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Cablegate: Lebanon: Central Bank Governor Projects Higher Deficit And

VZCZCXRO6742
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #1798/01 3651011
ZNR UUUUU ZZH
R 301011Z DEC 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3867
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 001798

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: CENTRAL BANK GOVERNOR PROJECTS HIGHER DEFICIT AND
INFLATION IN 2009 (ECONOMIC WEEK IN REVIEW, DECEMBER 22 - 24, 2008)

CONTENTS
--------

-- CENTRAL BANK GOVERNOR PROJECTS HIGHER DEFICIT AND INFLATION IN
2009
-- ECONOMIC ACTIVITY UP DURING END OF YEAR HOLIDAYS; REAL ESTATE
MARKET UNAFFECTED BY GLOBAL CRISIS
-- FINANCE MINISTER SIGNS $85 MILLION SOFT LOAN FROM ARAB MONETARY
FUND
-- WORLD BANK: REAL SECTOR WILL BE HIT BY GLOBAL CRISIS, GDP TO
DECREASE IN 2009
-- AUCTION FOR CELLULAR VANITY NUMBERS RAISES OVER $700,000
-- MOODY'S REVISES OUTLOOK OF FOUR LEBANESE BANKS


CENTRAL BANK GOVERNOR PROJECTS HIGHER
DEFICIT AND INFLATION IN 2009
--------------------

1. (U) In a televised interview on December 21, Central Bank of
Lebanon (CBL) Governor Riad Salameh said the deficit will reach
$2.66 billion in 2009, and will further grow by ten percent as a
result of the recently approved salary increases in the public
sector. He also indicated that inflation will be higher than
projected earlier (six percent), and will range between eight and
ten percent, due to higher liquidity in the market resulting from
salary increases and the drop in oil prices. However, Salameh said
the CBL has record high foreign currency assets (excluding gold)
exceeding $19 billion, and the CBL is buying dollars from the market
daily, thus increasing its ability to maintain a stable local
currency. He also noted that surplus in subscriptions in Treasury
Bills and sovereign paper will enable the GOL to cover maturities in
2009.

ECONOMIC ACTIVITY UP DURING END OF YEAR HOLIDAYS;
REAL ESTATE MARKET UNAFFECTED BY GLOBAL CRISIS
--------------------

2. (U) On December 22, economic editorialist in moderate anti-Syrian
An-Nahar Sabine Oueiss reported that for the first time since 2005,
economic indicators showed increased economic activity in December
2008 due to the end of year holiday season. Flight bookings to
Lebanon from all destinations are full. Hotel occupancy reached a
record 100 percent in Beirut during the end of December, according
to Tourism Ministry Director General Nada Sardouk, and recorded an
average of 70-90 percent all over Lebanon, Oueiss said. Commercial
activity has also picked up with an estimated increase in sales of
40 percent. PM Siniora recently estimated that growth could reach
seven percent in 2008, Oueiss noted.

3. (U) Meanwhile, Oueiss said the local real estate market will not
be affected by the global crisis at the present time, because demand
continues to exceed supply and prices have not dropped, according to
real estate experts. Prices of apartments rose by 40 percent in the
first half of 2008, following an annual increase of 30 percent over
the last three years, the report indicated, adding that experts
consider prices to be currently in a correction phase, anticipating
a drop in apartments' prices between ten and 20 percent due to the
drop in the prices of construction materials and the Euro.
Moreover, the report indicated that the increase in demand from the
Lebanese Diaspora for property acquisition, which comprises 80
percent of total demand, versus a drop in demand from Gulf
investors, has maintained real estate market stability as Gulf
investors may pull out from the market due to a liquidity squeeze.

FINANCE MINISTER SIGNS $85 MILLION
SOFT LOAN FROM ARAB MONETARY FUND
--------------------

4. (SBU) On December 22, Minister of Finance (MOF) Mohammad Chatah
and Arab Monetary Fund (AMF) President Jassem Al-Manaai signed an
$85 million soft loan under a budgetary support to help countries
importing oil scheme, MOF senior economic officer Huda Saigh told
us. This assistance is part of AMF's Paris III pledges to provide
Lebanon with $150 million in loans for budgetary support. Last
year, the MOF signed a
$32 million loan agreement with the AMF for structural adjustment
and fiscal reforms, and a $43 million loan for risk mitigation and
accounting project with the Central Bank. All these loans need to

BEIRUT 00001798 002 OF 002


be approved by Parliament.

5. (SBU) According to Saigh, this is the first time that the AMF is
extending budgetary support under this scheme to Lebanon. She noted
that Lebanon continues to benefit from revolving credit lines for
fuel imports under AMF's Arab Trade Financing Program. The AMF also
pledged a $100 million loan for private sector support at Paris III,
which has been entirely disbursed, Saigh said.

WORLD BANK: REAL SECTOR WILL BE HIT BY GLOBAL
CRISIS, GDP TO DECREASE IN 2009
--------------------

6. (U) According to the World Bank's (WB) latest Global Economic
Prospects 2009 report, Lebanon's real sector (industry, trade) is
expected to be affected by the repercussions of the global financial
crisis. This comes in contrast to the banking sector, which has
still not displayed signs of contagion. The real economic slowdown
will lead to a drop in Lebanon's GDP from 5.5 percent in 2008, to
four percent in 2009.

AUCTION FOR CELLULAR VANITY
NUMBERS RAISES OVER $700,000
--------------------

7. (U) On December 22, Alfa, the cellular company currently managed
by the Ministry of Telecommunications (MOT), raised $710,000 from
the auction of 50 vanity numbers, bringing additional revenues to
the Treasury. Last October, the MOT collected $2.5 million from the
auction of 30 vanity numbers. Minister of Telecommunications Gebran
Bassil restated the MOT's intention to use the revenues from the
first auction to improve the network, saying that the signing of
contracts for this purpose are about to be signed, and work will
start at the beginning of next year, Bassil said.

MOODY'S REVISES OUTLOOK
OF FOUR LEBANESE BANKS
--------------------

8. (U) Moody's Investors Service revised the outlook to positive
from stable on the B3 long-term foreign currency deposit rating of
Byblos Bank, BLOM Bank, Bank Audi, and Bank of Beirut. This comes
days after Moody's raised its outlook on Lebanon's sovereign ratings
to positive from stable.

SISON

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