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Cablegate: Lebanon and Financial Crisis: Imf Says Good Oversight Has

VZCZCXRO9443
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #1725/01 3401236
ZNR UUUUU ZZH
R 051236Z DEC 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3733
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 001725

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 AND FINANCIAL CRISIS: IMF SAYS GOOD OVERSIGHT HAS
SHIELDED BANKING SYSTEM (ECONOMIC WEEK IN REVIEW, DECEMBER 1 - 7,
2008)

CONTENTS
--------

-- IMF ISSUES FIRST REPORT ON LEBANON SINCE ONSET OF FINANCIAL
CRISIS
-- MP HARIRI HOSTS ROUNTABLES TO DEAL WITH GLOBAL ECONOMIC CRISIS
-- GOL TAKES CHARGE OF ALFA MOBILE NETWORK
-- BASSIL THANKS USAID FOR ASSISTANCE, SAYS NOTHING ABOUT
PRIVATIZAITON
-- MERRILL LYNCH MAINTAINS ITS RECOMMENDATION ON LEBANON DEBT
-- BEIRUT STOCK EXCHANGE RANKED THIRD BEST IN THE REGION
-- SYRIA CANCELS FUEL TAX ON TRUCKS
-- CABINET TO SUBSIDIZE DIESEL DURING THE WINTER SEASON
-- LEBANON JOINS UN CONVENTION ON SALE OF GOODS
-- BEIRUT RANKS 43 IN WORLDWIDE RETAIL LOCATION

IMF ISSUES FIRST REPORT ON LEBANON
SINCE ONSET OF FINANCIAL CRISIS
---------------------------

1. (U) In its first report on Lebanon since the onset of the global
financial crisis, the IMF indicated that oversight by local
supervisory authorities has so far shielded the banking system from
direct impact of the crisis. It warned that the crisis could impact
Lebanon through weakening conditions in the Gulf, as deposit
inflows, remittances, and direct investment from the region may slow
down and erode bnks' profitability. The IMF said banking
supervsory authorities should be ready to step up supervsion to
minimize risks and continue to monitor the quality of loan
portfolios closely. It also noted that Lebanon's top priority is to
reduce the public debt-to-GDP ratio. According to the IMF, the
GOL's fiscal adjustment program is serious, since it should decrease
the debt-to-GDP ratio even if telecom privatization does not take
place in 2009.

MP HARIRI HOSTS ROUNTABLES TO
DEAL WITH GLOBAL ECONOMIC CRISIS
--------------------

2. (U) On December 1, Parliamentary Majority Leader Saad Hariri
hosted a second economic roundtable in less than two weeks to
discuss the global financial crisis and its economic and social
repercussions in Lebanon. A committee will be in charge of issuing
a working document giving suggestions on the appropriate course of
action for the GOL to tackle the effects of the crisis. The
roundtable gathered a wide variety of economic and business leaders
from the private and public sectors, including Finance Minister
Chatah, Central Bank Governor Riad Salameh, former ministers of
economy and finance, MPs, representatives of leading local banks,
the chairman of the Beirut Stock Exchange, members of the IMF
resident team, and the president of the Association of Lebanese
Industrialists. Hariri was quoted as saying that he will organize
more roundtables to discuss issues affecting citizens' livelihoods.


3. (SBU) The General Manager of Beirut-based Arab Finance House,
Fouad Matraji, told us on December 3 that these roundtables are
serious and hope to provide useful suggestions to help the GOL
minimize the impact of the global crisis on Lebanon. Hariri,
heading the largest parliamentary bloc, believes that he will be the
future prime minister of Lebanon, Matraji said, and as such, is
trying to deal with any crisis before he officially "takes charge."


GOL TAKES CHARGE OF
ALFA MOBILE NETWORK
-------------------

4. (U) On December 1, the Lebanese Ministry of Telecommunications
took charge of the Alfa mobile network for the next two months,
until the GOL issues a tender for the management of the two mobile
companies. Minister Gebran Bassil noted that the "biggest challenge
during the next two months will be to prove that the Lebanese are
capable of running a mobile phone company without any foreign
assistance." (Note: Bassil previously indicated his preference for
placing foreign ownership limits on the two companies when they are
privatized later this year. His nationalistic rhetoric reflects
that. End note.)

