VZCZCXRO7688
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0722/01 1401301
ZNR UUUUU ZZH
R 191301Z MAY 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 1949
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 03 BEIRUT 000722 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR 
TREASURY FOR MNUGENT AND SBLEIWEISS 
USDOC FOR 4520/ITA/MAC/ONE 
NSC FOR ABRAMS/SINGH/YERGER/DEMOPOLOUS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: ECONOMY DEMONSTRATES RESILIENCE (ECONOMIC WEEK IN 
REVIEW, MAY 12 - 18, 2008) 
 
CONTENTS 
-------- 
 
-- POLITICAL AGREEMENT TO HOLD NATIONAL DIALOGUE BOOSTS ECONOMIC 
ACTIVITY 
-- ECONOMY DEMONSTRATES RESILIENCE 
-- CENTRAL BANK GOVERNOR STRESSES MARKET STABILITY; 
FINANCE MINISTER DISMISSES SAUDI DEPOSIT 
-- NEW EPCA BENCHMARKS NOT FINAL YET; IMF GIVES POSITIVE EVALUATION 
OF FORMER EPCA 
-- BALANCE OF PAYMENTS DEFICIT IN FIRST QUARTER 2008 
-- PRESS REPORT ON SAUDI INVESTMENTS FLEEING LEBANON 
-- AGRICULTURE HIT BY CLOSURE OF MASNA BORDER CROSSING 
-- CONSUMER PRICES ROSE BY OVER THREE PERCENT FOR FIRST QUARTER 
2008 
-- MOODY'S MAINTAINS LEBANON'S CREDIT RATING DESPITE CURRENT CRISIS 
 
POLITICAL AGREEMENT TO HOLD 
NATIONAL DIALOGUE 
BOOSTS ECONOMIC ACTIVITY 
-------------------- 
 
¶1. (U) Following the endorsement of the Arab Ministerial Committee 
agreement by all political leaders on May 15, all roads that were 
blocked since May 7 immediately reopened, including the road leading 
to Beirut International Airport (BIA) and the Masna (Biqa') border 
crossing; national and international air carriers resumed 
operations; and business activity returned to normal in all regions, 
including those where violent clashes occurred.  The Ministry of 
Economy and Trade and the Beirut Stock Exchange (BSE) were 
accessible to staff, who resumed work in their Beirut downtown 
offices. 
 
¶2. (SBU) BSE trading substantially picked up on May 16, with total 
value of trading of approximately $22 million, "about ten times the 
average traded daily value before the outbreak of violence," BSE 
Chairman Fadi Khalaf told us.  Prices of all Lebanese papers rose, 
reflecting investors' optimism.  Trading in real estate company 
Solidere shares reached $19 million, accounting for 86 percent of 
total trading value, and closed at $28.75 per share.  During the 
crisis, trading remained relatively normal, with no substantial drop 
in prices of Lebanese papers -- an indication that investors were 
holding on to these papers, and some even tried to increase their 
holdings, Khalaf said. 
 
ECONOMY DEMONSTRATES 
RESILIENCE 
---------- 
 
¶3. (U) In spite of the fighting that erupted in several regions on 
May 7-15, business activity continued, although at a slower pace, in 
areas that did not witness violence.  The Central Bank of Lebanon's 
(CBL) branches and commercial banks remained operational, conducting 
all services.  The volume of cash withdrawal from banks was normal, 
with small conversions from LL to USD deposits, and no capital 
outflows.  Banks have ample liquidity in LL and USD, and there was 
"no panic" in the market, banking sources told us. 
 
¶4. (SBU) The Beirut Port continued to operate and activity at the 
container terminal was more-or-less normal throughout the crisis 
period, contacts told us, refuting press reports that the port was 
closed.  Although BIA remained officially open and opeational, 
there were no commercial flights until My 17.  Private aircraft 
continued to fly in and ut of BIA, and some travel agents picked up 
on business opportunities, and advertised daily private Beirut-Amman 
flights, or vessels operating between Larnaca (Cyprus) and Jounieh 
(Port North of Beirut), while others advertised daily bus services 
to Damascus and Amman. As of May 21 all commercial service is 
expected to return to normal.  Major carriers (Lufthansa, Air 
France, British Air, among others) have already returned to normal 
schedules, although passenger loads are below normal for this time 
of year. 
 
¶5. (SBU) There was no fear of shortage of strategic reserves during 
the crisis.  Wheat quantities at Beirut Port silos are sufficient to 
cover needs for five to six months, Advisor to the Minister of 
Economy and Trade told us on May 13.  Fuel oil reserves for running 
national power utility EDL plants were sufficient for three weeks, 
and more fuel tankers were expected, Ministry of Energy sources told 
us.  Quantities of gasoline and diesel were sufficient to cover 
 
BEIRUT 00000722  002 OF 003 
 
 
market needs for 20 and 30 days respectively, a leading business 
source told us. 
 
