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Cablegate: Syria Tax On Trucks Could Obstruct Trade, Inflation

VZCZCXRO6210
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1014/01 1961119
ZNR UUUUU ZZH
R 141119Z JUL 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2460
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHAAA/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 03 BEIRUT 001014

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: SYRIA TAX ON TRUCKS COULD OBSTRUCT TRADE, INFLATION
CONTINUES TO RISE (ECONOMIC WEEK IN REVIEW, JULY 7 - 13, 2008)

CONTENTS
--------

-- SYRIAN TAX ON TRUCKS COULD OBSTRUCT TRADE, LEBANESE EXEMPTED FROM
DEPARTURE TAX
-- INFLATION CONTINUES TO RISE
-- SALARY INCREASES ON HOLD, WAITING FOR NEW CABINET
-- 60 ISRAELIS ACCUSE SIX LEBANESE BANKS OF FINANCING HIZBALLAH,
BANKING OFFICIALS DENY
-- GOL REINSTATES PROGRAM SUBSIDIZING AGRICULTURAL EXPORTS
-- LEBANON'S LARGEST CERAMICS FACTORY ON THE VERGE OF SHUTTING DOWN
-- MINISTRY OF POST AND TELECOMMUNICATIONS REVENUE OVER ONE BILLION
IN 2007
-- IMF: EFFECT OF OIL AND FOOD PRICE INCREASES ON LEBANON IS SEVERLY
NEGATIVE


SYRIAN TAX ON TRUCKS COULD OBSTRUCT TRADE,
LEBANESE EXEMPTED FROM DEPARTRE TAX
--------------------

1. (U) On July 3,the Syrian authorities began imposing a "gas tax"
of around $300 on regular trucks leaving Syrian territory and $500
on refrigerated trucks. Head of the Lebanese Syndicate of Fruit and
Vegetable Exporters said that this tax would lead to losses of
around $50,000 per day for refrigerated trucks. Most of Lebanon's
agriculture exports go either to Syria, and those intended for
Jordan and the Gulf also go through Syria by land. In response,
Jordan began imposing a $340 tax on Syrian trucks, and Saudi Arabia
a $533 tax.

2. (U) Meanwhile, on July 9 the local press reported that Lebanese
President Michel Sleiman thanked his Syrian counterpart during a
telephone conversation over the Syrian cabinet's decision to exempt
Lebanese nationals from paying the "departure tax" when crossing the
Syrian border into Lebanon. However, no mention was made regarding
the gas tax. Earlier in the week, Syrian authorities revised the
fees they imposed on each person regardless of nationality departing
Syria via land ($10), air ($34), as well as for each car entering
Syria ($30).

INFLATION CONTINUES
TO INCREASE
-------------------

3. (SBU) According to the Central Administration of Statistics
(CAS), inflation rose by 4.4 percent in the first five months of
2008, a senior CAS contact said, noting that this figure is "very
high." In January 2008, CAS adopted a new methodology for
calculating inflation, and thus cannot calculate inflation on an
annualized basis; however our contact told us that from December
1999 till May 2008, inflation reached 30 percent.

4. (U) On the other hand, reputed private consultancy firm
Consultation and Research Institute (CRI) indicated that prices rose
by six percent in the first five months of 2008; with a yearly
increase in prices in May 2008 of 12.98 percent. The rise in the
consumer price index in the first months of 2008 is mostly due to a
rise of 11.72 percent in prices of food and beverages, 9.73 percent
in personal care, and 8.31 percent in transportation and
telecommunications. Meanwhile, Consumer Lebanon (CL) association
indicated on July 1 that during the second quarter of 2008, prices
of consumer goods rose by 4.47 percent. CL estimated that
cumulative inflation of basic commodities in the past two years
amounted to 47.5 percent.

SALARY INCREASES ON HOLD,
WAITING FOR NEW CABINET
--------------------

5. (SBU) The Cabinet's decision on May 6 to raise salaries in the
public and private sectors is still pending. When the decree was
first issued, resigned Labor Minister Trad Hamadeh refused to sign
it, which is needed to authorize raising the minimum wage in the
private sector. Senior economic and financial contacts explained
this by saying that Hamadeh rejected any decision taken by the
Siniora Cabinet, which he did not recognize. Currently, his refusal
to sign it is attributed to Hamadeh's belief that such a decree
should not be signed by a caretaker minister, our contacts said.
Meanwhile, implementing salary increases in the public sector

BEIRUT 00001014 002 OF 003


requires legislations, and a draft project law for this purpose has
already been sent to PM Siniora, a senior contact at the Finance
Ministry told us. The contact noted that PM Siniora will wait for
the next Cabinet to be in place to send the draft law to parliament.


