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Cablegate: Lebanon: Gol Resumes Collecting Gas Excise Tax (Economic

VZCZCXRO1801
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1569/01 3081504
ZNR UUUUU ZZH
R 031504Z NOV 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3428
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 001569

SENSITIVE

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR FRANCESCKI
STATE PASS USAID BEVER/LAUDATO/SCOTT
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: GOL RESUMES COLLECTING GAS EXCISE TAX (ECONOMIC
WEEK IN REVIEW, OCTOBER 27 - NOVEMBER 2, 2008)

CONTENTS
--------

-- GOL RESUMES COLLECTING GAS EXCISE TAX
-- MINISTRY OF ECONOMY CANCELS WHEAT SUBSIDY
-- MARONITE CHURCH INVOLVED IN ECONOMIC GROWTH AND JOB CREATION
-- ALPHA MOBILE OPERATOR TO EXPAND ITS NETWORK
-- PRESIDENT SLEIMAN TO HOST INVESTMENT AND FINANCE CONFERENCE ---
LEBANON IS OIL-IMPORTER LEAST LIKELY TO SUFFER FROM GLOBAL CRISIS
-- EIU LOWERS GROWTH FORECAST FOR 2009, EFFECT OF GLOBAL CRISIS
COULD BE FELT WHEN ISSUING BONDS

GOL RESUMES COLLECTING
GAS EXCISE TAX
--------------------

1. (SBU) On October 30, the GOL resumed the collection of gasoline
excise taxes, suspended while oil prices surged, following the
recent fall in international oil prices. Because the tax fluctuates
based on the price of oil, a continued price drop will bring in much
needed additional revenues to the GOL, helping reduce the deficit.
Reinstating the gas excise tax was one of the IMF's Emergency Post
Conflict Assistance (EPCA) -- as well as USG -- benchmarks for the
disbursement of Paris III pledged budgetary support in 2007, but
with the hike in oil prices, the government chose to forego such a
measure for political and social considerations. The current
collection level would not meet the EPCA condition, though it will
bring some improvement in government finances.

MINISTRY OF ECONOMY
ELIMINATES WHEAT SUBSIDY
--------------------

2. (SBU) Following a meeting on October 31 between the Minister of
Economy and Trade Mohammad Safadi and representatives of mills and
bakeries, the Ministry decided to cancel its wheat subsidy
completely. According to the head of the Directorate of Sugar Beets
and Grains at the Ministry of Economy and Trade (MOET) Claire Amm,
the subsidy had been implemented when the international price of one
ton of wheat exceeded $210, whereas it is currently below $200. In
addition to this, the decrease in the prices of fuel makes the
subsidy unjustified. Amm noted that bakeries and the General Labor
Confederation had been lobbying the MOET to eliminate the subsidy.


MARONITE CHURCH INVOLVED IN
ECONOMIC GROWTH AND JOB CREATION
--------------------

3. (SBU) Former Finance Minister Jihad Azour told us he is setting
up a $50-100 million investment fund for the Maronite Church to
invest in SMEs in Lebanon. Azour, who will chair the fund, is
currently designing a strategy and assembling a team for this
project. Azour also mentioned that he is working with the Maronite
Church on other related initiatives to help mainly Christian
companies in Lebanon and to promote job creation. Azour said he is
occasionally helping PM Siniora on economic issues, and is part of
Majority Leader Saad Hariri's advisory group on economic and social
strategy. (Comment: Azour, a Maronite from north Lebanon and
nephew of former Minister/MP Jean Obeid, still has political
ambitions. End comment.)

ALPHA MOBILE OPERATOR
TO EXPAND ITS NETWORK
--------------------

4. (U) The Ministry of Telecommunications (MOT) announced that
cellular operator Alpha signed an eight million dollar contract to
expand its network to accommodate 300,000 new users, as well as
improve the quality and coverage of its network. Mobile operator
MTC Touch has also completed a $645,000 expansion of its network in
the southern regions of Marjeyoun and Khiam.

INVESTMENT AND FINANCE CONFERENCE
--------------------

5. (SBU) There will be a "Friends of Lebanon Conference for
Investment and Finance" on November 20-21, 2008 in Beirut. The
conference organizing firm has sent invitations to officials in the

BEIRUT 00001569 002 OF 002


Gulf and other countries; PM Siniora and Central Bank Governor
Salameh are inviting their counterparts. Siniora reportedly invited
Egypt's PM while he was in Cairo last week. The French PM will be
in Lebanon during this period with a business delegation. The
French Embassy told us they were not pleased that this larger
conference at which the French PM is supposed to participate has
been arranged, apparently with GOL approval, to coincide with that
visit.

LEBANON IS OIL-IMPORTER LEAST LIKELY
TO SUFFER FROM GLOBAL CRISIS
--------------------
6. (U) According to regional investment bank EFG Hermes, Lebanon is
the oil-importing economy least likely to suffer from falling global
demand outside the Gulf Cooperation Council (GCC) countries,
resulting from the global financial crisis. Lebanon's domestic
demand growth will also not be as affected by rising inflation as in
other oil-importing economies, as demand is expected to pick up in
2008 and 2009, due to perceptions that the political situation has
improved. The current account balance is also expected to improve,
benefiting from falling oil prices, EFG Hermes noted.

EIU LOWERS GROWTH FORECAST FOR 2009, EFFECT OF
GLOBAL CRISIS COULD BE FELT WHEN ISSUING BONDS
--------------------

7. (U) In its first report since the worsening of the global
financial crisis, the Economist Intelligence Unit (EIU) estimated
Lebanon's real GDP growth at 4.2 percent in 2008, and revised
downward its 2009 GDP forecast from 4.6 percent to 3.1 percent, due
to the spillover from the economic slowdown and political
uncertainty tied to the 2009 parliamentary elections. Meanwhile,
the EIU expressed fears that the global liquidity freeze could
increase pressure on the GOL, which needs both to turn over a large
volume of local and foreign currency debt instruments on a regular
basis, and to take on new debt to finance its budget deficit.
Therefore, said the EIU, the global loss of confidence is likely to
be felt when Lebanon returns to the Eurobond market with a new
issue.

SISON

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