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Cablegate: New Ministers Take Over; Telecom Privatization Endorsed

VZCZCXRO1989
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1053/01 2030824
ZNR UUUUU ZZH
R 210824Z JUL 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2521
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 02 BEIRUT 001053

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: NEW MINISTERS TAKE OVER; TELECOM PRIVATIZATION ENDORSED
(ECONOMIC WEEK IN REVIEW, JULY 14 - 20, 2008)

CONTENTS
--------

-- MINISTERS FOCUS ON REFORMS, PRIVATIZATION, AND SOCIAL ISSUES
-- GOL TO ISSUE EUROBONDS TO MEET AUGUST 2008 MATURING BONDS
-- EUROPEAN COMMISSION: 42 MILLION EURO IN ASSISTANCE TO LEBANON IN
2008
-- TWO AMERICAN COMPANIES TO SUPPLY SECURITY EQUIPMENT FOR BEIRUT
INTERNATIONAL AIRPORT
-- SHORTAGE IN JET FUEL WILL NOT AFFECT AIRPORT TRAFFIC
-- BUSINESS MONITOR INTERNATIONAL REVISES LEBANON'S ECONOMIC RISK
RATING, INFLATION EXPECTED AT SIX PERCENT FOR 2008
-- USDOL-FUNDED PROJECT COMBATTING CHILD LABOR COMES TO AN END
-- CAPITAL INTELLIGENCE FORECASTS FOUR PERCENT GROWTH IN 2008
-- WORLD BANK: LEBANON RANKS 82 GLOBALLY IN TERMS OF NOMINAL GDP FOR
2007

MINISTERS FOCUS ON REFORMS,
PRIVATIZATION, AND SOCIAL ISSUES
--------------------
1. (U) During the handover ceremony at the Ministry of Finance on
July 15, newly appointed Minister Mohammad Chatah expressed his
belief that Lebanon could witness nine percent GDP growth if the
political and security situation were stable. Chatah pledged to
continue reforms at the Ministry, and said he is committed not to
use the Ministry's resources for political and electoral purposes.
On the same day, newly appointed Hizballah Labor Minister Mohammad
Fneish noted that the issue of minimum wages would have to be
discussed by the Cabinet to secure the interests of both employees
and employers. (Note: On May 6, the previous Cabinet had approved
raising the minimum wage from $200 to $333. End Note.) Fneish also
pledged to carry on with social security reforms.

2. (U) Meanwhile, on July 14, newly appointed Minister of
Telecommunications Gebran Bassil expressed support for mobile
privatization in complete transparency, ensuring the best service
for citizens. Bassil indicated that his first priority would be to
reduce mobile phone rates -- among the highest in the world -- and
increase the number of subscribers, thus maintaining the high rate
of telecom revenues that the GOL so heavily depends on.

GOL TO ISSUE EUROBONDS TO MEET
AUGUST 2008 MATURING BONDS
--------------------

3. (SBU) The Ministry of Finance (MOF) is preparing for a new
Eurobond issue to meet the GOL's August 2008 maturities, amounting
to $750 million in principal repayment, entirely held by the banking
sector. The MOF wants to take advantage of favorable market
conditions and the drop in interest rates on sovereign Eurobonds in
the secondary market between 0.5 percent and one percent. The GOL
has already met over 80 percent of its sovereign maturities for this
year.

EUROPEAN COMMISSION: 42 MILLION EURO IN
ASSISTANCE TO LEBANON IN 2008
--------------------

4. (U) The European Commission press release on July 17 indicated
that the EU will provide a total of 42 million Euro in assistance in
2008 to Lebanon under its European Neighborhood Policy (ENP). The
three priorities for EU assistance in 2008 are the reinforcement of
the competitiveness of the Lebanese private sector (14 million
Euro), support to local development in Northern Lebanon (18 million
Euro), and the modernization of the Lebanese justice system (10
million Euro).

