VZCZCXRO7106
RR RUEHBC RUEHDE RUEHDH RUEHKUK RUEHROV
DE RUEHLB #0556/01 1381516
ZNR UUUUU ZZH
R 181516Z MAY 09
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC 4919
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RHEHAAA/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 BEIRUT 000556 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR NEA/ELA AND EEB/IFD/ODF 
STATE PASS USTR FRANCESCKI 
STATE PASS USAID LAUDATO/NANDY/SCOTT 
TREASURY FOR PARODI/BLEIWEISS/AHERN 
USDOC FOR 4520/ITA/MAC/ONE 
NSC FOR SHAPIRO/MCDERMOTT 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EAIR EIND PGOV KFLU LE
SUBJECT: LEBANON: TREASURY UNDER SECRETARY EXPRESSES PRAISE FOR 
BANKS PERFORMANCE AND CONCERNS ABOUT HIZBALLAH (ECONOMIC WEEK IN 
REVIEW, MAY 11 - 17, 2009) 
 
CONTENTS 
-------- 
 
-- TREASURY UNDER SECRETARY IN LEBANON 
-- FIRST QUARTER MACRO INDICATORS IMPROVE, EXCEPT PUBLIC DEBT 
-- UN FACT FINDING MISSION ON DIAMONDS VISITS BEIRUT 
-- LEBANON'S EASE IN PAYING TAXES UNCHANGED 
 
TREASURY UNDER 
SECRETARY EXPRESSES 
SUPPORT AND CONCERN 
-------------------- 
 
¶1. (U) Under Secretary of the Treasury for Terrorism and Financial 
Intelligence Stuart Levey visited Beirut on May 15.  He met with 
Minister of Finance Mohammad Chatah, the four Central Bank Vice 
Governors, Chairman of the Banking Control Commission Walid 
Alameddine, and members of the banking community to discuss a range 
of issues including Lebanon's role as a regional leader in 
anti-money laundering and countering the financing of terrorism. 
 
¶2. (SBU) During his meetings, Levey expressed appreciation for the 
resilience of Lebanon's banking system in the wider financial 
downturn.  He also expressed U.S. concerns about a May 13 article in 
the Financial Times in which Hizballah described its extensive 
support of Palestinian Hamas.  (Note:  Visit will be reported 
septel.  End note.) 
 
 
FIRST QUARTER MACRO 
INDICATORS IMPROVE, 
EXCEPT PUBLIC DEBT 
-------------------- 
 
¶3. (U) Central Bank of Lebanon (CBL) figures showed that Lebanon's 
balance of payments posted a surplus of $297 million in the first 
quarter of 2009, compared to a deficit of $241 million in the same 
period in 2008.  This surplus was mainly attributed to the 5.3% 
year-on-year increase in capital inflows, reaching $2.54 billion in 
the first quarter of 2009.  The trade deficit, although still high 
at $2.2 billion, represented a 14.6% decrease compared to the first 
quarter 2008. 
 
¶4. (U) Deposit dollarization reached a five-year low of 67.7% in the 
first quarter of 2009.  Leading Bank Audi economic research 
department noted that decline in dollarization of deposits has still 
not been matched with a decline on the lending side, as foreign 
currency loans account for 86% of total loans.  The CBL is working 
with the GOL to encourage commercial bank lending in Lebanese pounds 
to the private sector to stimulate economic growth. 
 
¶5. (U) Meanwhile, Lebanon's gross public debt continued to rise at 
the end of the first quarter, by 1.8% from end-2008 and 10.7% from 
end-March 2008, to reach $47.8 billion.  Domestic debt increased by 
22.7% to $26.5 billion, while external debt decreased by 1.2% to 
reach $21.3 billion. 
 
UN FACT FINDING MISSION 
ON DIAMONDS IN BEIRUT 
---------------------- 
 
¶6. (SBU) A UN group of experts on Cote d'Ivoire visited Lebanon May 
11-14 on a fact finding mission regarding the implementation of the 
Kimberly process in Lebanon, acting Director General and head of the 
Kimberly Process Office at the Ministry of Economy and Trade (MOET) 
Fouad Fleyfel told us.  The UN team's visit - its first to Beirut -- 
may be related to recent press reports about illicit diamond trade 
in Cote d'Ivoire involving Lebanese citizens residing in Cote 
d'Ivoire and elsewhere. 
 
¶7. (SBU) The UN team met with Fleyfel, head of Customs at Beirut's 
International Airport (BIA), the sole authorized entry for rough 
diamonds, large jewelry shop owners, and four rough diamond 
factories in the Greater Beirut area.  Fleyfel noted that in 2007 
and 2008 his office arrested two Lebanese for smuggling diamonds, 
and referred their cases to the courts. 
 
EASE IN PAYING TAXES 
 
BEIRUT 00000556  002 OF 002 
 
 
REMAINS UNCHANGED 
-------------------- 
 
¶8. (U) According to the World Bank/PricewaterHouseCoopers "Paying 
Taxes 2009" report, Lebanon ranked 45 out of 181 countries worldwide 
and 10 out of 18 MENA countries in terms of ease of paying taxes. 
This constitutes a drop compared to 2008, when Lebanon ranked 33 
worldwide and five regionally.  The report noted, however, that the 
change in ranking indicated improvement in other countries, rather 
than a decline in Lebanon's performance, which remained almost 
unchanged.  According to the report, a standard 19 tax-related 
transactions were paid in Lebanon each year and 180 hours per year 
were required to deal with such transactions.  Corporate tax reached 
12% and labor tax was at 24%. 
 
SISON