LEBANESE ECONOMY MINISTER: AG AND FUEL SUBSIDIES

C O N F I D E N T I A L SECTION 01 OF 03 BEIRUT 003231

SIPDIS

SIPDIS

NSC FOR ABRAMS/DORAN/MARCHESE/SINGH
STATE PASS USTR
TREASURY FOR MNUGENT AND CDOWNARD

E.O. 12958: DECL: 10/05/2016
TAGS: PGOV PREL PTER KCRM ECON LE SY
SUBJECT: LEBANESE ECONOMY MINISTER: AG AND FUEL SUBSIDIES
OUT, PRIVATIZATION, TRADE AGREEMENTS AND BEIRUT I ON TRACK

Classified By: Ambassador Jeffrey D. Feltman. Reason Sections 1.4 (b)
and (d).

SUMMARY
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1. (C) Minister of Economy and Trade (MOET) Sami Haddad
summarized on October 5 for the Ambassador and econoff his
attempts to phase out GOL agricultural subsidies, revive the
TIFA and WTO accession, and move forward on Lebanon's social
reform agenda. The Beirut I donor conference is likely to
proceed on schedule in late November. Haddad is working to
facilitate GOL attempts to privatize the telecom sector in
the short term. Extravagant direct aid from Qatar to rebuild
housing is harming the GOL's image and its efforts to ensure
equity in reconstruction aid. Lebanon needs to create a job
growth engine, perhaps along the lines of an industrial zone,
in the south to promote stability. Finally, Haddad told us
that with the drop in world oil prices, the GOL is once again
collecting excise taxes on fuel. End Summary.

PHASING OUT AG SUBSIDIES
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2. (C) Haddad announced to the Ambassador that he sees GOL
wheat and sugar beet subsidies being phased out as farmers
pick up on market signals. He expects wheat ad beet yields
to have decreased by at least one tird this year as farmers
move out of cultivationof these crops. He is shifting
MOET's emphasis from subsidization to promotion of
alternative crops. Tobacco subsidies, which are administered
through the Ministry of Finance (MOF),and additional
programs administered through the Ministry of Social Affairs
(MSA),remain in force. A special committee will meet
October 6 with Embassy and MOET participation to plan aid
programs to be carried out with the funding from the U.S.
emergency wheat shipment that arrived during the conflict.

MOVING FORWARD WITH TIFA, OPIC;
WTO ACCESSION FACES OBSTACLES
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3. (C) Haddad raised the topic of the Trade and Investment
Framework Agreement (TIFA). He has obtained Ministry of
Finance approval and is now awaiting the sign-off of the
Ministry of Foreign Affairs (MFA). He will speak to the PM
this weekend to ask whether he has the authority to sign a
TIFA into force or whether he needs formal Cabinet approval,
and then will contact the Embassy to determine what is the
best date and venue for signing. Haddad also agreed to
examine the 1981 OPIC agreement with the GOL and will take up
with the PM the issue of how to modernize the agreement, such
as removing the requirement of GOL approval for individual
projects.


4. (C) WTO accession faces considerably more obstacles,
Haddad's trade advisor explained, despite progress made by
the GOL before the recent conflict in reducing trade
distorting subsidies, exchanging information with the WTO
Secretariat, and engaging U.S. representatives at the WTO

SIPDIS
headquarters in Geneva. Since the conflict, the GOL faces
new resistance, especially from the agricultural sector, and
may have to request a longer transition period. Econoff will
follow up with the MOET to pursue additional details of how
the crisis has affected the accession process.

FACING MINISTRY OF HEALTH RESISTANCE
ON IPR AND SOCIAL REFORM AGENDA
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5. (C) IPR and pharmaceutical issues were also on Haddad's
agenda. The GOL has not yet replied to a U.S.-French-EU
letter on this topic because Minister of Health Khalifeh
opposes the elements proposed for IPR protection for foreign
pharmaceutical companies. Haddad argued that Khalifeh is
also the main obstacle to a broader MOET and Ministry of
Social Affairs reform agenda to address Lebanon's low social
indicators in such areas as maternal and child mortality and
education, even though these are areas that presumably would
benefit the Health Minister's Shia constituents. Instead,
Khalifeh is promoting a prohibitively expensive "universal
health card" program, which he may present in a forthcoming

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Cabinet meeting.

