VZCZCXRO4987
RR RUEHAG RUEHBC RUEHDE RUEHDF RUEHIK RUEHKUK RUEHLZ RUEHROV RUEHSR
DE RUEHLB #0272/01 0691048
ZNR UUUUU ZZH
R 101048Z MAR 09
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHC 4388
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 000272 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR FRANCESCKI 
STATE PASS USAID BEVER/LAUDATO/SCOTT 
TREASURY FOR PARODI/BLEIWEISS/CORREA 
USDOC FOR 4520/ITA/MAC/ONE 
NSC FOR MCDERMOTT 
CAIRO FOR FAS: MALDONADO 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON:  IMF SAYS GOL MET 2008 TARGETS BUT 2009 WILL BE 
DIFFICULT (ECONOMIC WEEK IN REVIEW, MARCH 2 - 8, 2009) 
 
CONTENTS 
-------- 
 
-- IMF RESREP: GOL CAN DO MORE ON REFORM 
-- IMF SATISFIED WITH MACROECONOMIC PERFORMANCE 
-- IRRIGATION BIGGEST CHALLENGE FOR FARMERS 
-- AGRICULTURE ISSUES CLARIFIED IN WTO MEETING 
-- RECORD $3.5 BILLION BALANCE OF PAYMENTS IN 2008 
-- FISCAL DEFICIT UP BY 14.7% IN 2008 
-- FPM SEEKS NEW REAL ESTATE ACQUISITION LAW 
 
IMF RESIDENT REPRESENTATIVE: 
GOL CAN DO MORE ON REFORM 
---------------------- 
 
¶1. (SBU) On March 3, IMF Resident Rep Edward Gardner told EconOff 
the GOL could have implemented more reforms, even in the difficult 
political context, but instead used politics as an excuse for delay. 
 "They constantly say the situation is too bad, but the reality is 
that it is always bad," he sighed.  The GOL's economic policy has 
been short-term, and structural reforms are slow, he said.  He also 
noted that the state budget is not an effective instrument to 
restrain spending, as a lot of spending occurs outside the budget 
and accountability is poor.  He stressed that the GOL was "very good 
in crisis management," which is why Lebanon has not been affected by 
the global financial crisis.  Gardner, who has worked on Lebanon for 
five years and was IMF's first Resident Representative beginning in 
February 2008, was clearly frustrated with the lack of reform 
progress in Lebanon, and will leave next week for a new assignment. 
 
 
IMF SATISFIED WITH 
MACROECONOMIC PERFORMANCE 
-------------------- 
 
¶2. (SBU) In his briefing to donor countries on March 3, Domenico 
Fanizza, head of the IMF mission preparing the Article IV report and 
the Emergency Post-Conflict Assistance (EPCA) II review, said the 
GOL met the macroeconomic objectives in 2008, and the mission was 
satisfied with the fiscal and monetary indicators. The GOL 
maintained a primary surplus, and its debt to GDP ratio improved, 
reaching 160% at the end of 2008 compared to 180% in 2006. (Note: 
The improvement in debt to GDP ratio is a result of a 2008 growth 
estimate of 8.5% by the official Central Administration of 
Statistics, a figure which donor country representatives assessed as 
too high.  End note.) 
 
¶3. (SBU) Meanwhile, Fanizza said 2009 will be a difficult year 
because of the global crisis, projecting growth of 3-4%, with a 
primary surplus close to zero due to substantial pre-election 
spending.  The IMF mission also discussed contingency plans with the 
GOL to cope with domestic political developments, increased fiscal 
deficit, and the impact of the global crisis.  Fanizza said GOL 
achievements in macroeconomic stability were noteworthy, despite the 
lack of progress in underlying reforms.  Following June 
parliamentary elections, the Fund plans to discuss an IMF program 
with the new cabinet.  The mission will publish its report in six 
weeks. 
 
IRRIGATION BIGGEST 
CHALLENGE FOR FARMERS 
-------------------- 
 
¶4. (SBU) On February 24, visiting Foreign Agricultural Service 
Attach Julio Maldonado and Econ staff met with Acting Director 
General of the Ministry of Agriculture (MOA) Samir Chami for an 
overview of the agricultural sector in Lebanon.  Chami noted that 
agricultural production had suffered from high costs of production 
-- particularly in land and labor -- relative to neighboring 
countries, and a lack of proper irrigation systems, despite 
Lebanon's abundant water resources. 
 
