LEBANON: FINANCE MINISTER AZOUR SELLING A "NEW

C O N F I D E N T I A L SECTION 01 OF 03 BEIRUT 003408

SIPDIS

SIPDIS

NSC FOR ABRAMS/DORAN/MARCHESE/HARDING

E.O. 12958: DECL: 10/20/2016
TAGS: EINV PTER ECON LE
SUBJECT: LEBANON: FINANCE MINISTER AZOUR SELLING A "NEW
VISION"

Classified By: Charge d'Affaires Christopher Murray. Reason: Sections
1.4 (b) and (d).

SUMMARY
--------------


1. (C) Minister of Finance Jihad Azour on October 20 updated
visiting NEA DAS Danin, Charge, and econoff on GOL donor
conference preparations and obstacles to economic reform. He
hopes to overcome political apathy for reform -- particularly
among the March 14 coalition -- by convincing politicians
that their political fates are tied to improving social
indicators and winning the loyalty of all social groups.
Azour waxed at length about creating a "new vision" of a GOL
able to provide needed social services and address the needs
of all its citizens. End Summary.

PARIS III PLANNING NEARLY COMPLETE...
--------------


2. (C) Azour reported that GOL preparations for the January
Paris III donor conference are advanced, as the GOL has been
preparing continuously since the September Singapore Core
Economic Group meeting. Preparations included consultations
with the IMF and World Bank on economic assessments,
development of policy options and sectoral reform needs, and
a "social safety net meeting" with various GOL entities and
donors.


3. (C) Azour said he aims to get "the maximum" done before
the donor conference, using the impending Paris III meeting
to pressure politicians who, left to themselves, would take
"no action." He said that privatization and the passage of
laws to improve the business and political climate are top
priorities. Some early privatization results would be
evidence of political will and demonstrate that the reform
process is well established and "irreversible" so that any
political change would not affect progress. Azour is pushing
to accelerate passage of several draft laws in Parliament
through conversations with Speaker Nabih Berri.

...POLITICAL WILL HARDER TO ORGANIZE
--------------


4. (C) The lack of will for reform among the majority is a
greater obstacle than any challenges to reform from the
opposition, Azour admitted. With the economic plan sound and
the needed steps clear, Azour said he has shifted his
energies to selling the plan to various sectors and
stakeholders in the economy. He briefed an October 16
Cabinet session that focused on educating ministers about
pre- and post-war economic programs and GOL policy options.
Azour and Economy Minister Haddad next week will continue
their visits to March 14 group leaders to explain the need
for an economic reform program based on political as well as
economic imperatives. Political leaders are starting to
recognize that how they address socio-economic pressures will
affect their political fates, and they increasingly see
reform as important to their success over the next six
months. If in the medium term social indicators deteriorate,
March 14 politicians will be the first to suffer.
Ironically, he said, politicians are not looking at the
long-term effects of these issues, since in Lebanon, more
than anywhere else, the politicians are here to stay, drawing
indefinite personal loyalty from their traditional
constituencies whether or not they are in office at a given
time.


5. (C) Surprisingly, there are no longer major divergences
between the economic policies of the majority and the
opposition, Azour told us, as demonstrated by General Aoun's
speech last week in which he acknowledged Lebanon's economic
problems. Azour, in his visits to various leaders, has been
making the point that if March 14 and Hizballah leaders could
agree on PM Siniora's wartime seven-point plan to end the
war, they should be able to use the same concept to agree on
major economic reforms that are in the national interest. In
any event, Azour noted, March 14 has the majority it needs in
the Cabinet and Parliament to push through economic reforms.

OUTSIDE PRESSURE ON
POLITICIANS AND DONORS CAN HELP...
--------------


6. (C) Azour noted that his Arab, French, and British
colleagues have reached out to him over the last few weeks to

BEIRUT 00003408 002 OF 003


offer support. (Note: He said Jean-Pierre Jouyet, former
French Treasury Director General, appears to be organizing
Paris III. End Note.) Azour is in turn contacting Economic
Core Group members to discuss preparations for Paris III.
Senior IMF and World Bank figures have taken a personal
interest in Lebanon, and the third IMF delegation in two
months will arrive in Lebanon in early November to discuss
"policy issues." (Note: Azour did not mention the
possibility of a formal IMF program for Lebanon. End Note.)


