LEBANON: ECONOMISTS LET DOWN BY MINISTERIAL POLICY

UNCLAS SECTION 01 OF 03 BEIRUT 001176

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/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: ECONOMISTS LET DOWN BY MINISTERIAL POLICY
STATEMENT (ECONOMIC WEEK IN REVIEW, AUGUST 4 - 10, 2008)

CONTENTS
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-- ECONOMISTS LET DOWN BY MINISTERIAL POLICY STATEMENT; CABINET WILL
MOSTLY FOCUS ON 2009 PARLIAMENTARY ELECTIONS
-- EGYPT WILL SUPPLY LEBANON WITH 200 MEGAWATTS OF ELECTRICITY
-- S&P RAISES LEBANON'S LONG-TERM SOVERIGN CREDIT RATING
-- WTO MULTILATERAL NEGOTIATIONS MOVING FORWARD; PROBLEMS REMAIN
BILATERALLY
-- MINISTRY OF HEALTH LAUNCHES CAMPAIGN TO COMBAT COUNTERFEIT DRUGS
-- IPR TRAINEES REQUEST ASSISTANCE IN PREPARING TO JOIN MADRID
PROTOCOL
-- LEBANON AND IRAN SIGN GRANT AGREEMENT TO REHABILITATE SOUTHERN
ROAD
-- CENTRAL BANK GOVERNOR PROJECTS FIVE PERCENT GROWTH IN 2008
-- WORLD BANK: COST OF ENVIRONMENT DEGRADATION FOLLOWING THE JULY
2006 WAR AROUND $729 MILLION

ECONOMISTS LET DOWN BY MINISTERIAL POLICY STATEMENT;
CABINET WILL MOSTLY FOCUS ON 2009 PARLIAMENTARY ELECTIONS
--------------


1. (SBU) Prominent financial economist Dr. Charbel Nahas told us on
August 6 that the ministerial statement came "far below what it
should have been." He said that "this cabinet has a unique
opportunity as all the political parties are represented in the
cabinet; thus actions can be quickly endorsed in parliament.
Unfortunately, the statement did not list specific actions to be
implemented to build on the momentum politically and
institutionally," he remarked. The statement addressed social
issues, such as health coverage and pension scheme very vaguely,
although all political parties had unanimously agreed on these two
major economic issues at the EU-hosted meeting in Beirut on April
21-22, 2008, he said. He also pointed out that the Statement should
reflect the need to update the Paris III document to indicate what
the GOL plans to do. The previous government took actions opposite
to what it had pledged in the Paris III document, such as
reinstating the wheat subsidy and subsidizing gas and gasoil prices,
he noted.


2. (SBU) Economic consultant Dr. Louis Hobeika told us on August 6
that this cabinet is "mostly a cabinet to prepare for parliamentary
elections." He believes that on the economic front, the cabinet
will not be able to do more than pass the budget law, rationalize
public spending, improve the supply of electricity, and take
preliminary steps to liberalize economic sectors, such as abolish
exclusive agencies. He said that social issues mentioned in the
Ministerial Statement are mere repetitions of what appeared in
previous ministerial statements.


3. (SBU) Along the same lines, economic expert Dr. Elie Yachoui told
us on August 8 that the economic part of the Ministerial Statement
was similar to previous statements that focused on international
conferences and privatization. He pointed out that the document did
not mention reviewing all the macroeconomic policies. "This should
precede any privatization so that the GOL would benefit from
privatization to reduce the public debt over the long run," he
stressed. He criticized the privatization of the cellular network,
which is currently providing the Treasury with annual revenues of
about $800 million. He also rejected raising electricity tariffs,
which are already high. Yachoui stressed that Lebanon "needs to
reform its economic, financial, monetary, production, investment,
and customs policies in order to double the size of the economy,
reduce imports, and adopt incentives to encourage investment and
increase production, projecting the trade deficit to reach $11
billion this year."

EGYPT WILL SUPPLY LEBANON WITH
200 MEGAWATTS OF ELECTRICITY
--------------


4. (U) Minister of Energy and Water (MEW) Alain Tabourian indicated
on August 4 after a meeting with his Egyptian counterpart Hassan
Yunus that Egypt will supply Lebanon with 200 megawatts (MGW) of
electricity; a meeting will be held at the end of the month to
finalize details. However, Lebanon will continue to suffer from a
500 MGW shortage in power, Tabourian said. He also hoped that
Lebanon will be able to import natural gas from Egypt in two months.



