Cablegate: Lebanon: Usg Cash Transfer: Is Gas Excise Tax Reform

VZCZCXRO1930
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #1775/01 3570454
ZNR UUUUU ZZH
R 220454Z DEC 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3814
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 001775

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: USG CASH TRANSFER: IS GAS EXCISE TAX REFORM
ACHIEVABLE? (ECONOMIC WEEK IN REVIEW, DECEMBER 15 - 21, 2008)

CONTENTS
--------

-- USG CASH TRANSFER: IS GAS EXCISE TAX REFORM ACHIEVABLE?
-- GOL OFFICIALLY ANNOUNCES POSTPONEMENT OF MOBILE PRIVATIZATION
-- PARLIAMENT ENDORSES SALARY INCREASES; STATE FINANCES UNDER
PRESSURE
-- EU ASSESSMENT TEAM STUDYING LEBANON'S TRADE ASSISTANCE NEEDS
-- GOL SEEKS FOREIGN ASSISTANCE FOR WATER PROJECTS
-- PM RELEASES NEW SERIES OF NATIONAL ACCOUNTS; 7.5 PERCENT REAL
GROWTH IN 2007
-- REMITTANCE INFLOWS TO LEBANON ARE ESTIMATED AT $6 BILLION IN
2008
-- AUDI BANK INTERESTED IN EXPANDING RELATIONSHIP WITH OPIC
-- NEW AUCTION FOR CELLULAR VANITY NUMBERS TO RAISE REVENUES
-- FRANCE HOLDS CONFERENCE ON EU-ARAB NEAR EAST RELATIONS IN
DAMASCUS
-- MEA WILL RESUME FLIGHTS TO IRAQ IN JUNE 2009

USG CASH TRANSFER:
GAS EXCISE TAX REFORM ACHIEVABLE?
--------------------

1. (SBU) In a December 18 meeting with NEA DAS Hale and the
Ambassador, Finance Minister Mohammad Chatah said he may want to
retain the imposition of a gasoline excise tax as a condition for
the disbursement of USG budget support pledged at Paris III, instead
of replacing it with a reform of electricity tariffs. With the
falling price of oil, said Chatah, the gasoline tax stands, on the
current sliding scale, at approximately 450 Lebanese pounds (about
30 cents) per liter -- well over the 300 Lebanese pounds per liter
demanded under the U.S. condition. He noted fixing the tax
permanently at 300 or 350 pounds would be politically
uncontroversial, as the move would amount to a lowering of the
current tax. Chatah is trying to put the gas excise tax on the
cabinet's agenda so it can be approved in the coming weeks.

2. (SBU) Meanwhile, Chatah noted that Energy Minister Alain
Tabourian was facing political pressure not to alter the electricity
tariff structure, the reform of which Tabourian had placed at the
center of his ministerial mandate. Tabourian issued a statement
December 19 saying lower energy prices had obviated the need for
tariff reform. Chatah suggested the Prime Minister could reduce
political pressure on Tabourian by asking him to submit various
tariff plans; the cabinet, voting as a whole, would provide cover
for Tabourian. Chatah, while acknowledging reform was still
possible, assessed the current political climate might provide more
challenges than expected. Therefore, he preferred to wait before
agreeing to the change in USG conditionality.

MOBILE PRIVATIZATION
POSTPONED
--------------------

3. (U) English newspaper The Daily Star reported on December 17 that
PM Siniora confirmed the GOL will postpone the privatization of two
state-owned mobile phone companies because of global market
conditions. In the meantime, the GOL has decreed "pressing reforms
in the sector," Siniora said.

SALARY INCREASES PRESSURE
STATE FINANCES
--------------------

4. (U) On December 15, parliament approved legislation raising the
minimum wage and across the board public sector salary increase.
(Note: Cabinet had approved the measure on September 9. End Note.)
Parliament also approved a five percent salary increase and the
settlement of salary arrears for civil servants and retirees for the
period 1996-1998. These measures will put substantial pressure on
state finances and further exacerbate the already huge budget
deficit. In addition, MPs voted to raise rent charges -- pegged by
law to the minimum wage -- by 33 percent.

EU TEAM ASSESSING
TRADE ASSISTANCE NEEDS
--------------------

BEIRUT 00001775 002 OF 003

5. (SBU) EconOff met December 15 with an EU team contracted to
determine Lebanon's trade assistance needs in preparation for a 2010
EU assistance program. EconOff briefed the assessment team on the
progress of USAID and MEPI's 8-year WTO accession program at the
Ministry of Economy and Trade (MOET), as well as other USG programs
aimed at private sector development. EU contactors are anxious to
coordinate their upcoming assistance program with USAID as it rebids
the contract for the MOET WTO project.