¶5. (SBU) Chami noted that the sector would benefit from the 
establishment of an agricultural bank, the law for which has been 
place since 1980, although it has not been implemented.  Chami added 
that the MOA needed assistance in several other areas, including: 
establishment of a cooled storage facility in Beirut's international 
airport and a laboratory at the Beirut port to examine goods, 
 
BEIRUT 00000272  002 OF 002 
 
 
assistance in complying with international exporting standards, and 
advice in seeking new markets for Lebanese products. 
 
AGRICULTURAL EXPORTS 
DECREASE 
-------------------- 
 
¶6. (U) According to the Investment Development Authority of Lebanon 
(IDAL), agricultural exports under its Export Plus Program (covering 
98% of total agricultural exports) decreased by 5% to 446,778 tons 
in 2008, compared to a 27% increase in exports in 2007.  The Export 
Plus program, launched in 2001, seeks to increase exports by 
subsidizing transportation of certain agricultural goods and 
supervising quality and compliance with international standards. 
Lebanon's main export destination under the Export Plus program was 
Syria, with 21% of total exports, followed by Saudi Arabia (20%), 
and Kuwait (15%).  The main exported product was potatoes, followed 
by oranges, and apples. 
 
¶7. (SBU) Acting Director General of the Ministry of Agriculture 
Samir Chami told us on March 5 that the GOL decided to gradually 
stop the Export Plus Program.  Subsidies would decrease by 20% each 
year, so that in 2011, there would be no subsidies at all.  Chami, 
who attended Lebanon's sixth WTO Working Party meeting in Geneva 
last week, said that Lebanon was able to clarify most 
agricultural-related questions, but was surprised at the U.S.'s 
insistence on the immediate end of Export Plus before Lebanon 
accedes into the WTO. 
 
RECORD BALANCE OF 
PAYMENTS IN 2008 
------------------ 
 
¶8. (U) According to the Central Bank of Lebanon (CBL), Lebanon's 
balance of payments (BOP) posted a record cumulative surplus of $3.5 
billion in 2008, compared to a $2.04 billion surplus in 2007.  This 
was mainly due to a historical rise in CBL net foreign assets of 
$7.28 billion, compared to a decrease of net foreign assets of banks 
and financial institutions of $3.8 billion.  2008 net capital 
inflows reached $16.3 billion (an increase of 48.3% from 2007), 
offsetting the $12.6 billion trade deficit and leaving a surplus 
balance of payments. 
 
FISCAL DEFICIT UP 
BY 14.7% IN 2008 
----------------- 
 
¶9. (U) According to the Ministry of Finance (MOF), Lebanon's fiscal 
deficit rose by 14.7% to $2.9 billion in 2008.  The deficit 
represented 29.3% of total budget and Treasury expenditures, 
compared to 30.5% in 2007.  GOL has exceeded spending through 
treasury advances and spending outside the budget.  As a result, 
overall government expenditures rose by 19.2% in 2008, while total 
revenues increased by 21.2%. (Note: the GOL has not passed a budget 
for three consecutive years which should constrain spending.  End 
note.) 
 
10 (U) Meanwhile, debt servicing increased by 5.6% to $3.3 billion, 
or 44.9% of total expenditures and 33% of budgetary spending. 
Excluding debt servicing, the primary surplus reached $2.7 billion, 
compared to $1.97 billion in 2007. 
 
FPM SUPPORTS 
NEW REAL ESTATE 
ACQUISITION LAW 
-------------- 
 
¶11. (U) On March 4, Gibran Bassil, Minister of Telecommunication and 
member of the Free Patriotic Movement (FPM), expressed concern about 
increased real estate acquisition by non-Lebanese, a result of the 
absence of proper implementation of existing legislation and a lack 
of transparency.  Bassil discussed a new draft law -- submitted to 
parliament by his opposition party, the FPM -- to better regulate 
real estate acquisition by foreigners.  He stressed FPM support of 
foreign investments in Lebanon, arguing that a fair and transparent 
legal framework would attract more investments. 
 
SISON