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S E C R E T SECTION 01 OF 04 BEIRUT 000016 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR ABRAMS/DORAN/MARCHESE/HARDING 
 
E.O. 12958: DECL: 01/03/2027 
TAGS: ECON EFIN EAID PREL LE
SUBJECT: FINANCE MINISTER AZOUR'S WISHFUL THINKING FOR 
PARIS III 
 
REF: 06 BEIRUT 3914 
 
Classified By: Jeffrey Feltman, Ambassador, per 1.4 (b) and (d). 
 
SUMMARY 
------- 
 
¶1.  (S)  In a January 2 meeting with the Ambassador, Minister 
of Finance Jihad Azour was less alarmist than Central Bank 
Governor Riad Salameh (reftel) regarding Lebanon's financial 
situation in 2007.  But, like Salameh, Azour counted on a 
successful Paris III conference as the essential element in 
Lebanon's ability to meet this year's financial obligations. 
He hoped that Paris III would raise a whopping USD 7-9 
billion in commitments -- expectations that he emphasized the 
GOL would not make public -- and he asked for U.S. leadership 
with key donors, the World Bank, and IMF.  Less concerned 
than Salameh about having donor cash upfront, Azour thought 
that Paris III would revive private-sector capital flows in 
sufficient quantities to get through the February financial 
crunch period.  Regarding the potential for an IMF program, 
Azour was noncommittal, saying that he would discuss all 
options with the IMF and the Core Group in Paris next week. 
In terms of the GOL's reform package to be presented at Paris 
III, Azour predicted that the Lebanese cabinet would readily 
adopt the program in its 1/4 cabinet session.  He said that 
March 14 politicians are behind it and that it has included 
ideas promoted elsewhere by Michel Aoun.  Azour asked for a 
bilateral meeting with the U.S. representatives to the Core 
Group next week in Paris.  End summary. 
 
REFORM PLAN ANNOUNCED; AZOUR 
HOPES FOR USG BILAT IN PARIS 
---------------------------- 
 
¶2.  (C)  The Ambassador met with Azour in the Grand Serail, 
where Azour (like many ministers) has moved in order to 
minimize the risks of assassination, a few hours after Azour 
and Ministry of Economy and Trade Sami Haddad had joined PM 
Siniora to present the GOL's reform plan in a media broadcast 
carried live.  (Rather than summarize the reform plan here, 
we have forwarded the GOL's documents electronically to 
NEA/ELA for distribution.)  Azour said that the cabinet would 
meet informally on 1/3 in a working session to go over the 
reform plan in detail.  He expected that the cabinet would 
adopt the reform plan in a formal meeting on 1/4.  Cabinet 
approval of the plan, Azour said, would strengthen the 
Lebanese presentation at the Core Group meeting in Paris next 
week.  Azour asked for a bilateral meeting with the U.S. Core 
Group representatives, a request the Ambassador promised to 
forward back to Washington. 
 
LAUNCHING MAJOR PR CAMPAIGN; 
MARCH 14 LEADERS ON BOARD 
---------------------------- 
 
¶3.  (C)  With the reform plan now announced to the Lebanese 
public, Azour said that he, the PM, and Haddad would now 
launch a major awareness campaign inside Lebanon.  Besides 
meeting with the trade unions and business groups, they will 
offer to brief all parliamentary blocs separately and appear 
on Lebanon's many talk shows.  A communications strategy -- 
which Azour promised would be more aggressive and more 
visible than the lackluster (and largely absent) GOL efforts 
to publicize its reconstruction efforts -- would use creative 
means, including sector-based workshops and public 
consultations, to spread word of the reform plan.  Azour 
noted that he and his colleagues have already used 
consultants to identify the likely points of contention in 
the plan, in order to develop a strategy to counter the 
objections.  What is being proposed, Azour waxed eloquently, 
is "nothing less than coordinated approach needed to 
modernize the Lebanese economy."  Describing initiatives 
aimed at education, industry, and social affairs, Azour said 
that "no one can claim we ignored important sectors." 
 
¶4.  (C)  Already, Azour claimed, the reformist ministers have 
scored a victory in getting all March 14 leaders to sign on 
to the reform plan.  While the proposed reforms are 
consistent with the July 2005 cabinet decree -- and thus 
given parliamentary approval -- it wasn't so easy to convince 
former socialists and dispensers-of-patronage like Walid 
Jumblatt of the need to fight corruption, raise revenues, and 
accelerate privatization, Azour said.  But now March 14 fully 
 
BEIRUT 00000016  002 OF 004 
 
 
backs the reform plan.  (Separately, Walid Jumblatt told us 
that his concerns had been addressed and that he now fully 
supports the plan.  We understand that Jumblatt had opposed 
the original idea to switch civil service employment to 
contractual arrangements, a proposal dropped from the final 
plan.  Another former critic, Minister of Social Affairs 
Nayla Mouawad, also told us that she is now fully on board 
with the current plan.  We suspect that this unified March 14 
support for the plan derives less from the actual reforms 
than it does from the beseiged of unity now felt by March 14 
leaders.) 
 
