NEW MINISTERS TAKE OVER; TELECOM PRIVATIZATION ENDORSED

UNCLAS SECTION 01 OF 02 BEIRUT 001053 SENSITIVE SIPDIS STATE FOR NEA/ELA STATE PASS USTR TREASURY FOR MNUGENT AND SBLEIWEISS USDOC FOR 4520/ITA/MAC/ONE NSC FOR ABRAMS/SINGH/YERGER/DEMOPOLOUS E.O. 12958: N/A TAGS: ECON EFIN PREL PGOV LE SUBJECT: NEW MINISTERS TAKE OVER; TELECOM PRIVATIZATION ENDORSED (ECONOMIC WEEK IN REVIEW, JULY 14 - 20, 2008) CONTENTS -------------- -- MINISTERS FOCUS ON REFORMS, PRIVATIZATION, AND SOCIAL ISSUES -- GOL TO ISSUE EUROBONDS TO MEET AUGUST 2008 MATURING BONDS -- EUROPEAN COMMISSION: 42 MILLION EURO IN ASSISTANCE TO LEBANON IN 2008 -- TWO AMERICAN COMPANIES TO SUPPLY SECURITY EQUIPMENT FOR BEIRUT INTERNATIONAL AIRPORT -- SHORTAGE IN JET FUEL WILL NOT AFFECT AIRPORT TRAFFIC -- BUSINESS MONITOR INTERNATIONAL REVISES LEBANON'S ECONOMIC RISK RATING, INFLATION EXPECTED AT SIX PERCENT FOR 2008 -- USDOL-FUNDED PROJECT COMBATTING CHILD LABOR COMES TO AN END -- CAPITAL INTELLIGENCE FORECASTS FOUR PERCENT GROWTH IN 2008 -- WORLD BANK: LEBANON RANKS 82 GLOBALLY IN TERMS OF NOMINAL GDP FOR 2007 MINISTERS FOCUS ON REFORMS, PRIVATIZATION, AND SOCIAL ISSUES -------------- ¶1. (U) During the handover ceremony at the Ministry of Finance on July 15, newly appointed Minister Mohammad Chatah expressed his belief that Lebanon could witness nine percent GDP growth if the political and security situation were stable. Chatah pledged to continue reforms at the Ministry, and said he is committed not to use the Ministry's resources for political and electoral purposes. On the same day, newly appointed Hizballah Labor Minister Mohammad Fneish noted that the issue of minimum wages would have to be discussed by the Cabinet to secure the interests of both employees and employers. (Note: On May 6, the previous Cabinet had approved raising the minimum wage from $200 to $333. End Note.) Fneish also pledged to carry on with social security reforms. ¶2. (U) Meanwhile, on July 14, newly appointed Minister of Telecommunications Gebran Bassil expressed support for mobile privatization in complete transparency, ensuring the best service for citizens. Bassil indicated that his first priority would be to reduce mobile phone rates -- among the highest in the world -- and increase the number of subscribers, thus maintaining the high rate of telecom revenues that the GOL so heavily depends on. GOL TO ISSUE EUROBONDS TO MEET AUGUST 2008 MATURING BONDS -------------- ¶3. (SBU) The Ministry of Finance (MOF) is preparing for a new Eurobond issue to meet the GOL's August 2008 maturities, amounting to $750 million in principal repayment, entirely held by the banking sector. The MOF wants to take advantage of favorable market conditions and the drop in interest rates on sovereign Eurobonds in the secondary market between 0.5 percent and one percent. The GOL has already met over 80 percent of its sovereign maturities for this year. EUROPEAN COMMISSION: 42 MILLION EURO IN ASSISTANCE TO LEBANON IN 2008 -------------- ¶4. (U) The European Commission press release on July 17 indicated that the EU will provide a total of 42 million Euro in assistance in 2008 to Lebanon under its European Neighborhood Policy (ENP). The three priorities for EU assistance in 2008 are the reinforcement of the competitiveness of the Lebanese private sector (14 million Euro),support to local development in Northern Lebanon (18 million Euro),and the modernization of the Lebanese justice system (10 million Euro). TWO AMERICAN COMPANIES TO SUPPLY SECURITY EQUIPMENT FOR BEIRUT INTERNATIONAL AIRPORT -------------- ¶5. (U) U.S. firms Raspican and American Science and Engineering Incorporation were awarded a $15 million contract at the beginning of July to supply security equipment, including X-ray machines and metal detectors, to the Civil