VZCZCXRO0595
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #0082/01 0201155
ZNR UUUUU ZZH
R 201155Z JAN 09
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 4023
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 02 BEIRUT 000082 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR FRANCESCKI 
STATE PASS USAID BEVER/LAUDATO/SCOTT 
TREASURY FOR PARODI/BLEIWEISS/AHERN 
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: LEBANON BEGINS DISBURSING ASSISTANCE TO GAZA 
(ECONOMIC WEEK IN REVIEW, JANUARY 12 - 18, 2009) 
 
REF: BEIRUT 56 
 
CONTENTS 
-------- 
 
-- LEBANON BEGINS DISBURSING ASSISTANCE TO GAZA 
-- CABINET APPOINTS OPERATORS TO MANAGE AND EXPAND MOBILE NETWORK 
-- CENTRAL BANK PLANS TO ENCOURAGE PRIVATE SECTOR LENDING... 
-- ... AND EXPECTS BANKS TO ROLLOVER 2009 EUROBOND MATURITIES 
-- CABINET WILL CONTINUE 2009 BUDGET DISCUSSIONS NEXT WEEK 
-- EIU: GDP GROWTH DOWN TO 2.7 PERCENT, MOBILE PRIVATIZATION 
UNLIKELY IN 2009 
-- EFG HERMES: 4.5 PERCENT GDP GROWTH AND FOUR PERCENT INFLATION IN 
2009 
-- LEBANON'S QUALITY OF LIFE SUPERIOR TO AVERAGE IN MENA REGION 
 
LEBANON BEGINS DISBURSING 
ASSISTANCE TO GAZA 
-------------------- 
 
¶1. (SBU) After the Lebanese Cabinet's $1 million assistance pledge 
to Gaza on December 30 (reftel), Lebanon sent its first shipment of 
in-kind assistance to Gaza by plane via Jordan on January 3. The 
shipment consisted of 17 tons of medical supplies and equipment and 
2,060 blankets.  Ambassador Khalil Mekkawi, Head of the 
Lebanese-Palestinian Dialogue Committee, estimated the value of this 
first load of assistance to be approximately $200,000, and said 
Lebanon will send subsequent deliveries to fulfill the 
million-dollar pledge based on needs submitted by the Palestinian 
Health Ministry in Gaza. 
 
¶2. (SBU) In its December 30 meeting, the cabinet also approved the 
launch of a campaign to collect contributions for Gaza.  The 
Lebanese-Palestinian Dialogue Committee launched a media campaign 
and opened an account for donations. 
 
CABINET APPOINTS OPERATORS TO MANAGE 
AND EXPAND MOBILE NETWORK 
------------------- 
 
¶3. (U) The cabinet selected Egyptian company Orascom and Kuwaiti 
Zain (currently managing one of the GOL-owned companies) for a 
one-year management contract, renewable for a second year, starting 
in early February for the two GOL-owned mobile companies.  Ina 
press conference on January 15, Telecom Ministe Gebran Bassil said 
the contracts should result in each company absorbing 400,000 
additional subscribers by the end of April 2009.  This will allow 
the GOL to lower tariffs without losing revenues.  Bassil pledged to 
submit a proposal to lower mobile tariffs to the cabinet by the end 
of January, hoping to begin implementation by February or March at 
the latest, he said. 
 
CENTRAL BANK PLANS TO ENCOURAGE 
PRIVATE SECTOR LENDING... 
------------------- 
 
¶4. (U) On January 13, Governor of the Central Bank of Lebanon (CBL) 
Riad Salameh publicly said the CBL is working with the GOL to 
encourage commercial bank lending in Lebanese pounds to the private 
sector to stimulate economic growth.  Salameh explained that the 
fall in the dollarization rate of deposits since the start of the 
global financial crisis (from 77.3 percent at the end of 2007 to 
69.7 percent by November 2008) has increased banks' liquidity in 
Lebanese pounds.  The proposal consists of subsidizing interest 
rates on loans in Lebanese pounds as well as lowering obligatory 
reserves imposed by the CBL on pound-denominated deposits in banks. 
(Note:  The GOL already subsidizes loans in the industry, tourism, 
agriculture, and information technology sectors.  End note.) 
 