OPPOSITION SHOULDN'T HAVE 
ARGUMENTS AGAINST THE PLAN 
-------------------------- 
 
¶5.  (C)  Azour argued that the opposition cannot paint the 
reform plan as something that is politically attractive for 
the March 14 bloc.  If the March 14 bloc were interested 
solely in political survival, its leaders would not back a 
plan that progressively raises VAT to 15 percent, eliminates 
patronage institutions such as the Council for the South and 
the Fund for the Displaced, and promises to reduce public 
employment.  This plan is good for Lebanon's long-term 
interests and not for March 14's short-term political 
survival.  Noting the focus by the March 8-Aoun forces on the 
"illegitimacy" of the Siniora cabinet, the Ambassador 
recommended that Azour be prepared for harsh criticism 
nonetheless. 
 
¶6.  (C)  Asked about Michel Aoun's immediate condemnation of 
the plan, Azour shook his head, noting that much of the plan 
was consistent with the "flagship reform initiatives" 
proposed in Aoun's "little orange book" that served as his 
legislative election platform in 2005.  "How does Aoun 
criticize us for doing exactly what he said needed to be 
done?"  The mild-mannered Azour then launched into a rampage 
about Aoun's accusations that the Siniora cabinet has done 
nothing to advance a reform agenda.  Listing laws and 
initiatives proposed or implemented by the Siniora cabinet 
already, Azour nevertheless accepted the Ambassador's 
criticism that, as in reconstruction, the GOL has performed 
abysmally in terms of getting the word out.  As for 
Hizballah's anticipated reaction, Azour vowed to point out 
publicly that it was (resigned) Minister of Energy and Water 
Mohamed Fneish, one of Hizballah's own, that initiated plans 
for a BOT for power distribution and liberalization of power 
generation. 
 
IMPORTANCE OF PARIS III: 
ESSENTIAL TO UNLEASH PRIVATE CAPITAL 
------------------------------------ 
 
¶7.  (S)  The Ambassador asked Azour for his frank assessment 
of Lebanon's financial situation.  Azour tried to paint an 
optimistic picture, arguing that the GOL had managed to 
rollover more debt in 2006 -- a year of war -- than is needed 
in 2007.  As for the fact that Lebanon has been purchasing 
its energy needs through letters of credit that will come due 
in months, "we'll manage," Azour said.  Pressed by the 
Ambassador, who noted the $1 billion Eurobond issue maturing 
in February and the lack of parliamentary approval for the 
GOL to raise its borrowing ceiling, Azour eventually said 
that the GOL may have to rely on some special financial 
engineering and flexibility in cooperation with the Central 
Bank.  Since December, Azour admitted, "the markets have not 
been supportive" of GOL needs. 
 
¶8.  (S)  What is essential, Azour continued, is for Paris III 
to be seen by the financial markets and private sector as a 
success for Lebanon.  A favorable image of Paris III will 
unleash more capital, both in terms of financial flows and 
foreign direct investment, than bilateral donors and the IFIs 
need to produce.  This is exactly what happened after Paris 
II, Azour argued, with a surge in capital flows coming on the 
heels of Paris II and dwarfing the USD 2 billion in official 
commitments.  Disagreeing with Governor Salameh's hope for 
"upfront donations" to get Lebanon through a February crunch 
period (see reftel), Azour thought that private capital would 
flow in time for the February commitments, if Paris III is 
judged a success.  Most of the USD 3 billion in foreign 
currency that Lebanon needs in 2007 can be raised through 
private markets at reasonable costs, Azour argued, if Paris 
III produces long-term financial commitments of sufficient 
 
BEIRUT 00000016  003 OF 004 
 
 
size. 
 
¶9.  (S)  Asked what he defined as success, Azour at first 
talked ambiguously about "sums of considerable magnitude to 
stimulate private capital."  Under considerable prodding, 
Azour said that Siniora and the economic team calculated that 
Lebanon needed USD 7-9 billion in official commitments from 
bilateral and multilateral donors at Paris III.  This could 
be a multi-year commitment, with fund disbursement linked to 
reform implementation.  The Ambassador described that as an 
extremely ambitious goal.  Azour disagreed, citing, inter 
alia, Turkish and Mexican examples.  The political imperative 
exists for such commitments, he insisted.  Nevertheless, 
Azour asked that the numbers be closely held information. 
GOL officials will never refer to these numbers publicly, he 
said, nor even mention them in Core Group sessions, for fear 
of setting themselves up for failure.  If Lebanon gets USD 
6.5 billion instead of USD 7 billion, GOL officials want the 
sum to be seen as something positive, not something below 
expectations. 
 
