VZCZCXRO8952
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0819/01 1541551
ZNR UUUUU ZZH
R 021551Z JUN 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2142
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 000819 
 
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: STOCK MARKET BEGINS CORRECTION PHASE, TOURIST 
SEASON LOOKS GOOD (ECONOMIC WEEK IN REVIEW, MAY 26 - June 1, 2008) 
 
REF:  BEIRUT 809 
 
CONTENTS 
-------- 
 
-- SHARES ON THE BEIRUT STOCK EXCHANGE ENTER CORRECTION PHASE 
-- RUMORS OF INVESTMENTS IN SOLIDERE 
-- FISCAL DEFICIT DOWN IN THE FIRST QUARTER OF 2008 
-- GROSS PUBLIC DEBT EXCEEDED $43 BILLION BY END OF MARCH 2008 
-- EXPECTATIONS ARE HIGH FOR A PROSPEROUS TOURIST SEASON 
-- POLITICAL WILL KEY TO MOVE ON WITH MOBILE PRIVATIZATION 
-- MINISTRY OF CULTURE TO START AMENDING LAW ON LITERARY AND 
ARTISTIC PROPERTY 
-- INTERNAL SECURITY FORCES DESTROY MORE PIRATED GOODS 
-- TELECOMMUNICATIONS PENETRATION LOW IN LEBANON FOR 2007 
-- LEBANON'S ECONOMY VULNERABLE ACCORDING TO S&P 
 
 
SHARES ON THE BEIRUT STOCK 
EXCHANGE ENTER CORRECTION PHASE 
-------------------- 
 
¶1. (SBU) The prices of listed shares on the Beirut Stock Exchange 
(BSE) started to drop the beginning of the week of May 26, due to 
technical factors and some profit taking, BSE president Dr. Fadi 
Khalaf told us on May 28.  Khalaf explained that the market is in "a 
correction phase," after the substantial rise in prices of listed 
shares immediately following the recent political crisis (reftel). 
 
 
RUMORS OF INVESTMENTS 
IN SOLIDERE 
----------- 
 
¶2. (SBU) Following rumors that Saudis and the Hariri family were the 
main buyers of real estate company Solidere shares, BSE president 
Dr. Fadi Khalaf said that, by regulation, the BSE cannot disclose 
names of investors in the market, adding that this is equivalent to 
bank secrecy.  Khalaf explained that in the absence of a regulatory 
body -- similar to the U.S. SEC -- the BSE cannot know who the 
investors are when shares are acquired by large banks or financial 
institutions through fiduciary accounts.  By law, no investor can 
hold more than ten percent of Solidere shares, but there are rumors 
that some of the Solidere shares are held by front-men or 
institutions. 
 
¶3. (SBU) Meanwhile, prominent Sunni businessman Abdel Wadoud Nsouli, 
who is also close to the Hariri family, told us on May 28 that 
several Lebanese and foreign investors were buying Solidere shares; 
not only Saudi investors and the Hariri family.  He explained that 
Solidere shares are undervalued, noting that Solidere holds 35 
percent of Solidere International, a company that has large 
successful development projects in Jordan and the Gulf.  Nsouli 
remarked that real estate in Lebanon is cheaper than in the 
neighboring countries, and that investors from the Emirates and the 
Gulf have been buying more Lebanese property recently (reftel). 
 
FISCAL DEFICIT DOWN IN THE 
FIRST QUARTER OF 2008 
--------------------- 
 
¶4. (U) Figures released by the Ministry of Finance show that the 
overall public fiscal deficit accounted for 24.7 percent of total 
expenditures, down from 31.9 percent in the first quarter of 2007. 
Overall government expenditures reached $2.18 billion, up by 5.6 
percent relative to the same period in 2007, while total revenues 
increased by 16.7 percent to $1.64 billion.  Debt servicing 
increased by 2.2 percent and totaled $724.5 million, accounting for 
33 percent of total expenditures.  The overall primary surplus 
reached $258 million or 11.84 percent of total spending. 
 
