Cablegate: Lebanon: Regulator Says Banking Sector Strong

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RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1496/01 2941437
ZNR UUUUU ZZH
R 201437Z OCT 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3309
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 001496

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: REGULATOR SAYS BANKING SECTOR STRONG
DESPITE INTERNATIONAL CRISIS (ECONOMIC WEEK IN REVIEW, OCTOBER 14 -
19, 2008)

CONTENTS
--------

-- BOEING INTERESTED IN LEBANON'S AVIATION MARKET
-- BANKING SECTOR STRONG DESPITE INTERNATIONAL CRISIS
-- NEXT WTO WORKING PARTY MEETING EXPECTED BY DECEMBER,
POST-ACCESSION ASSISTANCE WILL BE NEEDED
-- NO CONCRETE RESULTS FOLLOWING PRESIDENT'S TRIP TO SAUDI ARABIA
-- EDL FAILS TO GET LOWER ELECTRICITY PRICE FROM EGYPT
-- PHARMACEUTICAL COMPANIES FRUSTRATED WITH INCREASED COPYCAT
REGISTRATIONS
-- TELECOM MINISTER REITERATES SUPPORT FOR LIBAN TELECOM, CONTINUES
REFORM
-- EU HOLDS INTER-LEBANESE FORUM ON SMES
-- LEBANON FALLS IN EUROMONEY COUNTRY RISK SURVEY
-- ECONOMIST INTELLIGENCE UNIT EXPECTS FISCAL DEFICIT OF 9.7 PERCENT
OF GDP IN 2008

REGULATOR SAYS LEBANESE BANKING SECTOR STRONG
DESPITE INTERNATIONAL CRISIS
---------

2. (SBU) A senior source at the Banking Control Commission (BCC) --
an independent commission overseeing bank operations -- told us
October 15 that banks operating in Lebanon have not been adversely
affected by the international financial crisis. The source refuted
information that appeared in pro-opposition Al Akhbar on October 15
that insinuated three banks (Audi Bank, Intercontinental Bank, and
the Lebanese-Canadian Bank) may have sustained losses. The source
stressed that the BCC is closely monitoring on-site and off-site all
banks operating in Lebanon, and indicated there is no sign of losses
in these three banks or any other bank operating in Lebanon.

BOEING INTERESTED IN
LEBANON'S AVIATION MARKET
-------------

1. (SBU) Boeing International Sales and Regional Directors, Edward
Schacle and Anthony Arvish, met with Ambassador October 14 for an
update on Boeing's interest in selling B787 to national aviation
carrier Middle East Airlines (MEA), as well as to some private
charter companies operating out of Beirut International Airport.
Schacle asked the Ambassador to make a pitch for Boeing with MEA
Chairman Mohammad El-Hout and Board members, and noted that he will
meet El Hout next week in Tunis during the Arab Air Carrier
Organization annual meeting, which brings together Arab aviation
companies and partners including Boeing, Airbus, and Bombardier.

NEXT WTO WORKING PARTY MEETING EXPECTED BY DECEMBER,
POST-ACCESSION ASSISTANCE WILL BE NEEDED
--------------------

3. (SBU) On October 6, Advisor to Minister of Economy and Trade and
POC on WTO issues Lama Oueijan expressed confidence in Lebanon's
accession to the WTO in the near future, expecting the next Working
Party meeting to take place by the end of November- early December.
Oueijan noted that there were still bilateral demands from the U.S.
for lower tariffs, and said that the EU had expressed its
willingness to move forward on accession, and she hoped to hear the
same from the U.S.

4. (SBU) According to Oueijan, the next challenge that Lebanon will
face is not in terms of preparing for accession (the ministry is
still working on necessary accession documents and public
awareness), but post-accession regarding training ministries in
dealing with notifications on Sanitary and Phytosanitary Standards
(SPS) and Technical Barriers to Trade (TBT), as well as linking the
inquiry points located at the various ministries. Oueijan also
noted that during the past three years, the EU has allocated Euro 75
million for WTO and related technical assistance, and has already
assisted Lebanon with drafting the Competition Law, establishing SPS
inquiry points, and other related WTO-related assistance at various
ministries, and not only at the Ministry of Economy and Trade.

NO CONCRETE MEASURES FOLLOWING
PRESIDENT'S TRIP TO SAUDI ARABIA
--------------------

BEIRUT 00001496 002 OF 003

5. (SBU) Director General of Economic Affairs at the Presidential
Palace Dr. Elie Assaf told us on October 14 that the visit of
President Sleiman to Saudi Arabia "reinforced" bilateral relations
and reasserted Saudi Arabia's "total support to Lebanon on the
political, economic, and financial fronts." There were no concrete
measures announced, and no update on the status of the February 2008
Saudi pledge to deposit an additional one billion dollars with the
Central Bank of Lebanon, he said. Assaf described as "excellent"
the meeting President Sleiman had at the Chamber of Commerce,
encouraging Lebanese and Saudi investors to resume investments in
Lebanon.