Aviation Authority at Beirut International Airport (BIA). The contract is funded by the International Civil Aviation Organization (ICAO). SHORTAGE IN JET FUEL WILL NOT AFFECT AIRPORT TRAFFIC BEIRUT 00001053 002 OF 002 -------------- ¶6. (SBU) The shortage in jet fuel quantities at Beirut International Airport (BIA) did not affect airport traffic as small quantities of jet fuel from Syria were imported via land, President of the Association of Petroleum Importing companies Bahij Abu Hamzeh told us on July 17. He explained that these quantities would be sufficient until Friday when a jet fuel tanker arrived and started unloading. Abu Hamzeh attributed the shortage to the delay in the tanker's arrival and increased demand at BIA due to increased airport traffic. BUSINESS MONITOR INTERNATIONAL REVISES LEBANON'S ECONOMIC RISK RATING, INFLATION EXPECTED AT SIX PERCENT FOR 2008 -------------- ¶7. (U) In the Business Monitor International's (BMI) latest business forecast report for the third quarter of 2008, Lebanon's short and long-term economic risk ratings were revised upwards, as Lebanon outperformed BMI's two percent growth forecast for 2008. In the BMI's business environment rating, Lebanon ranked 61 out of 130 global markets and 9 out of 14 regional markets. BMI cited the current unified political will in Lebanon to implement economic reforms and the potential for further external debt relief as the country's main economic opportunities for the remainder of the year. ¶8. (U) Meanwhile, Lebanon's main challenges included high inflation, brain drain, and reviving the tourism sector -- one of the main pillars of the economy. BMI estimated a 10.3 percent year-on-year inflation at end-March 2008, while a yearly inflation rate of six percent is expected at the end of 2008. USDOL-FUNDED PROJECT COMBATTING CHILD LABOR COMES TO AN END -------------- ¶9. (U) On July 9, a press conference was held to announce the end of the Alternatives to Combat Child Labor through Education and Sustainable Services in the Middle East and North Africa (ACCESS MENA) project, financed by USDOL and implemented in Lebanon in cooperation with Cooperative Housing Foundation (CHF) International, the Rene Mouawad Foundation (RMF),and AMIDEAST. The ACCESS MENA project began in 2004 and intended to target 4,500 children, with education interventions for children withdrawn and children at risk of engaging in exploitative labor, with specific focus on the need to expand access to girls' education. By the end of the project, over 8000 children had been targeted, far surpassing the initial target. CAPITAL INTELLIGENCE FORECASTS FOUR PERCENT GROWTH IN 2008 -------------- ¶10. (U) According to Capital Intelligence (CI) rating agency, Lebanon's economic growth is forecast at four percent for 2008, unchanged from 2007, while the fiscal deficit is expected to reach 10.5 percent of GDP in 2008, compared to 10.8 percent of GDP in ¶2007. CI also projected the current account deficit at 10.4 percent of GDP in 2008, compared to 10.7 percent of GDP in 2007, while public debt is expected at 167.8 percent of GDP at the end of 2008, down from 171 percent at the end of 2007. CI's revised outlook came in the positive aftermath of the Doha conference, although it warned that in the proposed national unity cabinet, opposition members may veto key policy issues. (Note: CI's report was issued before the formation of the Cabinet, as announced on July 11. End note.). WORLD BANK: LEBNON RANKS 82 GLOBALLY IN TERMS OF NOMINAL GDP FOR 2007 -------------- ¶11. (U) The World Bank ranked Lebanon 82 out of 185 countries worldwide, and 15 out of 18 MENA countries in terms of nominal GDP for 2007. Lebanon's nominal GDP was estimated at $24 billion in 2007, accounting for 1.4 percent of total GDP in the MENA region. GRANT