HADDAD, AZOUR CONVINCED SYRIA WANTS RIAD SALAMEH

S E C R E T SECTION 01 OF 04 BEIRUT 000794

SIPDIS

SIPDIS

NEA FOR ABRAMS/SINGH/MARCHESE/HARDING

E.O. 12958: DECL: 06/01/2027
TAGS: PREL KDEM PGOV LE SY
SUBJECT: HADDAD, AZOUR CONVINCED SYRIA WANTS RIAD SALAMEH
AS LEBANON'S NEXT PRESIDENT

REF: BEIRUT 789

Classified By: Jeffrey Feltman, Ambassador, per 1.4 (b) and (d).

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


1. (S) After shooing out their staff members and Embassy
notetaker after a lengthy meeting on economic and financial
matters (reftel),Minister of Finance Jihad Azour and
Minister of Economy and Trade Sami Haddad told the Ambassador
on 6/1 that they were deeply concerned about the "charm
offensive" that Central Bank Governor Riad Salameh has
initiated with the United States, France, and others.
Salameh, they argued, is the banker version of Emile Lahoud,
Lebanon's unabashedly pro-Syrian president, and has emerged
as the favorite candidate of Syria and Hizballah to replace
Lahoud in autumn elections. Like Lahoud's previous
reputation as having saved the Lebanese army, Salameh is
credited with saving Lebanon's financial sector. But, in
fact, there are so many skeletons in Salameh's closet that
Syria will easily control him. Syria's aim, Azour and Haddad
argued, is to take Lebanon to a crossroads, by which chaos is
ahead in one direction and a Riad Salameh presidency in the
other. Speaking separately, Mohamad Chatah, senior advisor
to PM Siniora, said that he, too, found Salameh
untrustworthy. If Siniora would veto just one presidential
candidate, Chatah said, it would be Salameh, for his role in
a 2004 debt swap that allied him with Lahoud and in
opposition to his long-term mentor Rafiq Hariri. But Chatah,
while opposed to Salameh's presidential bid, did not believe
that a Salameh presidency would be as disastrous as that
described by Azour and Haddad. Chatah counted on Maronite
Patriarch Sfeir's known distaste for Salameh as reducing his
chances to ascend to Baabda Palace. End summary.

SALAMEH PROJECTS BLANDNESS
TO AVOID VETO ON CANDIDACY
--------------


2. (S) On 6/1, after the conclusion of a broader discussion
(reftel),Minister of Finance Jihad Azour and Minister of
Economy and Trade Sami Haddad met the Ambassador to talk
politics for an additional 45 minutes. Interrupting and
finishing each other's sentences as if they were an old
married couple, the two economic ministers (who within the
cabinet are the closest in spirit and relations to PM Fouad
Siniora) wanted to sound the alarm about Central Bank of
Lebanon (CBL) Governor Riad Salameh's presidential bid. They
expressed particular concern about Salameh's recent trip to
Washington, which Salameh had not announced in advance to his
Lebanese colleagues. Azour and Haddad, referring to former
French President Jacques Chirac's highlighting of Salameh's
role during Paris III, argued that Salameh is on a "charm
offensive" far and wide. Even if his discussions in
Washington were technical in nature -- as the Ambassador
argued -- Salameh's strategy is clear, Haddad said: to make
sure that he is thought of favorably enough that no one would
veto his candidacy. Salameh emphasizes his blandness to
avoid being seen as objectionable to anyone, Haddad said.

SALAMEH IS SYRIA'S CANDIDATE,
AZOUR AND HADDAD ARGUE
--------------


3. (S) Azour and Haddad stated their belief that Salameh is
the actual presidential preference of Hizballah and Syria.
While Syria and Hizballah will toy with Michel Aoun in order
to divide the Christians, in the end Aoun will be deemed
untrustworthy. Aoun will be traded away in favor of Salameh,
and March 14 leaders will believe they got a victory by
avoiding an Aoun presidency. In fact, they will have fallen
into a trap. If March 14 leaders hesitate or resist going
for Salameh, then Syria will destabilize the country to the
point where Lebanese leaders find themselves at a crossroads:
one direction leads to chaos, and the other to a Riad
Salameh presidency. Faced with that choice, the parliament
will elect Salameh.

