VZCZCXRO6010
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #0944/01 1820458
ZNR UUUUU ZZH
R 300458Z JUN 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2358
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 000944 
 
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: INCREASE IN FLOUR SUBSIDIES FORCE BAKERIES TO 
RETRACT FROM RAISING BREAD PRICES (ECONOMIC WEEK IN REVIEW, JUNE 23 
- 29, 2008) 
 
CONTENTS 
-------- 
 
-- BAKERIES INCREASE BREAD PRICES FOR SEVERAL HOURS, ECONOMY 
MINISTRY RAISES FLOUR SUBSIDIES TWICE TO STOP INCREASE 
-- BUSINESS OPPORTUNITES IN LEBANON CONFERENCE LAUNCHED, FINANCE 
MINISTER WORRIED ON INVESTMENT PROSPECTS 
-- MIDDLE EAST AIRLINES EXPANDS ITS FLEET, RECORD NET PROFIT IN 
2007 
-- ARAB INVESTORS CALL FOR INCREASED ECONOMIC LIBERALIZATION IN THE 
REGION 
-- DONORS PLEDGE $122 MILLION TO REBUILD PALESTINIAN CAMP, MORE 
FUNDS ON THE WAY 
-- CASH TRANSFERS INCREASE BY 50 PERCENT IN 2007 
-- ECONOMIST INTELLIGENCE UNIT RAISES GROWTH FORECAST FOLLOWING DOHA 
SETTLEMENT 
-- LEBANESE BANKS ARE THE LEAST RISKY OF NON-GCC MENA ECONOMIES, 
AMONG MENA'S BEST IN TERMS OF BANK VALUATION 
-- MOODY'S: LEBANON IS THIRD MOST SENSITIVE TO INFLATION SHOCKS IN 
MENA REGION 
 
 
BAKERIES INCREASE BREAD PRICES FOR SEVERAL HOURS, ECONOMY MINISTRY 
RAISES FLOUR SUBSIDIES TWICE TO STOP INCREASE 
-------------------- 
 
¶1. (U) Following a unilateral decision by the Union of Bakeries on 
June 25 to increase the price of Arabic flat bread -- without 
consulting the Ministry of Economy and Trade (MOET) -- from $1 to 
$1.3, the union retracted its decision on June 26, after the 
Ministry decided to further increase its subsidy on flour.  This 
increase comes in addition to an increase in the subsidy announced 
on June 23 by the MOET to compensate for the rise in the costs of 
bread production.  In light of the increase in the prices of fuel 
and a number of other goods mainly through imported inflation, the 
possibility of any increase in the price of bread is very sensitive, 
representing an additional burden on the population, most of which 
finds it hard to manage with already high prices of basic 
commodities and low incomes. 
 
¶2. (SBU) Before the Union of Bakeries accepted to retract its 
decision, the head of the General Labor Confederation (GLC) Ghassan 
Ghosn quickly called for a protest in front of the Grand Serail on 
Monday, June 30, to call on the GOL to lower the price of a packet 
of Arabic flat bread.  GLC sources told us that the GLC will cancel 
its call for a protest. 
 
¶3. (SBU) Advisor to the Ministry of Economy and Trade Marwan Mikhael 
told us on June 27 that since August 2007 until May 2008, the flour 
subsidy has cost the GOL around $30 million.  From June 2008 
onwards, the cost of the subsidy is estimated around $4-5 million 
each month.  Although Mikhael believes with the recent subsidy 
increase, bakeries will be barely able to cover their costs. 
 
BUSINESS OPPORTUNITES IN LEBANON CONFERENCE LAUNCHED, FINANCE 
MINISTER WORRIED ON INVESTMENT PROSPECTS 
-------------------- 
 
¶4. (U) On June 24, the sixth edition of the Business Opportunities 
in Lebanon Conference was inaugurated in Beirut, combining workshops 
and exhibitions organized by leading economic and business magazine 
Lebanon Opportunities.  The U.S. Commercial Service exhibited its 
products and began promotion for its upcoming "Made in America 2008" 
trade fair. 
 
¶5. (U) During the opening session, Finance Minister Azour expressed 
fear that Lebanon will not be able to attract the investments it 
could because of the political stalemate, and called for the 
political dialogue to focus on projects and programs instead of 
ministerial portfolios.  Azour insisted on the liberalization of the 
telecommunications and transportation sectors, the privatization of 
the national power utility Electricite du Liban (EDL), and the 
implementation of Paris III reform measures. 
 
MIDDLE EAST AIRLINES EXPANDS ITS FLEET, 
RECORD NET PROFIT IN 2007 
-------------------- 
 
¶6. (SBU) Lebanon's national passenger carrier Middle East Airlines 
 
BEIRUT 00000944  002 OF 003 
 
 
(MEA) received this week its first new acquired Airbus 330-200 as 
part of its plan to expand its fleet.  MEA's fleet now consists of 
one new A330, three leased A330 (whose lease term ends in 2009), and 
six A321.  MEA plans to acquire six more A330 gradually until 2010 
to expand its operations.  MEA Chairman Hout told us that MEA 
recorded a net profit of more than $60 million in 2007, stressing 
that the company can record profits exceeding $70 million if the 
political situation remained stable. 
 
