VZCZCXRO6210
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV
DE RUEHLB #1014/01 1961119
ZNR UUUUU ZZH
R 141119Z JUL 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 2460
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 001014 
 
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: SYRIA TAX ON TRUCKS COULD OBSTRUCT TRADE, INFLATION 
CONTINUES TO RISE (ECONOMIC WEEK IN REVIEW, JULY 7 - 13, 2008) 
 
CONTENTS 
-------- 
 
-- SYRIAN TAX ON TRUCKS COULD OBSTRUCT TRADE, LEBANESE EXEMPTED FROM 
DEPARTURE TAX 
-- INFLATION CONTINUES TO RISE 
-- SALARY INCREASES ON HOLD, WAITING FOR NEW CABINET 
-- 60 ISRAELIS ACCUSE SIX LEBANESE BANKS OF FINANCING HIZBALLAH, 
BANKING OFFICIALS DENY 
-- GOL REINSTATES PROGRAM SUBSIDIZING AGRICULTURAL EXPORTS 
-- LEBANON'S LARGEST CERAMICS FACTORY ON THE VERGE OF SHUTTING DOWN 
-- MINISTRY OF POST AND TELECOMMUNICATIONS REVENUE OVER ONE BILLION 
IN 2007 
-- IMF: EFFECT OF OIL AND FOOD PRICE INCREASES ON LEBANON IS SEVERLY 
NEGATIVE 
 
 
SYRIAN TAX ON TRUCKS COULD OBSTRUCT TRADE, 
LEBANESE EXEMPTED FROM DEPARTRE TAX 
-------------------- 
 
¶1. (U) On July 3,the Syrian authorities began imposing a "gas tax" 
of around $300 on regular trucks leaving Syrian territory and $500 
on refrigerated trucks.  Head of the Lebanese Syndicate of Fruit and 
Vegetable Exporters said that this tax would lead to losses of 
around $50,000 per day for refrigerated trucks.  Most of Lebanon's 
agriculture exports go either to Syria, and those intended for 
Jordan and the Gulf also go through Syria by land.  In response, 
Jordan began imposing a $340 tax on Syrian trucks, and Saudi Arabia 
a $533 tax. 
 
¶2. (U) Meanwhile, on July 9 the local press reported that Lebanese 
President Michel Sleiman thanked his Syrian counterpart during a 
telephone conversation over the Syrian cabinet's decision to exempt 
Lebanese nationals from paying the "departure tax" when crossing the 
Syrian border into Lebanon.  However, no mention was made regarding 
the gas tax.  Earlier in the week, Syrian authorities revised the 
fees they imposed on each person regardless of nationality departing 
Syria via land ($10), air ($34), as well as for each car entering 
Syria ($30). 
 
INFLATION CONTINUES 
TO INCREASE 
------------------- 
 
¶3. (SBU) According to the Central Administration of Statistics 
(CAS), inflation rose by 4.4 percent in the first five months of 
2008, a senior CAS contact said, noting that this figure is "very 
high."  In January 2008, CAS adopted a new methodology for 
calculating inflation, and thus cannot calculate inflation on an 
annualized basis; however our contact told us that from December 
1999 till May 2008, inflation reached 30 percent. 
 
¶4. (U) On the other hand, reputed private consultancy firm 
Consultation and Research Institute (CRI) indicated that prices rose 
by six percent in the first five months of 2008; with a yearly 
increase in prices in May 2008 of 12.98 percent.  The rise in the 
consumer price index in the first months of 2008 is mostly due to a 
rise of 11.72 percent in prices of food and beverages, 9.73 percent 
in personal care, and 8.31 percent in transportation and 
telecommunications.  Meanwhile, Consumer Lebanon (CL) association 
indicated on July 1 that during the second quarter of 2008, prices 
of consumer goods rose by 4.47 percent.  CL estimated that 
cumulative inflation of basic commodities in the past two years 
amounted to 47.5 percent. 
 
SALARY INCREASES ON HOLD, 
WAITING FOR NEW CABINET 
-------------------- 
 
¶5. (SBU) The Cabinet's decision on May 6 to raise salaries in the 
public and private sectors is still pending.  When the decree was 
first issued, resigned Labor Minister Trad Hamadeh refused to sign 
it, which is needed to authorize raising the minimum wage in the 
private sector.  Senior economic and financial contacts explained 
this by saying that Hamadeh rejected any decision taken by the 
Siniora Cabinet, which he did not recognize.  Currently, his refusal 
to sign it is attributed to Hamadeh's belief that such a decree 
should not be signed by a caretaker minister, our contacts said. 
Meanwhile, implementing salary increases in the public sector 
 
BEIRUT 00001014  002 OF 003 
 
 
requires legislations, and a draft project law for this purpose has 
already been sent to PM Siniora, a senior contact at the Finance 
Ministry told us.  The contact noted that PM Siniora will wait for 
the next Cabinet to be in place to send the draft law to parliament. 
 
