MGLE01: FM AZOUR DISCUSSES REFORM MEASURES AND

C O N F I D E N T I A L BEIRUT 002067 SIPDIS SIPDIS STATE PASS USTR NSC FOR ABRAMS/DORAN/WERNER/SINGH E.O. 12958: DECL: 06/20/2016 TAGS: EFIN ECON EINV LE SUBJECT: MGLE01: FM AZOUR DISCUSSES REFORM MEASURES AND SA'AD HARIRI'S ECONOMIC VIEWS REF: BEIRUT 1964 Classified By: Ambassador Jeffrey Feltman. Reason: Sections 1.4 (b) a nd (d). ¶1. (C) Summary. During a June 20 meeting with the Ambassador and Econ/Commercial Officer, Finance Minister Azour discussed the GOL's recent economic reform work and a recent economic meeting among PM Siniora, Azour, Economy and Trade Minister Haddad, and Future Movement leader Sa'ad Hariri. Azour said that the GOL was working on studies to determine the social impact of raising the value added tax (VAT) and freeing gasoline prices. Azour told the Ambassador that Sa'ad Hariri was interested in creating a "new energy" through several mega-development project, but he assured the Ambassador that the projects would be "complementary" with the economic reform agenda and be funded by the private sector. He added that Sa'ad Hariri was now firmly convinced that both the fiscal component of the reform agenda and the need for International Monetary Fund (IMF) involvement were essential. PM Siniora, Azour and Haddad told Sa'ad Hariri that they were willing to "pay the price" for any negative reaction to fiscal adjustments and that it was in Sa'ad Hariri's self-interest to have difficult economic decisions out of the way before presidential and parliamentary elections in the following three years. Azour said that economic meetings with Free Patriotic Movement leader Aoun had gone smoothly "economically speaking". Azour attributed Aoun's current criticism of the economic reform agenda to his desire to have short-term political gains. Azour also told the Ambassador that he was excited about the possibility of a visit to Lebanon by Treasury U/S Adams. End Summary. GOL WORKING ON SOCIAL IMPACT OF PROPOSED REFORMS -------------- ¶2. (C) Azour told the Ambassador that the GOL was working on impact analyses of the social component of the economic reform agenda. Specifically, the Ministry of Finance was looking at how both the proposed increase in the value added tax (VAT) and the freeing of gasoline prices would affect various income groups. The analysis on gasoline prices would include new public policies on public transport. When the Ambassador asked Azour when the economic program would be published, Azour said that the program would be published soon, after a series of meetings with Sa'ad Hariri. He noted that he would like to see the program published as soon as possible. SA'AD HARIRI'S MEGA-PROJECTS TO COMPLEMENT ECONOMIC REFORMS -------------- ¶3. (C) PM Siniora, Azour, and Haddad recently discussed the economic reform agenda with Sa'ad Hariri in a series of meetings. According to Azour, Sa'ad Hariri has changed his views on the role of the International Monetary Fund in assisting Lebanon and now agrees that the role of the IMF is critical in gaining needed investment and injecting needed fiscal discipline into the system. When the Ambassador asked Azour about Sa'ad Hariri's plans to create several new massive economic development projects (reftel),Azour said that Sa'ad was interested in creating a "new energy" through several mega-development projects, but he assured the Ambassador that Sa'ad was now convinced that the fiscal component of the reform agenda was essential. According to Azour, after their lengthy session discussing fiscal measures and debt issues, Sa'ad Hariri understood the reasons why the GOL needs new revenue measures. The mega-projects, Azour insisted, will be financed by the private sector and be discussed in parallel with the economic package, not as a part of it. ¶4. (C) Azour said that he and Haddad had told Sa'ad bluntly that there was no way the GOL could avoid a strong fiscal package and the GOL could not count on tens of billions of dollars in assistance. PM Siniora, Haddad, and Azour told Sa'ad Hariri that they were willing to "pay the price" of the tough decisions needed to implement economic reform and that it was in Sa'ad Hariri's interest to have economic adjustment issues out of the way before presidential and parliamentary elections in the following three years. GOL ECONOMIC TEAM CONTINUING DIALOGUE WITH AOUN -------------- ¶5. (C) Azour told the Ambassador that increased communication among PM Siniora, Haddad, himself and various political leaders had cleared up many "miscommunications". He cited the positive meeting that he had with Druze leader Walid Jumblatt over the reform plan. When the Ambassador asked if meetings with Aoun had gone as smoothly, Azour said that meetings with Aoun had gone very well "economically speaking." Azour said that both Aoun and Sa'ad have strong support from the middle class of Lebanon and their economic views do not diverge significantly. According to Azour, Aoun's current criticism of the GOL is not economically motivated and has more to do with Aoun's possible short-term gains from criticizing the government. Azour said that the GOL will continue to have a dialogue with members of Aoun's economic team in order to understand Aoun's concerns and process of thinking. ¶6. (C) Azour also told the Ambassador that he was excited that Treasury U/S Adams wanted to come to Lebanon, and he was eager to work with the Embassy on finding the appropriate time for a visit. The Ambassador agreed that it would be good sign of U.S.-Lebanese cooperation to host U/S Adams in Lebanon. COMMENT -------------- ¶7. (C) Separately, Minister of Telecommunications Marwan Hamadeh and Hariri advisor Ghattas Khoury reinforced Azour's message to the Ambassador, that Sa'ad Hariri's focus on glittering, high-profile mega-projects will not come at the expense of the fiscal reform measures. The IMF is paying another visit to Lebanon in June. Azour et al. need to make sure that the IMF concurs with the assessment that these proposed projects will not steer Lebanon in the wrong direction, away from the needed serious, structural reforms. FELTMAN