MGLE01: SPECIAL CABINET SESSION DISCUSSES

UNCLAS BEIRUT 001086

SIPDIS

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR
TREASURY FOR MSHWARZMAN
USDOC FOR 4250/ITA/MAC/OME
NSC FOR ABRAMS/DORAN/WERNER/SINGH

E.O. 12958: N/A
TAGS: PGOV ECON EFIN LE
SUBJECT: MGLE01: SPECIAL CABINET SESSION DISCUSSES
ECONOMIC REFORM AGENDA



1. Summary: The GOL's economic reform agenda was presented
before the full Cabinet for the first time during a special
session on April 5. President Lahoud chaired the session
where both Finance Minister Azour and Economy Minister Haddad
made Power Point presentations outlining the GOL's reform
agenda. The session was notably calm in contrast to the
acrimony present at the Cabinet session on March 30. Prime
Minister Siniora stated that the special Cabinet session was
the first in a series of meetings for economic stakeholders
and Cabinet members that would discuss elements of the GOL's
economic reform agenda "one by one." The GOL has scheduled a
special Cabinet session for April 11 to discuss the social
security fund; another special session later that week may
take up electricity reform. PM Siniora said he would soon
engage labor unions on economic reform. Information Minister
Aridi told the press after the meeting that the reform agenda
would be discussed during weekly special sessions until a
consensus is reached among Lebanon's political and economic
leaders. Four ministers out of the 24-member cabinet were
absent: Minister of Defense Murr (abroad for medical
treatment),Minister of Transportation Safadi, Minister of
Justice Rizk (abroad),and Minister of Tourism Sarkis
(boycotting because of Lahoud's presence). End Summary.


2. Finance Minister Jihad Azour introduced the program as a
"passport for the Beirut I conference" that would allow the
Lebanese economy to "stand on its feet again." According to
Azour, the program has four parts: achieving economic growth
of at least five percent, providing a social safety net,
dealing with the economic problems burdening the citizens,
and revenue measures including taxes. While responding to
criticism over the possibility of higher taxes, Azour
defended the need to reduce the deficit through lower public
expenditures and increased revenues. He told the Cabinet
members that tax increases would be subject to discussion,
saying that if the chronic problems and corruption facing the
power company Electricite du Liban were dealt with, Lebanon
would not need to raise future taxes. PM Siniora also told
Cabinet members that the current plan was "subject to
alteration," as he responded to criticism over tax increases.
Azour emphasized the need to have "consensus over the reform
program" from all political leaders.


3. President Lahoud entered the meeting calmly and shook
hands with all the ministers who were present, including
Interior Minister Fatfat, who visibly sparred with President
Lahoud at the March 30 Cabinet session. He stated that the
current reform document has "more titles than details" at
this point. He told the press that he would support any
economic reform program that "guarantees" the best interests
of Lebanon. He also told press sources that he was concerned
about criticism of the program and would listen to all
ministers' points of view with "an open mind."


4. Three Shia ministers were vocally skeptical of the
program presentation. Health Minister Khalifeh described the
reform document as "very vague" and said "the only thing
clear in this program is the tax increases." Khalifeh also
expressed concern over the lack of a tangible safety net in
the program. Labor Minister Trad Hamadeh told the press he
had concerns that the philosophy of the program was based on
liberal, Western economic textbooks. Energy Minister (and
Hizballah member) Mohamd Fneish said the program contained
both "positive and negative aspects."


5. COMMENT. The fact that the Cabinet is now discussing the
economic reform agenda in a calm manner is a positive
development, and the marketing of the reform agenda should
become more pronounced as economic issues are increasingly
becoming part of the national debate. The Prime Minister and
his economic team need to continue to press the virtues of
fiscal responsibility, even though the proposed tax increases
are widely unpopular with the public, members of the business
community, and several Cabinet members. END COMMENT.
FELTMAN