Cablegate: Lebanon: Cabinet Approves First Wage Increases Since 1996

VZCZCXYZ0004
RR RUEHWEB

DE RUEHLB #1346/01 2591112
ZNR UUUUU ZZH
R 151112Z SEP 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3029
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHAAA/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS BEIRUT 001346

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
SUBJECT: LEBANON: CABINET APPROVES FIRST WAGE INCREASES SINCE 1996
(ECONOMIC WEEK IN REVIEW, SEPTEMBER 8 - 14, 2008)

CONTENTS
--------

-- CABINET RAISES MINIMUM WAGE, BOTH WORKERS AND EMPLOYERS
DISSATISFIED
-- FINANCE MINISTER CONCERNED ABOUT BUDGET AND DEBT PROBLEMS
-- MINISTRY OF ECONOMY REINSTATES LIMITS ON PROFIT MARGINS
-- ENVIRONMENT MINISTER TO TRAVEL TO THE U.S.
-- UNEMPLOYMENT RATE BETWEEN TEN AND 15 PERCENT AND DECLINING
-- DOLLARIZATION OF DEPOSITS STEADILY DECLINING, FIVE PERCENT GDP
GROWTH PROJECTED FOR 2008
-- MERRILL LYNCH MAINTAINS "MARKET WEIGHT" RECOMMENDATION ON
LEBANESE EUROBONDS
-- LEBANON FALLS IN "DOING BUSINESS IN 2009" RANKING
-- LEBANON RANKS SIXTH IN INTERNET PENETRATION IN MENA REGION

CABINET RAISES MINIMUM WAGE,
BOTH WORKERS AND EMPLOYERS DISSATISFIED
--------------------

1. (U) During its September 9 session, the cabinet decided to raise
the minimum wage for the private and public sectors from 200 to 333
dollars per month (the first minimum wage increase since 1996) and
the transportation allowance from 4 dollars to 5.30 dollars per day.
In addition, it mandated a 133 dollar increase for all private and
public sector wages and a 100 dollar increase on retirees' monthly
pension checks. All these increases will be implemented
retroactively to May 2008. Finance Minister Mohammad Chatah noted
that the increase in public sector salaries would cost the treasury
around 500 million dollars per year.

2. (U) The General Labor Confederation (GLC), which had been
demanding that the minimum wage be raised to 640 dollars per month,
expressed its disappointment that the increase was not greater.
Meanwhile, President of the Association of Lebanese Industrialists
Fadi Abboud characterized the government's decision to impose
private sector wage increases as interference. Abboud noted that if
the government imposes wage increases on the private sector --
transforming the Lebanese economy from a liberal to a command
economy -- it should also be ready to support industries with
subsidized electricity and fuel.

FINANCE MINISTER CONCERNED
ABOUT BUDGET AND DEBT PROBLEMS
--------------------

3. (SBU) Chatah told the Ambassador on September 10 that the new
wage increases would worsen the GOL's budget situation, but he said
revenue from four tax measures he convinced the cabinet to pass as
part of the wage increase package would cover about half the cost of
the increases themselves. With this additional spending, in
addition to two billion dollars of projected losses at national
power utility Electricite du Liban (EDL), Chatah was pessimistic
about any possible improvement in the deficit or budget position in
2008 and 2009.

MINISTRY OF ECONOMY REINSTATES
LIMITS ON PROFIT MARGINS
--------------------

4. (SBU) On September 9, the Ministry of Economy and Trade (MOET)
reinstated limits on profit margins in the trade sector, in view of
global inflation, the rise in the prices of foodstuff, and to
enhance consumer protection. Former Minister Sami Haddad had lifted
the limits in compliance with WTO requirements. In a meeting with
the Ambassador on September 11, current Minister Safadi explained
that he felt compelled to take this measure because he saw price
collusion in the Lebanese market. Safadi also mentioned that he
plans to expand the consumer protection unit at the ministry by
adding 100 new inspectors to the 40 already at the unit, to better
monitor the market.