60 ISRAELIS ACCUSE SIX LEBANESE BANKS OF
FINANCING HIZBALLAH, BANKING OFFICIALS DENY
--------------------

6. (SBU) Arab nationalist As-Safir reported on June 8 that about 60
Israelis filed court cases in New York against five Lebanese banks
(Fransabank, Bank of Beirut, Banque Libano-Francaise, Middle East &
Africa bank, and Banque Libanaise pour le Commerce (BLC)) and in
Montreal against one Lebanese bank (Lebanese Canadian Bank) for
allegedly opening bank accounts to finance Hizballah activities.
President of the Association of Banks in Lebanon (ABL) Francois
Bassil refuted such allegations. "These are lies; rumors to hurt
the reputation of Lebanese banks abroad," he told us, stressing that
the banks are not aware of these lawsuits. He also stressed that
Lebanese banks are taking strict measures fighting terrorism
finance.

7. (U) Meanwhile, Central Bank Governor (CBL) Riad Salameh and the
ABL issued separately public statements asserting that Lebanon's
banking sector abides by internationals standards and is compliant
with FATF recommendations, and that the Lebanese financial system
abides by legislation recognized and accepted internationally.
Salameh added that "cases raised occasionally against normal banking
activities are handled by the judicial authorities and does not
require all this fuss." ABL noted that Lebanese and Arab banks are
occasionally subject to defamation campaigns; however, such
campaigns will not affect the banks' credibility regionally and
internationally.

GOL REINSTATES PROGRAM SUBSIDIZING
AGRICULTURAL EXPORTS
--------------------

8. (U) Following widespread criticism from farmers and threats to
take to the streets in protest, PM Siniora announced on July 7 that
the GOL would reinstate the Investment Development Authority of
Lebanon (IDAL)'s "Export Plus" program, under which the transport of
certain agricultural goods was subsidized based on quantity and
export destination. Effective June 1, the Cabinet decided to
suspend the program for one year. Minister of Economy and Trade
(MOET) Sami Haddad had said that Export Plus increased prices of
goods in the local market and benefited exporters of agricultural
products, rather than farmers and consumers.

LEBANON'S LARGEST CERAMICS FACTORY
ON THE VERGE OF SHUTTING DOWN
--------------------

9. (U) On July 8, local English newspaper The Daily Star reported
that Lebanon's largest ceramics factory Uniceramic halted its local
operations and dismissed most of its staff, due to high energy costs
and unfair competition from neighboring countries -- mostly Egypt.
Uniceramic is still hoping to raise enough money from banks and
interested investors to resume operations, but at a much smaller
scale. President of the Association of Lebanese Industrialists
(ALI) Fadi Abboud was quoted as saying that given that ceramics
production is an energy-intensive industry, unfair competition
originates mainly from Egypt and Qatar -- both of which heavily
subsidize the cost of energy -- while defying World Trade
Organization (WTO) obligations. Uniceramic recorded losses of
around $5.4 million in 2007 and expects even higher losses in 2008.

MINISTRY OF POST AND TELECOMMUNICATIONS
REVENUE OVER ONE BILLION IN 2007
--------------------

10. (U) The Ministry of Post and Telecommunications (MPT) announced
that its revenues for 2007 reached $1.33 billion, a 12.6 percent
increase compared to 2006. Transfers from the MPT to the Treasury
reached $1.1 billion in 2007, up by 29 percent compared to 2006.

IMF: EFFECT OF OIL AND FOOD PRICE
INCREASES ON LEBANON IS SEVERLY NEGATIVE
--------------------

BEIRUT 00001014 003 OF 003

11. (U) According to the IMF's recently released study "Food and
Fuel Prices- Recent Developments, Macroeconomic Impact, and Policy
Responses," the oil and food price shocks have both led to a 3.8
percent widening of Lebanon's 2009 projected ratio of the current
account deficit to GDP, to be set at 14 percent. Moreover, the
volume of forecasted Central Bank reserves in months of next year's
imports of goods and services fell by 1.2 months, or 16.2 percent
due to both shocks. The IMF concluded that the overall effect of
both shocks on Lebanon was severely negative.

GRANT

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