CENTRAL BANK GOVERNOR STRESSES MARKET STABILITY; 
FINANCE MINISTER DISMISSES SAUDI DEPOSIT 
-------------------- 
 
¶6. (U) CBL Governor Riad Salameh stated on May 15 that the most 
recent crisis did not lead to any pressure on the Lebanese currency. 
 Dollarization of deposits remained stable at around 77.5 percent, 
while interest rates remained unchanged, he said.  Salameh predicted 
that annual inflation may reach over ten percent due to 
international inflationary pressures. 
 
¶7. (U) Meanwhile, the local press reported Finance Minister Jihad 
Azour's statements of May 13, asserting that liquidity in Lebanese 
pounds is available amounting to over $1.5 billion.  Azour stated 
that this crisis will have a negative effect on investments, 
especially foreign investments.  In addition, Azour noted that the 
promised Saudi $1 billion deposit at the CBL can no longer be 
expected, due to the deterioration of the situation in Lebanon. 
(Comment: CBL sources told us they never had any indication of such 
a deposit, officially or otherwise.  End comment.) 
 
NEW EPCA BENCHMARKS NOT FINAL YET, 
IMF GIVES POSITIVE EVALUATION OF FORMER EPCA 
-------------------- 
 
¶8. (SBU) The IMF mission that arrived in Beirut on April 29 to 
discuss a new Emergency Post-Conflict Assistance (EPCA) program for 
Lebanon "was finally able to leave on May 14," IMF Resident Rep told 
us.  The mission "started to discuss new benchmarks" with GOL 
officials, but did not get to finalize the discussion.  The mission 
is willing to come back anytime, but it is not clear when such 
discussions can resume, he remarked. 
 
¶9. (U) In the meantime, in the latest evaluation of Lebanon's 
performance under the former EPCA, the IMF noted that the primary 
balance and net debt targets for end-December 2007 were met with 
significant margins.  This was mostly due to strong overall 
revenues, which counterbalanced losses from gas excise, expenditure 
savings, and lower than expected transfers to municipalities and the 
Electricity du Liban (EDL).  Also, GOL net debt declined from 173 
percent to 165 percent ofP1Q~P4Iand demand, deteriorating political and security situation, and 
increased inflation. 
 
BALANCE OF PAYMENTS DEFICIT 
IN FIRST QUARTER 2008 
-------------------- 
 
¶10. (U) According to the Central Bank of Lebanon (CBL), Lebanon's 
cumulative balance of payments registered a $213.9 million deficit 
in the first quarter of 2008.  This was attributed to a $497.4 
million deficit in March 2008, which offset the cumulative surplus 
prevailing over the first two months of 2008.  The 2008 first 
quarter deficit is more than two times that of the first quarter of 
2007, mostly due to the expanding trade deficit. 
 
PRESS REPORT ON SAUDI 
INVESTMENTS FLEEING LEBANON 
-------------------- 
 
¶11. (U) On May 14, French language daily L'Orient le Jour quoted 
Saudi newspaper Al-Riyad as saying that the current crisis in 
Lebanon "affected" Saudi investments in Lebanon, estimated at around 
$4 billion.  President of the Council of Lebanese-Saudi Businessmen 
was quoted as saying that some investments, mostly in the tourism 
sector, have been stopped, while he fears that Saudi investments 
will flee Lebanon. 
 
AGRICULTURE HIT BY CLOSURE 
OF MASNA BORDER CROSSING 
-------------------- 
 
¶12. (U) According to head of the Syndicate of Farmers of the Biqa' 
Ibrahim Tarchichi, the closure of the road leading to the Masna 
 
BEIRUT 00000722  003 OF 003 
 
 
border crossing from May 8-15, resulted in around $3.5 million in 
losses for Biqa' farmers.  Tarchichi noted that an average of 30 
trucks with 850 tons of produce go through the Masna crossing each 
day, intended as exports to Syria and other regional and Gulf 
countries.  Even though the road has already been cleared, it will 
take five additional days for trucks to come to Lebanon and be 
loaded with produce, which will result in even more losses to the 
local farmers, he said. 
 
CONSUMER PRICES ROSE BY OVER 
THREE PERCENT FOR FIRST QUARTER 2008 
-------------------- 
 
¶13. (U) Reputed private consultancy firm Consultation and Research 
Institute (CRI) estimated that the Consumer Price Index (CPI) rose 
by 3.2 percent during the first quarter of 2008.  According to CRI, 
this represents an 8.87 percent increase in consumer prices as 
compared to the first quarter of 2007.  The current rise in prices 
was mostly attributed to the rise in the prices of personal care and 
other products, food, and housing prices in January 2008. 
 
MOODY'S MAINTAINS LEBANON'S CREDIT 
RATING DESPITE CURRENT CRISIS 
-------------------- 
 
¶14. (U) Moody's Investors Services stated on May 13 that Lebanon's 
foreign and local currency government bond ratings remained at B3 
with a stable outlook despite the recent armed clashes.  Moody's 
recognized Lebanon's resilience and the fact that it has never 
defaulted, although it noted that a downgrade may be necessary if 
default and loss to creditors is imminent.  B3 is the lowest rating 
possible for governments that are not in default, or at imminent 
risk of default, and denotes a very poor creditworthiness and a high 
probability of government difficulties. 
 
SISON