VZCZCXRO7566
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #1763/01 3511515
ZNR UUUUU ZZH
R 161515Z DEC 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 3796
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 001763 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR FRANCESCKI 
STATE PASS USAID BEVER/LAUDATO/SCOTT 
TREASURY FOR MNUGENT AND SBLEIWEISS 
USDOC FOR 4520/ITA/MAC/ONE 
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON:  NEW SALARY MEASURES COULD BREAK THE BUDGET 
(ECONOMIC WEEK IN REVIEW, DECEMBER 8 - 14, 2008) 
 
CONTENTS 
-------- 
 
-- MPS APPROVE COSTLY MEASURES THAT COULD BREAK THE BUDGET 
-- ENERGY MINISTER WORKING ON NEW ELECTRICITY TARIFF 
-- WORLD BANK DELEGATION PRAISED BUDGETARY REFORM 
-- TELECOM MINISTRY WILL TAP DIASPORA FOR ICT EXPERTS 
-- INDUSTRIAL EXPORTS RISE IN FIRST NINE MONTHS OF 2008 
-- IIF: LEBANESE BANKS REMAIN WELL-CAPITALIZED AND HIGHLY LIQUID 
-- BYBLOS BANK ACQUIRES LEBANESE BRANCH OF BANCA DI ROMA 
-- MOODY'S RAISES LEBANON'S OUTLOOK TO POSITIVE 
 
MPS APPROVE COSTLY MEASURES 
THAT COULD BREAK THE BUDGET 
-------------------- 
 
¶1. (SBU) On December 11, a parliamentary committees approved a set 
of measures which, if implemented, will put a significant additional 
burden on state finances.  While the measures still require approval 
by the full parliament, their passage would dramatically increase 
Lebanon's already huge budget deficit, and prevent the government 
from meeting its Paris III budget commitments. 
 
¶2. (SBU) The committees approved the minimum wage and across the 
board public sector salary increase, as passed by the cabinet 
September 9.  The full parliament is likely to vote on and approve 
this law early next week.  Finance Minister Chatah told us 
previously that this measure will cost the Treasury approximately 
$500 million annually, and though the cabinet approved four measures 
meant to cover half of this additional cost, Chatah acknowledged 
that this measure will increase the deficit. 
 
¶3. (SBU) In addition, the committees approved the payment, over 
three years, of $800 million in salary arrears for civil servants 
and members of the armed forces who did not receive an authorized 
salary increase during the period 1996-1998. Opposition MP Yassin 
Jabir told us December 12 that Opposition Leader Michel Aoun 
proposed the draft law on this issue, and March 14 decided not to 
object in an election year, despite the fiscal pressure it would put 
on the state.  The committees also approved a five percent salary 
increase for teachers, and a 20 percent salary increase for army 
soldiers deployed outside their barracks.  These measures will cost 
the treasury an additional $53 million annually. 
 
ENERGY MINISTER IS WORKING ON NEW 
ELECTRICITY TARIFF STRUCTURE 
-------------------- 
 
¶4. (SBU) On December 11, national power utility Electricite du Liban 
(EDL) Chairman Kamal Hayek told us Minister of Energy and Water 
(MEW) Alain Tabourian is in the process of fine-tuning a new 
electricity tariff structure after receiving some recommendations on 
it from PM Siniora and Finance Minister Chatah.  Hayek said 
Tabourian's proposal was well-structured, would be acceptable to 
different socioeconomic groups, and would provide much-needed income 
to the treasury.  He added, "If this proposal does not pass in the 
cabinet, then it means there is no political will to improve EDL's 
financial situation."  The current tariff structure dates back to 
1994, when oil prices were 15-16 dollars a barrel, he said.  A 
senior source at the Finance Ministry confirmed that Tabourian was 
finalizing the new tariff structure and will hopefully submit it to 
the cabinet this month.  (Note: A revised tariff structure is one of 
the benchmarks in the new IMF Emergency Post Conflict Assistance 
(EPCA) program.  The USG will soon condition part of its Paris III 
budgetary support on the implementation of this reform.  End note.) 
 
WORLD BANK DELEGATION PRAISED 
BUDGETARY REFORM 
-------------------- 
 
¶5. (U) After meeting with Finance Minister Mohammad Chatah on 
December 5, a World Bank (WB) delegation praised the progress 
achieved in budgetary reform and indicated that the WB plans to 
expand support at a later stage to include reforms in the field of 
higher education, linking it to the job market, according to local 
press reports. 
 