IMF PROGRAM:  NOT SURE 
WHAT SIZE FITS 
---------------------- 
 
¶10.  (S)  The Ambassador asked Azour's views on an IMF 
program.  Azour said that he was not yet certain himself and 
looked forward to discussing the possibilities in Paris, both 
with Core Group members and IMF officials.  He stated being 
inclined to look favorably upon the possibility of "soft 
reform goals" possible under the IMF's Emergency 
Post-Conflict Assistance Program.  Asked about Governor 
Salameh's skepticism about an EPCA program, Azour said that 
he believes Salameh will oppose anything more rigorous than 
program monitored by IMF staff.  While Salameh has done a 
brilliant job in keeping the financial markets reassured 
about Lebanon, Azour said, his reputation will be tarnished 
considerably once the IMF starts monitoring exactly how 
Salameh has run the CBL.  Salameh, with presidential 
ambitions, wants to maintain his reputation and will not 
welcome "the secrets of his magic tricks" being revealed 
publicly or criticized.  "The Governor is not eager for 
transparency," Salameh said dryly.  The Ambassador noted that 
the USG believes an IMF program is essential, both to help 
raise capital and to provide discipline.  "We'll talk about 
it in Paris," Azour said (but with an air that he saw an IMF 
program -- not merely a staff-monitored program -- as 
inevitable and in Lebanon's interest). 
 
USG HELP NEEDED FOR HEAVY LIFTING 
--------------------------------- 
 
¶11.  (S)  Given the sums needed for the Lebanese to declare 
Paris III a success, Azour said that he needed strong USG 
"help and leadership."  Specifically, he hoped the USG would 
"lean on the World Bank and IMF now, this week," to interpret 
their rules as flexibly as possible to mobilize as many 
resources as possible.  Secondly, he hoped the USG -- again, 
this week -- would make "high level phone calls" to potential 
donors, so that they come to the Core Group preparatory 
meeting in Paris already inclined toward large contributions. 
 French President Jacques Chirac is starting ot make phone 
calls, Azour claimed, and "I hope you can do the same." 
Saying that the USG push is more important for a variety of 
reasons (including the fact that "everyone knows Chirac is 
out in a few months"), Azour said U.S. pitches to Germany, 
Japan, Canada, and the Gulf states are particularly 
important. 
 
¶12.  (C)  Also, Azour said, "be aggressive in your support in 
the Paris meetings."  He claimed that U.S. "silence" in the 
plenary sessions in autumn meetings in Singapore was not 
interpreted as the sign of endorsement that the USG intended 
but rather as a sign of reticence.  "Be a positive agent for 
us; display your enthusiasm."  At the same time, Azour 
cautioned, the USG support for Paris III should be aimed at 
"all of Lebanon, not the Siniora cabinet."  Don't, he 
cautioned, make it appear as though the USG is trying to save 
the Siniora government.  Azour talked at considerable length 
of the needed "U.S. marketing" to focus on "Lebanon's needs 
and Lebanon's future," not Siniora's needs and Siniora's 
future. 
 
COMMENT 
 
BEIRUT 00000016  004 OF 004 
 
 
------- 
 
¶13.  (S)  Wow.  That was our reaction to Azour's eventual 
admission that the GOL hopes for USD 7-9 billion in 
commitments at Paris III.  We defer to Washington as to how 
realistic it is to hope to cobble together a Paris III 
package that approximates the ambitious numbers Azour has in 
mind.  We also note that he financial situation here appears 
to be more grave than Azour let on.  Minister of 
Communications Marwan Hamadeh shared with the Ambassador 
today a secret chart prepared by the Ministry of Finance for 
Siniora and key ministers, showing (a) that the GOL is broke 
and surviving day-to-day via telecom revenues and (b) that 
real GDP in 2006 actually declined by 5 percent, not the 0 
percent claimed publicly, with inflation at 7.5 percent.  CBL 
Governor Salameh's more alarmist presentation (reftel) should 
be seen in this context.  We note, too, that Azour came 
across as more optimistic than Salameh about the speed of 
private capital responding to a successful Paris III 
conference:  Salameh sees the need for official contributions 
upfront, while Azour wants to use the promise of eventual 
disbursements to mobilize private capital flows.  Next week's 
Core Group preparatory meeting in Paris will be a good 
opportunity to speak privately with the Lebanese delegation 
on these issues, and we hope that the U.S. delegation will 
respond positively to Azour's request for a bilat on the 
margins. 
FELTMAN