7. (C) Azour said that additional U.S. reminders to March 14
politicians that economic reform is important for Lebanese
and regional security, and for them individually, would be
helpful. Politicians need to be reminded that they face a
great opportunity in Paris III, and that they will not be
able to get in six months the kind of support that they have
the chance to get today. "Time is of the essence." U.S.
pressure on potential donors to attend Paris III and show
support would also be useful, as a package endorsed by a
broad international community will be more readily accepted
in Lebanon than a packaged endorsed by the U.S. alone.

...BUT WHAT LEBANON
REALLY NEEDS IS A NEW VISION
--------------


8. (C) Azour said that the GOL needs a new vision to bring
people back to mainstream political dialogue and to create
hope for the future. Despite great successes in rebuilding
roads and restoring electricity and water, people are not
giving the GOL the credit it is due. Instead of trying to
compete with Hizballah's constant cash handouts and massive
self-promotion campaign, the GOL needs a new vision and a new
value system on which it can build a new political system.
This formulation and articulation of a new vision is
something that should have been done as soon as the March 14
coalition came to power, Azour opined. The GOL needs a
strategic vision including an economic model, a clear role
for Lebanon in the region, a vision of the social fabric, and
a clear plan for making the transition. Without those,
Lebanon risks backsliding like members of the former Soviet
Union whose populations rejected new governments without
clearly articulated or implemented programs to improve their
lives.


9. (C) Azaour argued that Lebanon also needs new politics and
a new communications strategy to convince citizens that the
GOL is working daily on issues that matter to them. A new
interpretation of the Taif Accord would be unproductive,
Azour said. Instead, the GOL needs a new way to engage its
citizens on social and economic issues, to mobilize people,
and to progressively instill new values. Many people feel an
allegiance to Hizballah because no other social welfare
system in Lebanon works as well as Hizballah's. But with a
new economic model, a new role for the state, a new vision to
channel people's energies, and a new social contract, the GOL
could make real progress. Communication alone is not enough,
Azour believes, and the GOL needs a strong new message to
relay, as well as a new communications strategy. While
Hizballah and its affiliate Jihad al-Bina have provided no
roads, power, or water--and in fact were responsible for
their destruction -- they have successfully publicized their
cash payouts with their "divine victory" publicity campaign.


10. (C) Such a new vision would inspire confidence, Azour
believes, which is key to economic recovery. Private sector
inflows were far greater than donor inflows after the Paris
II donor conference because the conference created new
confidence and new energy. Former Prime Minister Hariri's
programs in the early 1990's likewise created an atmosphere
of hope for a better Lebanon with a stronger regional
position and an opportunity for divided communities to unite
and focus on broader national goals.

STREMGTHENING THE STATE BY
IDENTIFYING AND PROVIDING FOR NEEDS
--------------


11. (C) Azour said that simply distributing cash in the south
would be ineffective, and the GOL needs to identify clearly
and deliver on the key concerns and needs of citizens in that
area. Compared to other regions, the south is financially
privileged in terms of national transfer mpayments, Azour
argued, yet people don't feel that the state is taking care
of them. The GOL has spent over USD 2 billion on
infrastructure in the south, and spends USD 70-90 million a

BEIRUT 00003408 003 OF 003


year on agricultural and other subsidies there, while losing
revenue by turning a blind eye to unpaid taxes and utility
bills. But these direct and indirect transfers do nothing to
build support for the GOL. There is no reason to ask
Hizballah to stop distributing cash, Azour opined. He
asserted that since they instigated all the damage they
should be paying out even more. Their patronage and
communications network would be no threat if they were
disarmed; in contrast the Maronite Church through its
Patriarchate has a larger cash and social work patronage
network and a more frequent communications system. Simply
paying more compensation would just encourage rent seeking
and weaken the state. Azour said that his why Lebanon needs
a new vision, a new social contract, and a new concept of GOL
provision of services.


12. (C) DAS Danin has cleared this message.
MURRAY