooded with reservations since last
week. According to Tourism Minister Joe Sarkis, by the end of April
2008, only 280,000 tourists had come to Lebanon; however he expected
the total number of tourists in 2008 to be between 1.3-1.6 million.


POLITICAL WILL KEY TO MOVE ON
WITH MOBILE PRIVATIZATION
-------------------------

7. (SBU) Chairman of the Telecommunications Authority (TRA) and
Secretary General of the Higher Council for Privatization (HCP) told
us separately on May 29 that political will is the key to move ahead
with privatization. Both are waiting for the next cabinet to be
formed, and a ministerial statement clearly renewing GOL commitment
to privatization. If so, the mobile auction can take place in
September 2008, TRA Chairman said.

MINISTRY OF CULTURE TO START AMENDING
LAW ON LITERARY AND ARTISTIC PROPERTY
-------------------------------------

8. (SBU) Director General of the Ministry of Culture Dr. Omar
Halablab told us on May 30 that he will begin amending Law 75 on the
Protection of Literary and Artistic Property, in cooperation with
the World Intellectual Property Organization (WIPO). The main focus
will be on amending the articles dealing with exceptions given to
reproducing protected works for academic use. Meanwhile, the
Ministry is planning to hold a seminar in July on collective rights
of those involved in the music industry. Halablab is interested in
receiving US IPR experts to train his staff, and welcomed the idea
of sending people from the Ministry to attend USPTO trainings.

INTERNAL SECURITY FORCES
DESTROY MORE PIRATED GOODS
--------------------------

9. (U) On May 29, the Cyber Crime and IP Bureau of the Internal
Security Forces (ISF) destroyed more than 80,000 confiscated pirated
CDs and DVDs, containing movies, music, games, and computer
programs. English newspaper The Daily Star estimated the value of
the destroyed goods at around $5 million. The Cyber Crime and IP
Bureau has been very successful in combating IP violations in recent
years.

TELECOMMUNICATIONS PENETRATION
LOW IN LEBANON FOR 2007
-----------------------

10. (U) According to the UN's International Telecommunications Union
(ITU) 2007 annual telecommunications statistics, Lebanon ranked 79
out of 207 surveyed countries and seven out of 20 MENA region
countries in terms of internet penetration. The ITU indicated that
the internet penetration rate in Lebanon was 26.6 percent, with
950,000 internet users. In terms of the ratio of total telephone
subscriptions to total population, Lebanon ranked 125 globally and
15 in the MENA region.

LEBANON' ECONOMY VULNERABLE
ACCORDING TO S&P
----------------

11. (U) Standard & Poor's (S&P) Liquidity Vulnerability Index (LVI)
ranked Lebanon second most vulnerable economy in terms of external
financing needs, among 40 emerging market economies surveyed, based
on an assumed worsening of the global credit crisis. Out of six
countries from the MENA region included in the index, Lebanon was

BEIRUT 00000819 003 OF 003


the only country in the "vulnerable" category. S&P considers the
level of a country's vulnerability related directly to its degree of
dependence on foreign capital inflows to finance external imbalances
and avert balance-of-payments crises.

SISON

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