WHAT LAHOUD WAS TO THE ARMY,
AZOUR IS TO FINANCIAL CIRCLES
--------------


4. (S) While questioning their stark conclusions, the

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Ambassador asked whether a Salameh presidency would really be
so bad. After all, during the first half of 2005, when
Lebanon had no effective cabinet in the aftermath of Rafiq
Hariri's murder, Salameh had almost single-handedly prevented
a financial meltdown. He has a very good reputation among
bankers and business leaders that can be used to good effect,
as was proven at Paris III. Azour and Haddad accused the
Ambassador of having been seduced by Salameh's propaganda.
Salameh is the financial sector equivalent of Emile Lahoud,
they claimed. In 1998, Emile Lahoud was touted as the savior
of the army, someone who had been able to bring back a
unified force after the devastation of the civil war. He was
elected ostensibly in his savior role. Now, Salameh is
described as the savior of the banking and financial sector.
Once he is in office, he will prove to be just as pro-Syrian
as Lahoud. Maybe his words won't be as offensive as
Lahoud's, but he will be a very safe choice for Syria.

SYRIA'S TOOL TO CONTROL
SALAMEH: BLACKMAIL
--------------


5. (S) Azour and Haddad claimed that Salameh has so many
skeletons in his closet that the Syrians will be able to
threaten blackmail to keep him on a very tight leash.
Exhibit A is Bank al-Medina, with Salameh being the principal
backer of the original cover-up. Then there is the
questionable way the Central Bank is run, with far less
transparency and many more questionable practices than
Salameh's stellar reputation would have one believe. Just
wait until the IMF, under the EPCA, figures out what is
really going on in the CBL, Haddad warned. Salameh's
continued excuses to avoid selling off inappropriate
commercial assets (Middle East Airlines, Intra, etc.) is also
suspicious.



6. (S) Haddad (the more excitable of the two ministers)
then launched into an attack on the good press Salameh
receives from the pro-Syrian newspaper ad-Diyyar: the fact
that ad-Diyyar loves Salameh "should tell us something,"
Haddad said. What it tells us, he continued, is that the
rumors are probably true that Salameh has given a credit line
at the Casino du Liban (in which the Central Bank, through
Intra, has a stake) to Charles Ayyoub, the gambling addict
who heads ad-Diyyar, to assure good press. Salameh's
personal life also gives the Syrians blackmail material, they
claimed, hinting that the much-rumored closeted homosexual
relationship between Salameh and MEA Chairman Mohamed al-Hout
is true and not Salameh's only extramarital dalliance. "You
know the story about Ramzi?" Haddad asked, in reference to an
oft-repeated (but uncomfirmable) rumor that the Syrian
military authorities used to keep Salameh in line by phoning
him and calling him "Ramzi," the name of his male paramour
and driver at the time.

SALAMEH'S DEBT SWAP:
BETRAYAL OF HARIRI
--------------


7. (S) The Ambassador noted that Rafiq Hariri's widow Nazek
seems to like Salameh, which would seem to argue that he's
not as pro-Syrian as Azour and Haddad suggest. Azour and
Haddad admitted being mystified by the Widow Hariri's
preference, given that Salameh (in Haddad's words) "betrayed"
Hariri less than a year before his murder. The betrayal
allegedly came in the form of a debt swap deal worked out
behind Hariri's back between Salameh, Emile Lahoud, and
Lebanon's commercial banks in spring 2004. Hariri, knowing
that parliamentary elections were approaching at about the
same time as some debt came due, wanted to demonstrate his
financial magic in saving Lebanon from a financial crisis.
(Separately, Marwan Hamadeh told us that Hariri also saw the
maturities as a political tool to threaten against Lahoud's
presidential extension.) Salameh basically beat Hariri at
his own game through an early debt swap that he announced
publicly.


8. (C) In contrast to those who applaud Salameh's 2004 debt
swap, Azour argued that the debt swap cost Lebanon millions
in penalties for early pay offs and higher interest rates
than those Hariri would have obtained through his personal
touch. Haddad had an even darker interpretation: that the
debt swaps, by removing the sword of maturities over Lebanon

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in the first half of 2005, actually permitted the Syrians to
kill Hariri in the knowledge that Lebanon's economy, linked
to Syria's, would not collapse under the shock of the Hariri
assassination.


9. (S) The Ambassador noted that Azour and Haddad were in
part reflecting the distaste PM Siniora has for Salameh.
But, the Ambassador added, Siniora is most likely not going
to be prime minister when a new president takes office. When
the presidential elections trigger a new cabinet, Saad Hariri
is likely to take the premiership. So that means that the
personal relationship between president and prime minister,
so bad between Lahoud and Hariri and now between Lahoud and
Siniora, might improve. Azour and Haddad agreed but
suggested that Hariri's ambitions to become PM make it even
more critical that Salameh not be permitted to ascend to
Baabda: whereas Siniora, who has battled Salameh for years,
might be able to check some of Salameh's worst proposals, the
less experienced Hariri will be more easily tricked.