¶5. (U) Meanwhile, Salameh estimated GDP growth at six percent for 
2008 and inflation between eight to ten percent, and concurred with 
the IMF's projection of five percent growth for 2009.  He expects 
the dollarization rate of deposits to drop further in 2009. He also 
expects interest rates on local currency to remain stable or drop 
slightly in 2009. 
 
... AND EXPECTS ANKS TO ROLLOVER 
2009 EUROBOND MATURITIES 
------------------ 
 
BEIRUT 00000082  002 OF 002 
 
 
 
¶6. (U) Salameh said the CBL's foreign currency assets (excluding 
gold) reached a record high $20 billion in 2008 as a result of 
conversions of foreign currency-denominated deposits to Lebanese 
pound deposits which offer higher returns.  The CBL purchased about 
$8 billion in excess dollar supply from the foreign exchange market, 
he said.  This increased demand for Lebanese pounds will also 
encourage a drop in interest rates on certificates of deposit in 
Lebanese Pounds and consequently will facilitate the roll-over of 
$2.6 billion in Eurobonds that will mature in 2009, he said. 
 
CABINET WILL CONTINUE 2009 
BUDGET DISCUSSIONS NEXT WEEK 
------------------- 
 
¶7. (SBU) On January 12 and 13, the cabinet discussed the 2009 budget 
proposal and approved the budget figures, but discussions were 
postponed because of disagreement on allocations to the Council for 
the South for compensation for the 2006 war, a senior source at the 
Finance Ministry told us.  The source said the cabinet will meet 
next week to continue budget discussions.  (Note:  The Council for 
the South, along with several other GOL institutions, has long been 
criticized as little more than an instrument of political patronage. 
 The annual budget discussion always includes calls for closure of 
these institutions, but political horse-trading has thus far always 
resulted in their continued existence.  End note.) 
 
EIU: GDP GROWTH DOWN TO 2.7 PERCENT, 
MOBILE PRIVATIZATION UNLIKELY IN 2009 
-------------------- 
 
¶8. (U) The Economist Intelligence Unit's (EIU) latest report on 
Lebanon maintained its estimate for real GDP growth at 4.2 percent 
in 2008, and revised downwards its forecast for 2009 from 3.1 
percent to 2.7 percent.  It attributed lower growth in 2009 to 
spillovers from the global economic slowdown (indirectly impacting 
local tourism, real estate, construction, and the financial sector), 
a rise in political uncertainty due to upcoming parliamentary 
elections, economic contraction in the U.S. and EU, and slower 
growth in the Gulf, which will have a negative impact on 
remittances. 
 
¶9. (U) The EIU expects little progress on the GOL's economic reform 
plan, especially mobile privatization, because of unfavorable global 
market conditions and domestic opposition.  Immediate risks from the 
global crisis to the local banking sector remain limited.  The 
report also noted its fears that the global liquidity freeze could 
increase pressure on the GOL, which needs to roll over large volumes 
of debt instruments and take on new debt. 
 
LEBANON'S QUALITY OF LIFE SUPERIOR 
TO AVERAGE IN MENA REGION 
-------------------- 
 
¶10. (U) International Living Magazine's annual Quality of Life Index 
ranked Lebanon 105 out of 195 countries worldwide, and four out of 
20 MENA countries in 2009, compared to 104 out of 194 countries 
worldwide and five out of 20 MENA countries in the previous survey. 
Lebanon's quality of life was considered above average in the MENA 
region.  The index assesses nine components of quality of life, 
including: cost of living, culture and leisure, economy, 
environment, freedom, health, infrastructure, safety and risk, and 
climate. 
 
SISON