TELECOM MINISTRY WILL TAP 
DIASPORA FOR ICT EXPERTS 
 
BEIRUT 00001763  002 OF 003 
 
 
-------------------- 
 
¶6. (SBU) Minister of Telecommunications Gebran Bassil will hold a 
conference, called "Telecom for Lebanon- Tapping the Diaspora," to 
include telecom experts from the Lebanese diaspora.  The event, 
which Bassil conceived as a way to attract homegrown talent back to 
Lebanon, is meant to be a forum for expatriates to share their 
knowledge on telecom liberalization, as well as to help develop 
strategic telecom projects to stimulate economic growth and turn 
Lebanon into a hub for the MENA.  The conference, to be held 
December 29 in Beirut, is co-organized by Berytech Technology Pole 
(an incubator for ICT start-ups), the Partnership for Lebanon (a 
U.S. private sector initiative), and the Telecommunications 
Regulatory Authority (TRA). 
 
IPR TRAINEES EXPRESS 
SATISFACTION WITH USPTO PROGRAMS 
-------------------- 
 
¶7. (SBU) On November 26, EconOff and staff met with Dr. Colette 
Raidy and Rasha Hamra from the Ministry of Public Health (MOPH), 
following their participation in the USPTO IPR Patent Advanced and 
Patent Basic programs respectively.  While both were very satisfied 
with their programs, Hamra wished that her program had focused more 
on pharmaceutical issues.  They also suggested the training could 
include time at the Food and Drug Administration (FDA), which would 
be more specific to the MOPH's needs and highly beneficial for them 
in terms of registration and pricing of drugs.  Raidy and Hamra 
noted that one obstacle to effective drug registration and IPR 
enforcement in Lebanon was the lack of any link between the 
databases of the MOPH and the Ministry of Economy and Trade, where 
patents must be registered. 
 
¶8. (SBU) Meanwhile, Judge Ziad Abou Haidar, who attended the USPTO 
Enforcement Program for Prosecutors in October 2008, considered that 
attending live proceedings was the most beneficial part of his 
training. 
 
INDUSTRIAL EXPORTS RISE IN 
FIRST NINE MONTHS OF 2008 
-------------------- 
 
¶9. (U) According to the Ministry of Industry (MOI), industrial 
exports rose by 31.2 percent to $2.27 billion during the first three 
quarters of 2008 compared to the same period in 2007.  Metallurgical 
products comprised 20 percent of exports, followed by machinery (17 
percent), and chemical products (14.4 percent).  Imports of 
industrial equipment rose by 8.6 percent to $134.5 million during 
the first three quarters of 2008 compared to the same period in 
¶2007.  Germany was the main source of imports for industrial 
equipment (25 percent), followed by Italy (23.32 percent), and China 
(15.54 percent). 
 
IIF: LEBANESE BANKS REMAIN 
WELL-CAPITALIZED AND HIGHLY LIQUID 
-------------------- 
 
¶10. (U) In its most recent report on Lebanon, the Institute of 
International Finance (IIF) indicated that there have been no 
noticeable repercussions of the global economic crisis on Lebanon, 
noting that sovereign spreads increased less than in other emerging 
markets in October and November 2008.  The banking sector's 
regulatory framework limited banks' exposure to structured products, 
and remains well-capitalized and highly liquid.  The IIF warned that 
the main risk to Lebanon's outlook was the potential for instability 
in the run-up to the parliamentary elections in 2009.  The report 
projected GDP growth at 5.5 percent in 2008, 3.5 percent in 2009, 
with inflation to average 12 percent in 2008.  It estimated the 
primary surplus to exceed two percent in 2008.  The IIF also 
indicated that the GOL will face financing needs of around $5.5 
billion in 2009, but would meet them mostly from the market and 
donors. 
 
BYBLOS BANK ACQUIRES LEBANESE 
BRANCH OF BANCA DI ROMA 
------------------- 
 
¶11. (U) Local financial pres reported that on December 1 Byblos 
Bank approved the acquisition of all the assets, equity, and 
 
BEIRUT 00001763  003 OF 003 
 
 
obligations of the Lebanese branch of Italy's Unicredit Banca Di 
Roma (BDR) SpA.  In 2007, the Lebanese branch of BDR posted total 
assets of $80 million, compared to Byblos Bank's $10.86 billion at 
end-September 2008.  In 2006, BDR closed four of its five branches 
in Lebanon.  BDR was one of the first international banks to operate 
in Lebanon in 1919. 
 
MOODY'S RAISES LEBANON'S 
OUTLOOK TO POSITIVE 
-------------------- 
 
¶12. (U) On December 11, Moody's Investors Service changed its 
outlook on Lebanon's sovereign debt rating to positive from stable. 
To justify its improved outlook, Moody's cited the proven resilience 
of Lebanon's public finances to shocks, as well as the achievement 
of all the objectives endorsed at the Doha Conference (a new 
president, a consensus cabinet, and a new electoral law).  Moody's 
indicated that Lebanon was one of the few countries so far actually 
to benefit from the global economic crisis, as the Lebanese diaspora 
has moved funds into Lebanon's seemingly safer banks.  Nonetheless, 
Moody's noted that the country still presents a substantial credit 
risk, since the political situation remains fragile and tensions 
could grow before the parliamentary elections in 2009. 
 
SISON