ARAB INVESTORS CALL FOR INCREASED 
ECONOMIC LIBERALIZATION IN THE REGION 
-------------------- 
 
¶7. (U) On June 20, participants at the annual Arab Businessmen and 
Investors Conference urged Arab countries to speed up the creation 
of free trade zones and the removal of trade barriers, as well as 
encourage further economic liberalization and implement 
privatization programs.  The conference also called for greater 
agricultural investments in the region, in order to secure 
sufficient food supplies in the Arab world. 
 
DONORS PLEDGE $122 MILLION TO REBUILD 
PALESTINIAN CAMP, MORE FUNDS ON THE WAY 
-------------------- 
 
¶8. (U) On June 23, the Conference on the Reconstruction and Recovery 
of the Nahr El Bared Palestinian refugee camp in north Lebanon was 
held in Vienna, during which donors pledged funds for rebuilding the 
camp and the surrounding areas.  The total contribution announced 
was $122 million; we understand this will be corrected to $115.3 
million to correct double counting mistakes. The USG pledged $22 
million to be divided as follows: $10 million for camp 
reconstruction, $6 million for the development of the areas 
surrounding the camp, and $6 million to boost the Internal Security 
Force's presence surrounding the camp.  Meanwhile, PM Siniora 
announced that Saudi Arabia, Qatar, Kuwait, and the United Arab 
Emirates had pledged to cover half of the bill for rebuilding the 
camp, the exact sum to be set on July 1. 
 
CASH TRANSFERS INCREASE 
BY 50 PERCENT IN 2007 
-------------------- 
 
¶9. (U) According to the Central Bank of Lebanon, cash electronic 
transfers to and from Lebanon amounted to $1.06 billion in 2007, up 
by 50 percent compared to 2007.  Of this, $733.7 million were 
transferred electronically to Lebanon, while transfers from Lebanon 
amounted to $321.4 million.  The United Arab Emirates was the main 
source of inward transfers with $147.5 million, while the 
Philippines was the number one destination of transfers from Lebanon 
with $58.1 million. 
 
ECONOMIST INTELLIGENCE UNIT RAISES 
GROWTH FORECAST FOLLOWING DOHA SETTLEMENT 
-------------------- 
 
¶10. (U) In its latest report on Lebanon, the Economist Intelligence 
Unit (EIU) revised its economic growth forecast for Lebanon to 2.7 
percent from -0.7 percent in 2008 and to 3.8 percent from 0.5 
percent in 2009.  The EIU estimated that the Doha political 
settlement encouraged this revision, but warned that growth is 
expected to remain well below potential due to political 
uncertainties and institutional deficiencies.  The report considered 
that members of the upcoming coalition Cabinet are unlikely to agree 
on the best way to address the country's fiscal and debt challenges, 
which in turn would prevent the GOL from implementing its Paris III 
reform plan, especially privatization.  The EIU also expected 
inflation to increase sharply in 2008 due to imported inflationary 
pressures. 
 
LEBANESE BANKS ARE THE LEAST RISKY OF NON-GCC MENA ECONOMIES, AMONG 
MENA'S BEST IN TERMS OF BANK VALUATION 
-------------------- 
 
¶11. (U) Regional investment bank EFG Hermes estimated that the 
Lebanese banking sector was the least risky among non-GCC MENA 
economies, as well as being one of the most attractive in the MENA 
region in terms of valuation based on 2008-2010 earning growth 
forecasts.  Although Lebanon was assigned the lowest rating in the 
 
BEIRUT 00000944  003 OF 003 
 
 
region on political and economic risk indicators, it was the least 
risky among non-GCC countries in terms of banking industry risks, 
which include barriers to entry, and overall regulation and legal 
framework.  Lebanon also received the highest rating in the entire 
MENA region in the bank management category, which include 
entrepreneurial management and ability to expand.  In addition, 
despite recent sluggish economic performance, the Lebanese financial 
system has proved extremely resilient to the political turmoil due 
to the banking sector's ability to grow its deposit base, EFG Hermes 
noted. 
 
MOODY'S: LEBANON IS THIRD MOST SENSITIVE 
TO INFLATION SHOCKS IN MENA REGION 
-------------------- 
 
¶12. (U) Moody's Investor Service's Inflation Sensibility Index 
ranked Lebanon as the third most sensitive country out of 11 
surveyed MENA countries.  The index measures the extent to which a 
country's vulnerability to inflation shocks could potentially damage 
its creditworthiness and sovereign ratings.  It is an average of a 
country's rank in five indicators, GDP-per-capita in purchasing 
power terms, level of human development, fiscal balance, net 
govenment debt, and annual change in inflation rate. 
 
SISON