VZCZCXRO9177
PP RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHLB #0450/01 0911518
ZNY CCCCC ZZH
P 311518Z MAR 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC PRIORITY 1398
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHNO/USMISSION USNATO 2348
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHEHNSC/NSC WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 000450 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR ABRAMS/SINGH/GAVITO, STATE FOR NEA/ELA, DEPT PASS 
TO EU MEMBER STATES COLLECTIVE 
 
E.O. 12958: DECL: 03/30/2018 
TAGS: ENIV PGOV PREL PTER PINR MCAP PINS LE
SUBJECT: LEBANON:  FINMIN AZOUR HOPES CONTINUED REFORMS 
WILL DEFEAT OPPOSITION; COMMENTS ON SECURITY SPENDING 
(C-NE8-00440) 
 
REF: STATE 29685 
 
Classified By: CDA Michele Sison for reasons 1.4 (b) and (d) 
 
Summary 
------- 
 
¶1. (C) Finance Minister Azour told Charge that the reform 
agenda for Lebanon, successful so far but facing serious 
challenges in light of the paralyzed GOL, is the only way to 
maintain the credibility of the government in the face of 
Hizballah's political attacks.  Keys to success of the reform 
program include privatization of the telecom sector, passing 
draft bills on economic reform, and approving project 
financing.  Azour plans to formally ask the IMF for a new 
EPCA program, and suggests that the USG consider what he 
hopes will be a EPCA agreement as benchmarks for Paris III 
donations.  His proposals for new benchmarks are not 
completed, and he offered to meet with Charge at a later 
date, before the IMF spring meetings, to review them.  USG 
agreement with the GOL on new benchmarks will be a critical 
step in our continuing efforts to identify practical ways to 
support the Siniora government, which continues to be under 
pressure from Syria and its allies in Lebanon.  We will 
convey Azour's benchmark proposalso to the Department when we 
have them.  Azour said that military and security spending 
have increased largely due to heavy recruitment of personnel. 
 We do not believe this reflects an increase in the LAF's 
combat capability.  End summary. 
 
IN THE ABSENCE OF A FUNCTIONING GOVERNMENT 
REFORMS ARE STILL PRIORITIES 
-------------------------- 
 
¶2. (C) In a March 28 meeting, Finance Minister Jihad Azour, 
accompanied by key staff members Roula Rizk Azour, Houda 
Saigh, and Nadine Yazbeck, reviewed for Charge, USAID 
Director, and Econoff his plans for continued reform in 2008. 
 Azour had not expected the protracted absence of a 
functioning government, due to the failure of efforts to 
elect a new president, to last as long as it has (since 
November 2007).  Now, however, faced with the need to plan 
for the year ahead, Azour's goal is to "shift gears on 
reforms, with the same priorities."  The keys to moving ahead 
include privatization of the mobile telephone sector, which 
is still possible, according to Azour.  In addition, there 
are more than thirty draft laws waiting for parliamentary 
approval which will enhance economic reform.  Finally, the 
GOL has received more than $1 billion from international 
donors for reform projects which require parliamentary 
approval. 
 
NEW EPCA WILL 
BENEFIT THE COUNTRY 
------------------- 
 
¶3. (C) In Azour's opinion, there are only two choices facing 
the GOL: continue with the reform agenda, or allow Hizballah 
to win by destroying the credibility of the majority 
government.  Azour plans to "keep the compass in the same 
direction," and build on the financial success of the GOL 
during 2007.  With this in mind, he says that the GOL will 
ask the International Monetary Fund (IMF) for a new Emergency 
Post Conflict Assistance (EPCA) program at the IMF spring 
meetings in April.  Lebanon cannot ask for a standby, since 
that would require approval by parliament, unlike an EPCA. 
While seeking an EPCA will not be an easy sell politically, 
the country will benefit, in Azour's opinion. 
 
NEW PRIORITIES CAN 
BE NEW BENCHMARKS FOR USG ASSISTANCE 
----------------- 
 
¶4. (C) In preparing the groundwork for a new EPCA, Azour's 
team is developing key priorities for reform in 2008.  These 
priorities, and the formalization of the EPCA itself, could 
provide relevant benchmarks for remaining U.S. Paris III 
grants, which were previously tied to gas excise tax 
increases and sale of mobile telecom licenses.  Azour feels 
somewhat confident in proposing this, since his efforts in 
2007 were viewed as fully successful by the IMF, and this 
week Moody's rating agency upped its outlook on Lebanon to 
"stable," in large part due to public finance success in 
meeting all financial obligations.  Azour rightly takes 
credit for managing that effort. 
 
BEIRUT 00000450  002 OF 002 
 
 
 
AZOUR WILL REVIEW GOALS 
PRIOR TO MEETINGS IN APRIL 
--------------------- 
 
¶5. (C) Azour proposed discussing his reform program plans 
with Charge prior to the April meetings, at which time he 
will have a clearly developed set of priorities for 2008. 
This will allow his discussions with the USG, which will take 
place in DC in April, to dovetail with his request for an 
EPCA from the IMF, and align his priorities with those of the 
donor community. 
 
HEAVY SPENDING ON SECURITY 
TIED TO HEAVY RECRUITING 
------------------------ 
 
¶6. (C) Azour expanded on earlier statements to Charge about 
increased spending on the military and security sectors, 
which he had said were increasing rapidly.  He pointed out 
that the Internal Security Forces (ISF) had added an 
additional 12-24,000 new recruits, and the Lebanese Armed 
Forces (LAF) have added more than 15,000.  Due to the nature 
of the Lebanese system of benefits, which adds approximately 
$.60 for every $1.00 of salary, this has been a significant 
impact on the budget of the GOL. 
 
COMMENT 
------- 
 
¶7. (C) Continued U.S. economic support for the Lebanese 
government is a critical sign of our political support.  In 
the current political environment, it is not feasible for the 
government of PM Siniora to achieve the existing benchmarks 
for disbursement of the remainder of the U.S. cash transfer. 
An increase in the gasoline tax, for example, would be 
immediately exploited by the pro-Syrian Lebanese opposition 
to weaken support for Siniora.  We expect FinMin Azour to 
provide his proposals for new benchmarks soon.  In Embassy's 
view, it is important to work with the government to agree on 
new benchmarks that will promote reform, but also will ensure 
that we can continue our financial and political support to 
the Siniora government. 
 
¶8. (C) Regarding the GOL security budget, it is important to 
note that we believe that the numbers Azour mentions for the 
security services do not reflect an increase in combat 
capability for the LAF.  There have been many retirements and 
former draftees have left the LAF during the last year, and 
the recruits Azour mentions are most likely filling the 
positions vacated.  Retirement and veterans benefits are paid 
for by the Ministry of Finance, and could account for Azour's 
assessment of increased costs.  Even with the recent 
recruiting drive, many units remain undermanned, according to 
the recent Comprehensive Training Program Survey conducted by 
U.S. Brigadier General (Retired) Les Fuller.  This survey 
revealed critical shortages in personnel and funding for the 
LAF.  This comment responds to INL Request C-NE8-00440 in 
reftel. 
SISON