 
60 ISRAELIS ACCUSE SIX LEBANESE BANKS OF 
FINANCING HIZBALLAH, BANKING OFFICIALS DENY 
-------------------- 
 
¶6. (SBU) Arab nationalist As-Safir reported on June 8 that about 60 
Israelis filed court cases in New York against five Lebanese banks 
(Fransabank, Bank of Beirut, Banque Libano-Francaise, Middle East & 
Africa bank, and Banque Libanaise pour le Commerce (BLC)) and in 
Montreal against one Lebanese bank (Lebanese Canadian Bank) for 
allegedly opening bank accounts to finance Hizballah activities. 
President of the Association of Banks in Lebanon (ABL) Francois 
Bassil refuted such allegations.  "These are lies; rumors to hurt 
the reputation of Lebanese banks abroad," he told us, stressing that 
the banks are not aware of these lawsuits.  He also stressed that 
Lebanese banks are taking strict measures fighting terrorism 
finance. 
 
¶7. (U) Meanwhile, Central Bank Governor (CBL) Riad Salameh and the 
ABL issued separately public statements asserting that Lebanon's 
banking sector abides by internationals standards and is compliant 
with FATF recommendations, and that the Lebanese financial system 
abides by legislation recognized and accepted internationally. 
Salameh added that "cases raised occasionally against normal banking 
activities are handled by the judicial authorities and does not 
require all this fuss."  ABL noted that Lebanese and Arab banks are 
occasionally subject to defamation campaigns; however, such 
campaigns will not affect the banks' credibility regionally and 
internationally. 
 
GOL REINSTATES PROGRAM SUBSIDIZING 
AGRICULTURAL EXPORTS 
-------------------- 
 
¶8. (U) Following widespread criticism from farmers and threats to 
take to the streets in protest, PM Siniora announced on July 7 that 
the GOL would reinstate the Investment Development Authority of 
Lebanon (IDAL)'s "Export Plus" program, under which the transport of 
certain agricultural goods was subsidized based on quantity and 
export destination.  Effective June 1, the Cabinet decided to 
suspend the program for one year.  Minister of Economy and Trade 
(MOET) Sami Haddad had said that Export Plus increased prices of 
goods in the local market and benefited exporters of agricultural 
products, rather than farmers and consumers. 
 
LEBANON'S LARGEST CERAMICS FACTORY 
ON THE VERGE OF SHUTTING DOWN 
-------------------- 
 
¶9. (U) On July 8, local English newspaper The Daily Star reported 
that Lebanon's largest ceramics factory Uniceramic halted its local 
operations and dismissed most of its staff, due to high energy costs 
and unfair competition from neighboring countries -- mostly Egypt. 
Uniceramic is still hoping to raise enough money from banks and 
interested investors to resume operations, but at a much smaller 
scale.  President of the Association of Lebanese Industrialists 
(ALI) Fadi Abboud was quoted as saying that given that ceramics 
production is an energy-intensive industry, unfair competition 
originates mainly from Egypt and Qatar -- both of which heavily 
subsidize the cost of energy -- while defying World Trade 
Organization (WTO) obligations.  Uniceramic recorded losses of 
around $5.4 million in 2007 and expects even higher losses in 2008. 
 
MINISTRY OF POST AND TELECOMMUNICATIONS 
REVENUE OVER ONE BILLION IN 2007 
-------------------- 
 
¶10. (U) The Ministry of Post and Telecommunications (MPT) announced 
that its revenues for 2007 reached $1.33 billion, a 12.6 percent 
increase compared to 2006.  Transfers from the MPT to the Treasury 
reached $1.1 billion in 2007, up by 29 percent compared to 2006. 
 
IMF: EFFECT OF OIL AND FOOD PRICE 
INCREASES ON LEBANON IS SEVERLY NEGATIVE 
-------------------- 
 
BEIRUT 00001014  003 OF 003 
 
 
 
¶11. (U) According to the IMF's recently released study "Food and 
Fuel Prices- Recent Developments, Macroeconomic Impact, and Policy 
Responses," the oil and food price shocks have both led to a 3.8 
percent widening of Lebanon's 2009 projected ratio of the current 
account deficit to GDP, to be set at 14 percent.  Moreover, the 
volume of forecasted Central Bank reserves in months of next year's 
imports of goods and services fell by 1.2 months, or 16.2 percent 
due to both shocks.  The IMF concluded that the overall effect of 
both shocks on Lebanon was severely negative. 
 
GRANT