GOL SEEKS FOREIGN ASSISTANCE
FOR WATER PROJECTS
--------------------

6. (U) On December 16, the Ministry of Energy and Water (MEW), in
collaboration with the UN Food and Agriculture Organization (FAO),
invited representatives of potential donor countries to a conference
seeking technical assistance and financing for three water projects.
According to Minister of Energy and Water Alain Tabourian, Lebanon
will suffer from water shortage by 2020. USAID has been involved in
helping MEW strengthen the institution capacity of its water
establishments.

NEW NATIONAL ACCOUNTS SHOW
7.5 PERCENT REAL GROWTH IN 2007
--------------------

7. (SBU) At the December 15 release of the 2006-2007 national
accounts, PM Siniora said that real growth reached 7.5 percent in
2007. He added Lebanon can record higher growth if the economy
remains separate from domestic political tensions. A senior contact
at Audi Bank acknowledged the figure -- much higher than Central
Bank of Lebanon and IMF estimates -- was slightly optimistic given
the domestic political and security conditions in 2007.
Nevertheless, the bank will adopt the official figure in its
economic reports, he said.

2008 REMITTANCES TOTAL $6 BILLION
---------------------------------

8. (U) The World Bank (WB) estimated remittance inflows to Lebanon
in 2008 will reach $6 billion, or a four percent increase compared
to 2007. Lebanon ranked 18 worldwide and third out of 12 MENA
countries in terms of value of remittances. The report estimted
remittances to Lebanon equaled 24.4 percent f GDP in 2007, the
fifth highest ratio in the wold. Remittances from the Gulf
Cooperation Council (GCC) countries, accounting for 26 percent of
flows to MENA countries in 2008, are expected to decrease in 2009
with the continued drop in oil prices and the effects of the global
financial crisis.

AUDI BANK WANTS EXPANDED
OPIC RELATIONSHIP
--------------------

9. (SBU) Audi Bank has fully drawn $100 million in Overseas Private
Investment Corporation (OPIC) credit line guarantee (covering 15
years) arranged through Citibank, and has started extending loans
locally to SMEs, housing, and retail, Audi Bank Senior Manager
Khalil Geagea told us December 15. He said although the OPIC
agreement is also open for lending in Jordan and Egypt, Audi Bank
plans to ask OPIC for a stand-alone program for Egypt given the size
of the Egyptian economy. Audi Bank Head of Regional Expansion Elia
Samaha plans to meet in January 2009 with OPIC officials in
Washington, D.C., to follow up on the potential Egypt program.

10. (SBU) Geagea said Audi Bank also has credit line agreements with
the European Investment Bank (EIB, 60 ml Euros) and the French
Development Agency (USAID counterpart; 25 ml euros) for lending to
SMEs in Lebanon. Geagea was in Egypt December 16-18 to discuss a
stand-alone facility for Egypt with both EIB and AFD. He said EIB
expressed interest in doing business in Jordan with Audi
Bank-Jordan. Geagea noted that while OPIC loans are easier to use
and more flexible in terms of administrative procedures, follow-up,
and reporting, EIB and AFD loans are cheaper.

NEW AUCTION FOR CELLULAR VANITY
NUMBERS TO RAISE REVENUES
--------------------

BEIRUT 00001775 003 OF 003

11. (U) Minister of Telecommunications Gebran Bassil announced
December 15 that Alpha, the cellular company currently managed by
the ministry, will auction 50 vanity numbers on December 22 to bring
additional revenues to the Treasury. Last October, the Ministry of
Telecommunications collected $2.5 million from the auction of 30
vanity numbers.

FRENCH CONFERENCE ON EU-ARAB
RELATIONS IN DAMASCUS
--------------------

12. (SBU) Prominent economist Dr. Kamal Hamdan December 17 told us
he will participate in a conference December 19-20 in Damascus to
discuss EU-Arab Near East political, economic, social, and cultural
relations. The event, co-organized by the French Embassy in
Damascus, falls within the EU's Union for the Mediterranean
initiative and occurs, Hamden assessed, within the context of
reviving French-Syrian relations. Hamdan said about 20 experts have
been invited to attend, including head of Carnegie Middle East Dr.
Paul Salem, Syrian intellectuals, and about ten French experts.

MEA FLIGHTS TO IRAQ
TO RESUME JUNE 2009
-------------------

13. (U) Minister of Transportation and Public Works Ghazi Aridi
signed December 18 a MOU on air traffic between Lebanon and Iraq.
The MOU calls for the resumption of national passenger carrier MEA
flights to Iraq starting June 14, 2009, with up to 14 flights a
week. MEA Chairman Mohammad Hout told us that MEA will first start
serving Baghdad Airport; he plans to visit Iraq in late
January/early February with auditors to check on Baghdad airport
facilities, and security and safety arrangements. MEA suspended
flights to Iraq in 1990 when Iraq invaded Kuwait.

SISON

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