TWO AMERICAN COMPANIES TO SUPPLY
SECURITY EQUIPMENT FOR BEIRUT INTERNATIONAL AIRPORT
--------------------

5. (U) U.S. firms Raspican and American Science and Engineering
Incorporation were awarded a $15 million contract at the beginning
of July to supply security equipment, including X-ray machines and
metal detectors, to the Civil Aviation Authority at Beirut
International Airport (BIA). The contract is funded by the
International Civil Aviation Organization (ICAO).

SHORTAGE IN JET FUEL WILL NOT
AFFECT AIRPORT TRAFFIC

BEIRUT 00001053 002 OF 002


--------------------

6. (SBU) The shortage in jet fuel quantities at Beirut International
Airport (BIA) did not affect airport traffic as small quantities of
jet fuel from Syria were imported via land, President of the
Association of Petroleum Importing companies Bahij Abu Hamzeh told
us on July 17. He explained that these quantities would be
sufficient until Friday when a jet fuel tanker arrived and started
unloading. Abu Hamzeh attributed the shortage to the delay in the
tanker's arrival and increased demand at BIA due to increased
airport traffic.

BUSINESS MONITOR INTERNATIONAL REVISES LEBANON'S ECONOMIC RISK
RATING, INFLATION EXPECTED AT SIX PERCENT FOR 2008
--------------------

7. (U) In the Business Monitor International's (BMI) latest business
forecast report for the third quarter of 2008, Lebanon's short and
long-term economic risk ratings were revised upwards, as Lebanon
outperformed BMI's two percent growth forecast for 2008. In the
BMI's business environment rating, Lebanon ranked 61 out of 130
global markets and 9 out of 14 regional markets. BMI cited the
current unified political will in Lebanon to implement economic
reforms and the potential for further external debt relief as the
country's main economic opportunities for the remainder of the year.


8. (U) Meanwhile, Lebanon's main challenges included high inflation,
brain drain, and reviving the tourism sector -- one of the main
pillars of the economy. BMI estimated a 10.3 percent year-on-year
inflation at end-March 2008, while a yearly inflation rate of six
percent is expected at the end of 2008.

USDOL-FUNDED PROJECT COMBATTING
CHILD LABOR COMES TO AN END
--------------------

9. (U) On July 9, a press conference was held to announce the end of
the Alternatives to Combat Child Labor through Education and
Sustainable Services in the Middle East and North Africa (ACCESS
MENA) project, financed by USDOL and implemented in Lebanon in
cooperation with Cooperative Housing Foundation (CHF) International,
the Rene Mouawad Foundation (RMF), and AMIDEAST. The ACCESS MENA
project began in 2004 and intended to target 4,500 children, with
education interventions for children withdrawn and children at risk
of engaging in exploitative labor, with specific focus on the need
to expand access to girls' education. By the end of the project,
over 8000 children had been targeted, far surpassing the initial
target.

CAPITAL INTELLIGENCE FORECASTS
FOUR PERCENT GROWTH IN 2008
--------------------

10. (U) According to Capital Intelligence (CI) rating agency,
Lebanon's economic growth is forecast at four percent for 2008,
unchanged from 2007, while the fiscal deficit is expected to reach
10.5 percent of GDP in 2008, compared to 10.8 percent of GDP in
2007. CI also projected the current account deficit at 10.4 percent
of GDP in 2008, compared to 10.7 percent of GDP in 2007, while
public debt is expected at 167.8 percent of GDP at the end of 2008,
down from 171 percent at the end of 2007. CI's revised outlook came
in the positive aftermath of the Doha conference, although it warned
that in the proposed national unity cabinet, opposition members may
veto key policy issues. (Note: CI's report was issued before the
formation of the Cabinet, as announced on July 11. End note.).


WORLD BANK: LEBNON RANKS 82 GLOBALLY
IN TERMS OF NOMINAL GDP FOR 2007
--------------------

11. (U) The World Bank ranked Lebanon 82 out of 185 countries
worldwide, and 15 out of 18 MENA countries in terms of nominal GDP
for 2007. Lebanon's nominal GDP was estimated at $24 billion in
2007, accounting for 1.4 percent of total GDP in the MENA region.


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