SEEKING INDUSTRIAL ZONES TO
SHRINK ECONOMIC DISPARITIES
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6. (C) Regarding a recent Arab-American private sector
delegation to Lebanon and its suggestion to create an
investment zone in the south, Haddad said the MOET would like
to work on a project that encouraged job creation and
increased investment in the south and possibly the north as
well to encourage business-friendly legal reforms, economic
development and increased social stability.

BEIRUT I DONOR CONFERENCE PLANNING
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7. (C) One of Haddad's advisors is participating in Finance
Minister Azour's team of 20 working on planning for Beirut I.
Haddad reported that the working group has already begun
meeting. Haddad expressed frustration that he had been
unable, despite pressing, to obtain a firm date for the
planned Beirut I donor conference from his GOL colleagues or
Saad Hariri. While he has heard that 30 November is being
considered, he has also heard that an Iraq Donors Conference
has already been scheduled for 30 November, creating a
conflict for certain World Bank and IMF employees who will be
expected to attend both meetings. (Note: World Bank
representatives noted this same conflict on the Nobvember 30
date during an informal meeting with donors on October 5.
End Note.)


8. (C) On a more positive note, Haddad expressed pleasure
that so many upcoming conferences will focus on Lebanon. An
October 17 Arab League Economic and Social Council
extraordinary session in Beirut is planned to focus on
opening Arab markets to Lebanese products. A November 7-8
Arab Bank Union meeting and a November 23 private sector
conference are also planned in Beirut to promote
reconstruction and private sector investment.


9. (C) Before the recent war, the GOL had hoped to collect
USD 5 billion in soft loans at its planned donor conference.
Today, Haddad said, it hopes to collect at least that figure
in soft loans and significant additional grants. Lebanon has
already received at least USD 1 billion in grants, including
USD 500 million from the Saudis.

RECONSTRUCTION PROGRESSING
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10. (C) Arab countries have taken care of housing
reconstruction, Haddad said, and the GOL has taken care of
infrastructure repairs with foreign donor help. Now the
Finance Ministry is working on a "rescue package" for the
private sector that uses financial incentives and indirect
subsidies rather than grants. Haddad warmly received the
Ambassador's suggestion that the GOL extend some of the
measures it introduced during the conflict to cut red tape
for local businesses, but deferred to Finance and Customs for
implementation.


11. (C) On a negative note, Haddad claimed that Qatar has
refused to disburse its aid through the GOL or to follow GOL
guidelines in compensating for destroyed housing. This,
Haddad said, is making the GOL look bad and harming GOL
efforts to ensure fair payouts and transparent compensation.
Qatar is also paying too much for each house that was
destroyed, in comparison to GOL efforts to establish strict
guidelines for replacing each brick and pane of glass
damaged; this embarrasses the GOL and is a waste of donor
money that could be better spent elsewhere. Haddad also
acknowledged that what he described as the "gold-plated
houses" Qatar was building embarrassed other donors,
especially Saudi Arabia: the Saudis were paying for
reconstruction of villages nearby those adopted by Qatar. As
the Saudis are sticking strictly to GOL guidelines, the
Saudis look cheap by comparison to the Qataris.

PUSHING FORWARD ON PRIVATIZATION PLANNING
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12. (C) More encouraging was Haddad's news that the Prime
Minister's Office called an ad hoc meeting of the Higher
Privatization Council to give a mandate to Citibank and
JPMorgan Chase to provide advisory services for the planned
privatization of Lebanon's two cellular providers. The
remaining obstacle to this privatization is the approval of a
slate of recommendations for the telecom regulatory board.
Haddad told us that Minister of Telecommunications Marwan
Hamadeh said the candidates for the board have already been
vetted, but the list has not yet been submitted to the
cabinet and apparently President Lahoud objects to some of
the names. The Ambassador pressed Haddad on whether the
decision to hire investment banks as advisors indicated that
the cabinet has now definitively approved telecom
privatization. Haddad, after some evasive comments,
eventually acknowledged that he was not certain.

FUEL TAXES -- SOME POSITIVE NEWS
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13. (SBU) In another positive development, Haddad noted that
since oil prices have dropped, but fixed fuel prices remain
in effect, the GOL is collecting an excise tax from fuel
sales, rather than paying out an effective subsidy, for the
first time since early 2006.
FELTMAN