SINIORA WOULD VETO SALAMEH --
AS WOULD PATRIARCH, CHATAH SAYS
--------------


10. (S) On June 2, the Ambassador compared notes with
Mohamad Chatah, Siniora's senior advisor. Like Azour and
Haddad, Chatah was curious about Salameh's Washington
excursion. Chatah said that he, too, hoped Salameh would not
become president. "Can you really trust him?" he asked,
talking about how he "switched sides" from Hariri to Lahoud.
Chatah mused that, if Siniora were to be given a single veto
over all presidential candidates, he would use it against
Salameh because of the debt swap deal. But, Chatah
concluded, if the choice is between chaos and Salameh, then
it is certainly better to go for Salameh. "He's bad, but
he's not as bad as Lahoud," Chatah concluded. He also noted
that it is commonly accepted that Maronite Patriarch Sfeir
dislikes Salameh and could thus be expected to intervene to
prevent a Salameh presidency. Chatah laughed that at least
Siniora and Sfeir agree on one thing: no Salameh presidency.


COMMENT
--------------


11. (S) Whether or not it is truly due to a Syrian plot, we
think Salameh's candidacy is indeed serious. The banking and
business community already favors him, and he is frequently
mentioned as a likely "compromise" candidate between March 14
and March 8 political blocs. While Azour -- unlike the
firebrand Haddad -- never veered from polite language
appropriate for gentile grandmothers, there was more than a
hint of viciousness in Azour and Haddad's attacks on the
Governor. We note that they are hardly disinterested parties
making neutral observations; they are partisans of Fouad
Siniora, who despises Salameh for a lot of historic and
personal reasons. Moreover, Azour has a relative -- Jean
Obeid -- with presidential ambitions himself. Finally, Azour
and Haddad no doubt harbor deep grudges against Salameh
themselves. In dragging his feet on issues such as the
privatization of MEA ("what other Central Bank runs an
airline?" Haddad asked in exasperation),Salameh has done
more than probably any other single person to slow or even
derail Azour and Haddad's reform agenda. (We note that
Salameh's vow to sell 25 percent of MEA is most likely simply
a ploy to avoid having to divest the entire airline, the
route Azour, Haddad, and Siniora advocate.)


12. (S) Salameh has indeed performed some miraculous
financial engineering over the years that probably would
raise the eyebrows of IMF monitors and other central bankers,
but his measures had the virtue (some would say vice) of
enabling Lebanon, so far, to defy financial gravity. And it
is hardly fair to blame Salameh for collusion with the Syrian
regime during the Syrian occupation of Lebanon, as most of
our favorite March 14 leaders did exactly the same at the
time (as Michel Aoun so delights in reminding us). Still,
for all of his professional savvy, there is something
inherently elusive and slippery about Salameh. As
forthcoming as he postures himself in meetings, one always
has the sense that he is keeping more back than he is
sharing. If we are asked who do we trust more -- Siniora,
Azour, and Haddad on the one side, or Salameh on the other --
we immediately side with the Siniora team. Even his 2005

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renewal as Central Bank Governor has a whiff of illegitimacy:
his term expired at the end of July that year, meaning that
the cabinet that emerging from the 2005 democratic
legislative elections had time to deal with the question.
But then-PM Najib Mikati's cabinet rushed the renewal months
in advance, leaving incoming PM Siniora with a fait accompli.



13. (S) What concerns us the most are the allegations that
appear to be credible that Salameh has continued to travel to
Damascus. Supposedly, his modus operandi is to go to Europe
or elsewhere in the region and then disappear for a few hours
or a day, on private chartered plane to and from Syria; such
travel is harder to detect than a direct trip from Beirut to
Damascus. This seems to be true. In addition, UN Special
Coordinator for Lebanon Geir Pedersen (please protect) has
told us tha this Hizballah contacts speak glowingly of
Salameh. All of this makes us very uncomfortable with the
idea of a Salameh presidency. Lebanon could do worse -- as
it is now, under Lahoud -- but we hope it does much better.
We repeat here a line, perhaps apocryphal, attributed to the
Patriarch: Since everyone says Salameh is doing such a great
job at the Central Bank, why move him?
FELTMAN