GROSS PUBLIC DEBT EXCEEDED 
$43 BILLION BY END OF MARCH 2008 
-------------------------------- 
 
¶5. (U) According to the Central Bank of Lebanon (CBL), Lebanon's 
gross public debt reached $43.1 billion at the end of March 2008, up 
by 2.5 percent compared to December 2007.  Domestic debt rose by 3.8 
percent in the first quarter of 2008, reaching $21.6 billion, while 
external debt rose by 1.18 percent, reaching $21.5 billion in March 
 
BEIRUT 00000819  002 OF 003 
 
 
¶2008.  Foreign currency-denominated debt accounted for 49.9 percent 
of gross public debt, while local currency debt represented 50.1 
percent of the total.  Gross public debt amounted to 171 percent of 
GDP at the end of 2007, down from 178 percent at the end of 2006. 
 
 
EXPECTATIONS ARE HIGH 
FOR A PROSPEROUS TOURIST SEASON 
------------------------------- 
 
¶6. (U) Local and international press has been reporting high 
expectations for a prosperous tourist season following the political 
agreement that ended Lebanon's most recent crisis.  It has been 
reported that hotels have been flooded with reservations since last 
week.  According to Tourism Minister Joe Sarkis, by the end of April 
2008, only 280,000 tourists had come to Lebanon; however he expected 
the total number of tourists in 2008 to be between 1.3-1.6 million. 
 
 
POLITICAL WILL KEY TO MOVE ON 
WITH MOBILE PRIVATIZATION 
------------------------- 
 
¶7. (SBU) Chairman of the Telecommunications Authority (TRA) and 
Secretary General of the Higher Council for Privatization (HCP) told 
us separately on May 29 that political will is the key to move ahead 
with privatization.  Both are waiting for the next cabinet to be 
formed, and a ministerial statement clearly renewing GOL commitment 
to privatization.  If so, the mobile auction can take place in 
September 2008, TRA Chairman said. 
 
MINISTRY OF CULTURE TO START AMENDING 
LAW ON LITERARY AND ARTISTIC PROPERTY 
------------------------------------- 
 
¶8. (SBU) Director General of the Ministry of Culture Dr. Omar 
Halablab told us on May 30 that he will begin amending Law 75 on the 
Protection of Literary and Artistic Property, in cooperation with 
the World Intellectual Property Organization (WIPO).  The main focus 
will be on amending the articles dealing with exceptions given to 
reproducing protected works for academic use.  Meanwhile, the 
Ministry is planning to hold a seminar in July on collective rights 
of those involved in the music industry.  Halablab is interested in 
receiving US IPR experts to train his staff, and welcomed the idea 
of sending people from the Ministry to attend USPTO trainings. 
 
INTERNAL SECURITY FORCES 
DESTROY MORE PIRATED GOODS 
-------------------------- 
 
¶9. (U) On May 29, the Cyber Crime and IP Bureau of the Internal 
Security Forces (ISF) destroyed more than 80,000 confiscated pirated 
CDs and DVDs, containing movies, music, games, and computer 
programs.  English newspaper The Daily Star estimated the value of 
the destroyed goods at around $5 million.  The Cyber Crime and IP 
Bureau has been very successful in combating IP violations in recent 
years. 
 
TELECOMMUNICATIONS PENETRATION 
LOW IN LEBANON FOR 2007 
----------------------- 
 
¶10. (U) According to the UN's International Telecommunications Union 
(ITU) 2007 annual telecommunications statistics, Lebanon ranked 79 
out of 207 surveyed countries and seven out of 20 MENA region 
countries in terms of internet penetration.  The ITU indicated that 
the internet penetration rate in Lebanon was 26.6 percent, with 
950,000 internet users.  In terms of the ratio of total telephone 
subscriptions to total population, Lebanon ranked 125 globally and 
15 in the MENA region. 
 
LEBANON' ECONOMY VULNERABLE 
ACCORDING TO S&P 
---------------- 
 
¶11. (U) Standard & Poor's (S&P) Liquidity Vulnerability Index (LVI) 
ranked Lebanon second most vulnerable economy in terms of external 
financing needs, among 40 emerging market economies surveyed, based 
on an assumed worsening of the global credit crisis.  Out of six 
countries from the MENA region included in the index, Lebanon was 
 
BEIRUT 00000819  003 OF 003 
 
 
the only country in the "vulnerable" category.  S&P considers the 
level of a country's vulnerability related directly to its degree of 
dependence on foreign capital inflows to finance external imbalances 
and avert balance-of-payments crises. 
 
SISON