BEIRUT 00001725 002 OF 003

BASSIL THANKS USAID FOR ASSISTANCE,
SAYS NOTHING ABOUT PRIVATIZAITON
--------------------

5. (U) On December 3, AID Mission Director and EconOff attended the
launch of the Telecommunications Regulatory Authority's (TRA) new
web portal and information database, www.tra.gov.lb, funded by USAID
under its Transparency and Accountability Grants (TAG) program,
implemented by AMIDEAST. In his remarks, Telecom Minister Gebran
Bassil thanked USAID for its valuable assistance, and hoped it would
continue to support the telecom sector in the future. He stressed
the need for the speedy establishment of Liban Telecom, the new
company meant to take over fixed line operations from the
government, and said he wanted the process of development of the
sector to happen smoothly. He mentioned nothing about privatization
of the mobile telecom companies. TRA Chairman Kamal Shehadi
highlighted his and his agency's commitment to development of the
sector, and said TRA was ready to move forward with privatization at
any time, once the political decision-makers give him the go-ahead.


MERRILL LYNCH MAINTAINS ITS
RECOMMENDATION ON LEBANON DEBT
--------------------

6. (U) Merrill Lynch (ML) maintained its recommendation on Lebanon's
external debt to "Market Weight" in its model portfolio of emerging
markets debt and increased Lebanon's market weight to 7.7 percent
due to the performance of Lebanese Eurobonds so far this year, given
the global financial crisis. In comparison, the Europe, Middle
East, and North Africa (EMEA) region and countries rated similar to
Lebanon maintained an "Under Weight" recommendation. Lebanon's
external debt posted the highest return among 10 EMEA countries at
3.42 percent from January-November 2008, as well as the best return
among the 29 emerging economies included in ML's Sovereign Plus Debt
Index.

BEIRUT STOCK EXCHANGE RANKED
THIRD BEST PERFORMER IN THE REGION
--------------------

7. (SBU) President of Beirut Stock Exchange (BSE) Fadi Khalaf told
us December 2 that the BSE ranked as third best stock exchange
performer in the Arab region year to date, after Tunis and Morocco.
Given the financial crisis and plummeting markets, the ranking is
more a reflection of "less bad" performance than "good" performance.
Khalaf said the BLOM index (issued by BLOM Bank and used by the
BSE) showed a drop of 17 percent for the first eleven months of
2009.

SYRIA CANCELS FUEL
TAX ON TRUCKS
------------------

8. (U) Daily As-Safir reported on November 4 that the Syrian
authorities will cancel the so-called "diesel tax" that was imposed
in April 2008 on trucks and buses running on diesel and crossing
into Lebanon, Jordan, Iraq, and Turkey, in order to prevent
smuggling of subsidized Syrian diesel across borders. The
cancellation was attributed to the worldwide decrease in energy
prices, which brought prices closer to Syrian levels. Agricultural
syndicates were quoted as saying that they were grateful to the GOL
for achieving this, as it will reduce their transportation costs on
this vital export route to the Arab region.

CABINET TO SUBSIDIZE DIESEL
DURING THE WINTER SEASON
--------------------

9. (SBU) According to the local press, PM Siniora stated that the
cabinet will agree December 5 to subsidize diesel by two dollars per
20 liters during the winter months. In the last few years, the GOL
has subsidized diesel sold to households in winter
(December-February); this measure essentially targeted households in
remote areas so they can afford to heat their houses during winter
without cutting trees.


BEIRUT 00001725 003 OF 003


LEBANON JOINS UN CONVENTION
ON SALE OF GOODS
--------------------

10. (U) Lebanon joined the UN Convention on Contracts for the
International Sale of Goods (CISG), Byblos Bank's economic report
noted. Lebanon became the 72nd country to join the convention
worldwide and the fourth in the MENA region. The CISG will be
implemented in January 2009.

BEIRUT RANKS 43 IN WORLDWIDE
RETAIL LOCATION
--------------------

11. (U) According to property consultants Cushman & Wakefield's 2008
"Main Streets Across the World" report, Beirut ranked 43 worldwide
in terms of most expensive retail location, out of 236 locations
across 48 countries. Within the top ten most expensive locations in
the Middle East and Africa (MEA) region, four were in the Greater
Beirut area (ABC Achrafieh, Verdun, Kaslik, and Beirut Center
District). The report noted that following the end of political
instability witnessed in recent years, the retail market in Lebanon
has started to recover, especially in Beirut, where there has been
solid aggregate rental growth.

SISON

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