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Cablegate: Lebanon: Imf to Announce New Epca for Lebanon (Economic

VZCZCXRO8979
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1445/01 2800701
ZNR UUUUU ZZH
R 060701Z OCT 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3219
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 001445

SENSITIVE

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR
TREASURY FOR MNUGENT AND SBLEIWEISS
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: IMF TO ANNOUNCE NEW EPCA FOR LEBANON (ECONOMIC
WEEK IN REVIEW, SEPTEMBER 29 - OCTOBER 5, 2008)

CONTENTS
--------

-- IMF TO ANNOUNCE NEW EPCA FOR LEBANON NEXT WEEK
-- PUBLIC SECTOR SALARY INCREASES DISBURSED BEFORE LEGISLATION
PASSED
-- POLITICAL WILL IS PRESENT FOR TELECOM PRIVATIZATION
-- REFORM IN THE TELECOM SECTOR SLOWLY MOVING FORWARD
-- POLICE GRADUALY DEALING WITH ILLEGAL CABLE PROVIDERS
-- UNICERMIC SHUTS DOWN OPERATIONS IN LEBANON
-- UNCTAD: DI UP BY 3.9 PERCENT IN 2007


IMF TO ANNOUNCE NEW EPCA
FOR LEBANON NEXT WEEK
--------------------

1. (SBU) The IMF Emergency Post-Conflict Assistance (EPCA) team told
us September 30 that the IMF will formally announce a new EPCA
program for Lebanon during the Core Group Donors' meeting on the
sidelines of the World Bank/IMF Annual meetings October 10-13 in
Washington, D.C. The new EPCA program is expected to be approved by
the IMF Board in November, according to the team leader, Division
Chief for Middle East and Central Asia Domenico Fanizza. Under the
new EPCA, Lebanon will receive a $39 million dollar loan from the
IMF -- over and above the $76.8 million dollar loan granted under
the previous EPCA.

2. (SBU) Among the measurable benchmarks being considered under the
new EPCA program, Fanizza listed a new electricity tariff structure,
the issuance of the Request for Application (RFA) for the sale of
the two cellular licenses, the strengthening of internal operations
at the Central Bank of Lebanon, improving the institutional set up
of the fiscal system, and cabinet endorsement and transmission to
parliament of an income tax law.

PUBLIC SECTOR SALARY INCREASES
DISBURSED BEFORE LEGISLATION PASSED
---------------------

3. (SBU) A senior source at the Finance Ministry told us that the
GOL has started paying civil servants advances on salary increases
before legislation that authorized the increases is out. On
September 9, the cabinet increased the minimum wage and endorsed
salary increases in the private and public sectors. Salary
increases in the public sector need parliamentary approval, but
Finance Minister Chatah authorized their payment prior to Eid
al-Fitr.

4. (SBU) Meanwhile, the decree on salary increases in the private
sector has still not been published in the official registry. A
senior source at the Finance Ministry told us October 3 that the
procedure takes time. The cabinet transmitted the decree to the
Shura Council (State Consultative Council, whose decisions are
binding) for review. If approved by the Shura Council, the decree
will then be signed by the Finance and Labor Ministers, PM Siniora,
and President Sleiman, and then be published in the Official
Gazette.

5. (SBU) Vice President of the Association of Lebanese
Industrialists (ALI) Charles Arbid told us October 3 that some
private sector companies have started paying salary increases, while
others are waiting for the decree to come out officially. All
companies probably will apply it when the decree is out, he said.
Arbid said that if the Shura Council approves the measure, ALI would
consider an official challenge to the cabinet's decision on salary
increases (but not the minimum wage) before the Council, because ALI
considers it government interference in the private sector.
Nonetheless, Arbid said, "this will not be an easy fight to win."

POLITICAL WILL IS PRESENT
FOR TELECOM PRIVATIZATION
--------------------

6. (SBU) Telecommunications Regulatory Authority (TRA) Chairman
Kamal Shehadi told us on September 24 that the political will exists
to move forward on the sale of the two cellular licenses, and he is
coordinating with Telecommunications Minister Gebran Bassil and the
Higher Council for Privatization (HCP) SYG on drafting Request for
Application (RFA).

BEIRUT 00001445 002 OF 002

7. (SBU) The GOL will decide if it wants to ask for proposals based
on government revenue sharing (fixed percentage or declining) or
not, but Shehadi expects to have an idea about the option to be
selected in two to three weeks. So far, nine bidders have expressed
interest and Shehadi believes there will be more bidders when the
GOL announces a bid deadline. Finally, Shehadi agrees with Bassil
that the sale of two mobile licenses should remain a benchmark for
disbursement of USG Paris III support.

REFORM IN THE TELECOM SECTOR
SLOWLY MOVING FORWARD
---------------------

8. (U) Ministry of Telecommunications auctioned 30 "platinum" (i.e.,
vanity) cellular numbers on October 3, raising USD 2.5 million.
This reflects MOT attempts to use transparency in the sale of its
services, and prevent rumors about handing these sought after
numbers to political protegees. Meanwhile, Telecom Minister Gebran
Bassil recently announced that the ministry will reduce the cost of
a land line from about USD 133 to USD 33 to sell the excess supply
of land lines held by the ministry. This will bring in revenues to
the ministry and will reduce subscribers' bills, as calls from land
line to land line are up to 70 percent cheaper than using a mobile
phone to call a landline.

POLICE GRADUALLY DEALING
WITH ILLEGAL CABLE PROVIDERS
--------------------

9. (SBU) On September 29, Head of the Cyber Crime and Intellectual
Property Unit at the Internal Security Forces (ISF- Police) Major
Elie Bitar told us that considerable work is being done to make
illegal cable providers pay necessary fees to make their operations
legal and respect copyrights. Since they cannot shut them down
completely, and following a series of lawsuits from major cable TV
operators (including ART, Orbit, Showtime, MBC, and FTV), illegal
cable providers are now paying a fee to the respective right
holders. According to Bitar, 90 percent of local cable providers
are now paying for rights to broadcast from major cable TV
operators. The ISF Unit enforces the law by making sure local cable
providers are paying their fees and have the necessary equipment for
legal distribution. Regarding counterfeit CDs and DVDs, Bitar said
that around 100,000 CDs and DVDs are being confiscated and destroyed
every six months.

UNICERAMIC SHUTS DOWN
OPERATIONS IN LEBANON
--------------------

10. (U) Uniceramic, Lebanon's largest ceramic tile-maker, announced
that it will shut down operations in the country and lay off its
remaining 200 employees. During the past two years, the increase in
energy prices, lifting of tariffs by the GOL, and low-cost Egyptian
imports caused Uniceramic to accumulate losses of around USD 11
million. President of the Association of Lebanese Industrialists
(ALI) Fadi Abboud has been quoted as saying that because 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 will continue operating
from an already-established office in Algeria and plans to expand in
Qatar.

UNCTAD: FDI UP BY
3.9 PERCENT IN 2007
-------------------

11. (U) According to the UN Conference on Trade and Development
(UNCTAD) 2008 World Investment Report, foreign direct investment
(FDI) in Lebanon totaled USD 2.85 billion in 2007, or a 3.9 percent
increase from 2006. In nominal terms, Lebanon ranked five out of 20
MENA economies surveyed in FDI receipts. FDI flows to Lebanon were
equivalent to 11.6 percent of GDP in 2007, the highest within all
Arab countries surveyed. UNCTAD placed Lebanon in the category of
countries with low FDI potential but high FDI performance, and thus
among countries with "above potential" results in terms of
attracting FDI.

SISON

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