ENVIRONMENT MINISTER
TO TRAVEL TO THE U.S.
--------------------

5. (SBU) On September 8, Econ Off and staff met with Minister of
Environment Antoine Karam and his advisors to assist them in
preparing for Karam's visit to the U.S. the last week of September.
Karam hopes to meet with the State Department, EPA, U.S. Forest

Service, and USAID officials, as well as NGOs and members of private
environment-related institutions, and possibly sign MOUs for future
cooperation and assistance. Karam is a member of the Lebanese
Forces party of Samir Geagea.

6. (SBU) Asked what he planned to achieve during his short term as
minister (until the spring 2009 parliamentary elections), Karam said
he hoped to establish a network of local environment-related NGOs
which would become the ministry's primary source of information on
envQnment-related issues or incidents throughout Lebanon. Karam
made a pitch for U.S. assistance in providing NGOs with cameras and
other necessary equipment to enable NGOs to report to the ministry.

UNEMPLOYMENT RATE BETWEEN TEN
AND 15 PERCENT AND DECLINING
--------------------

7. (U) AccQding to the Arab Labor Organization'sQLO) first report
on employment in Arab states, Lebanon's unemployment rate ranged
between ten and 15 percent, below the regional average (above 15
percent), yet high by international standards. The report stated
that the unemployment rate in Lebanon is declining, mainly due to
migration to the Gulf countries and improvement in economic activity
in the last quarter of 2007. The ALO noted that the wholesale and
trade sectors absorbed 24.4 percent of the labor force, followed by
construction (20.5 percent), transformational industries (13.6
percent), while the rest is distributed among transportation,
communications, finance, insurance, real estate, agriculture,
social, and personal services (41.5 percent).

DOLLARIZATION OF DEPOSITS STEADILY DECLINING,
FIVE PERCENT GDP GROWTH PROJECTED FOR 2008
--------------------

8. (U) During his monthly meeting with the Association of Banks in
Lebanon on September 11, Central Bank of Lebanon (CBL) Governor Riad
Salameh said the dollarization of deposits currently stood at 73.5
percent, compared to 77.5 percent in May. The CBL's gross foreign
currency assets reached a record high of 17 billion dollars --
excluding gold reserves and CBL real estate and investments, which
would add 10 billion dollars to the CBL's foreign currency assets.
Salameh projected five percent GDP growth for 2008 and did not
expect a change in interest rates or the exchange rate any time
soon. Salameh also noted that public sector deposits at the CBL can
cover the increase in GOL expenditure resulting from the rise in
wages.

MERRILL LYNCH MAINTAINS "MARKET WEIGHT"
RECOMMENDATION ON LEBANESE EUROBONDS
--------------------

9. (U) Merrill Lynch maintained its recommendation on Lebanon's
external debt to "Market Weight" in its model portfolio of emerging
markets debt for September due to the positive political
developments resulting from the formation of a cabinet and decline
in domestic political tensions. Merrill had upgraded Lebanon to
"Market Weight" from "Underweight" following te Doha Agreement in
May. Lebanon has been one ofthe best performers since it was
upgraded, Merrill noted, posting the second highest return at 8.31
percent among 10 countries in the Europe, Middle East, and Africa
(EMEA) region from January to August 2008.

LEBANON FALLS IN "DOING
BUSINESS IN 2009" RANKING
--------------------

10. (U) The World Bank/IFC "Doing Business 2009" report ranked
Lebanon 99 out of 181, down from 98 in 2008 in terms of ease of
doing business. Lebanon's only improvement was noted in the area of
streamlining business registration, reducing the time needed to
start a business from 46 days to 11, and eliminating one procedure.
The "Doing Business" report ranks economies based on ten indicators:
ease of starting a business, dealing with construction permits,
employing workers, registering property, access to credit,
protecting investors, paying taxes, trading across borders,
enforcing contracts, and closing a business.

LEBANON RANKS SIXTH IN INTERNET
PENETRATION IN MENA REGION

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

11. (U) According to Internetworldstats.com, Lebanon ranked sixth
out of 14 MENA countries in terms of internet penetration, with
internet users constituting 24.2 percent of the population in 2007.
Compared to other MENA countries, Lebanon accounted for three
percent of total internet users for 2007, while growth in internet
usage in 2000-2007 was 217 percent, the fourth lowest rate in the
region. Internetworldstats.com compiles data from a variety of
sources including internet media, market researcher Nielsen Net
Ratings, and the International Telecommunications Union (ITU).

SISON

© Scoop Media