EDL FAILS TO GET LOWER ELECTRICITY
PRICE FROM EGYPT
-------------

6. (SBU) Ibrahim Menassah, senior advisor to Minister of Energy and
Water (MEW) Alain Tabourian, told us October 16 that Chairman of
national power utility, Electricite du Liban (EDL), Kamal Hayek,
failed to reach an agreement with the Egyptian national power
company to provide electricity to Lebanon. Hayek was told that
reducing the price of electricity sold to Lebanon would require "a
political decision." (Note: Egypt previously offered to sell
Lebanon 150 megawatts of surplus electricity at a price indexed to
the cost of heavy fuel, which both Hayek and Tabourian have told us
they will not accept. End note.)

7. (SBU) Menassah added that Tabourian is considering "all options"
to secure electricity for Lebanon at an "acceptable price." One
possibility, Menassah said, would be to contract with offshore ships
to purchase electricity they produce. (Note: This could be a new
opportunity for U.S. firms in this industry. End note.) Tabourian
was receptive to the idea, if the price was right, and said it could
provide a temporary solution until a new power plant is built.

PHARMACEUTICAL COMPANIES FRUSTRATED WITH
INCREASED COPYCAT REGISTRATIONS
--------------------

8. (SBU) In a meeting with Econ Officers and LES on October 7,
representatives of American Pharmaceutical Research-based companies
in Lebanon reiterated their frustration with the Lebanese Ministry
of Public Health and its failure to stop registering non-validated
copies of innovative drugs that are still patented in the U.S. and
the EU, and even accelerating the process of registration. They
believe that the best that can be done is to work towards a
moratorium on future registration of copycats and made a pitch for
Embassy assistance in this regard. According to the companies'
figures, 28 copycats were registered in 2007, up from only nine in
2006. In addition, all those present expressed their surprise at
the 2008 Special 301's report upgrade of Lebanon to Watch List from
Priority Watch List, given Lebanon's lack of progress and continued
violation of intellectual property rights in the pharmaceutical
sector.

TELECOM MINISTER REITERATES SUPPORT
FOR LIBAN TELECOM, CONTINUES REFORM
--------------------

9. (SBU) Minister of Telecommunications (MOT) Gebran Bassil visited
Ogero, the entity in charge of fixed lines and maintenance, on
October 14, according to press reports. He reiterated his support
for the creation of Liban Telecom, the new entity resulting from the
merger of Ogero and the two directorates within the Ministry, which
will hold the fixed lines and a third cellular license. (Note:
Ogero's Director General Abdel Munin Youssef, a protege of PM
Siniora, has been delaying the setting up of Liban Telecom, as he
wants to chair this new entity. End note.) Bassil asked for
"regular reports" about Ogero's activities.

10. (SBU) Meanwhile, a senior source at the Ministry told us October
17 that Bassil has taken measures to stop illegal traffic and
interference in the network. To date, ten companies have seen their
operations suspended because of illegal traffic. Bassil has also
warned importers and users of illegal equipment, such as repeaters,
jammers, SNG (used in pirated broadcasts), and VSATS
(telecommunications via satellite) that they have until October 25
to stop using such equipment. This type of equipment affects
coverage and service on the network and causes MOT revenue loss.

BEIRUT 00001496 003 OF 003

EU HOLDS INTER-LEBANESE
FORUM ON SMES
--------------------

11. (U) Under the initiative of the European Commission Delegation
to Lebanon, representatives of Lebanese political blocs in
parliament and major political parties, professional associations,
and independent experts met October 15-16 in Beirut to reach a
common vision on appropriate actions to develop and strengthen small
and medium enterprises, bolster entrepreneurship spirit and
creativity, and encourage fair competition. This forum builds on
the success of two previous rounds, one that discussed a broad
socio-economic vision for Lebanon (May 2007) and the other on
appropriate social policies for Lebanon (April 2008). These forums
are a platform for legislators, major political parties, and private
sector representatives to openly address socio-economic concerns,
reaching an agreement on actions that need to be implemented.

LEBANON FALLS IN EUROMONEY
COUNTRY RISK SURVEY
--------------------

12. (U) In its latest survey of country risk, Euromoney magazine
ranked Lebanon 134 out of 186 countries worldwide and 15 out of 20
MENA countries, compared to 127 worldwide and 16 in the MENA region
in the March 2008 survey. The survey evaluates individual country
risk by assigning a weighting to nine categories that cover
political risk, economic performance, debt indicators, debt in
default or rescheduled debt, credit ratings, access to bank finance,
access to short-term finance, access to capital markets, and
discount on forfeiting. According to the survey, when adjusted for
corruption, Lebanon's rank declines to 138. Lebanon's scores for
individual categories were mixed, but showed little improvement in
overall risk profile.

ECONOMIST INTELLIGENCE UNIT EXPECTS
FISCAL DEFICIT OF 9.7 PERCENT OF GDP IN 2008
--------------------

13. (U) According to the Economist Intelligence Unit (EIU), the
GOL's fiscal deficit is expected to reach 9.7 percent of GDP in
2008, slightly decreasing to 7.4 percent of GDP in 2009. The EIU
identified the upcoming parliamentary elections, the raise in public
sector wages, and maintaining energy subsidies as the main
constraints to reducing government spending. The EIU does not
believe that mobile and electricity privatization will take place
before the end of 2009, especially since disagreements within the
GOL on this issue persist.

SISON

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