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S&P RAISES LEBANON'S LONG-TERM
SOVERIGN CREDIT RATING
--------------


5. (U) On August 5, Standard & Poor's (S&P) raised Lebanon's
long-term sovereign credit rating from 'CCC+' to 'B-', following the
Doha Conference in May 2008 and subsequent easing of political
tensions. S&P stated that this reduces the risk that depositors
will withdraw funds from the Lebanese banking sector, which in turn
lessens the GOL's near-term financing risks as banks are the GOL's
largest creditors. Meanwhile, Lebanon's short-term rating was
affirmed at 'C', and the transfer and convertibility assessment was
affirmed at 'B+.'

WTO MULTILATERAL NEGOTIATIONS MOVING FORWARD;
PROBLEMS REMAIN BILATERALLY
--------------


6. (SBU) Advisor to Minister of Economy and Trade (MOET) Lama
Oueijan told us August 5 that the MOET held a video conference with
USTR in June regarding multilateral negotiations, which helped
clarify several issues, and is expected to finalize the Q&A round
regarding Lebanon's multilateral trade regime.


7. (SBU) On the bilateral side, the goods and services offers were
handled through an exchange of letters; the last letter sent by
Lebanon to USTR was prior to Lebanon's Fifth Working Party meeting
in May 2007, Oueijan said. On the services offers, Lebanon met 70
percent of the U.S. request, she said, but noted that Lebanon has
received from USTR additional requests and is currently working to
address them. She expects Lebanon's response on services offers to
be sent to USTR by October 2008.


8. (SBU) As to the goods offers, 60 percent of the U.S. request was
met, however, "the remaining 40 percent put a lot of pressure on
industrialists and the agriculture sector, as well as strain the
Treasury at a time when Lebanon is facing major debt restructuring
problems," she said. Lebanon cannot drop its customs duties beyond
the currently applied tariff rates on the 40 percent remaining
goods, she remarked, while USTR is requesting zero tariffs.

MINISTRY OF HEALTH LAUNCHES CAMPAIGN
TO COMBAT COUNTERFEIT DRUGS
--------------


9. (SBU) On August 6, Minister of Public Health Mohammad Khalifeh
launched the first national campaign to combat counterfeit drugs in
collaboration with the World Health Organization (WHO),Lebanese
Order of Pharmacists, World Federation of Order of Pharmacists of
Francophone countries, and the Forum of Middle Eastern Pharmacists.
The campaign includes radio and TV ads, as well as billboards and
educational flyers. A research-based pharmaceutical company contact
told us that they welcome the campaign, which mainly targets the
general public, hospitals, and pharmacists. The contact told us
that the organizers of this campaign have been in touch with
pharmaceutical companies requesting funding for a long-term campaign
on drug counterfeits since the current campaign is seen as the
initial phase of a long-term campaign.

IPR TRAINEES REQUEST ASSISTANCE
IN PREPARING TO JOIN MADRID PROTOCOL
--------------


10. (SBU) On August 5, Econstaff met with seven members of the
Ministry of Economy and Trade's (MOET) IPR Unit who participated in
a variety of USPTO IPR training programs since February 2008. They
all expressed their appreciation to the USPTO and its interest in
training them to improve their performance at the IPR Unit.
Participants who attended programs focused on copyright,
enforcement, and industrial design highly appreciated their
respective programs, although most wished that more time was given
to practical applications instead of the theoretical side of the
issues.


11. (SBU) Meanwhile, Loubna Kodeih who participated in the Trademark
Administration Program (March 25-28, 2008) was highly satisfied with
the program, given that a lot of the Unit's work deals with
trademarks, adding that the balance between theory and practice
during the training was adequate. Kodeih made a pitch for USPTO
assistance as Lebanon prepares to join the Patent Cooperation Treaty

BEIRUT 00001176 003 OF 003


(PCT) and more so the Madrid Protocol. For properly implementing
the Madrid Protocol, Lebanon is in great need of training, as well
as assistance for e-filing and in scanning all its archives.

LEBANON AND IRAN SIGN GRANT AGREEMENT
TO REHABILITATE SOUTHERN ROAD
--------------


12. (U) On August 6, President of the Council for Development and
Reconstruction (CDR) Nabil Jisr and head of the Iranian Committee
for the reconstruction of Lebanon Hussam Khouchnoyess signed in the
presence of Iranian Ambassador to Lebanon Mohamad Rida Shibani a
grant agreement for the rehabilitation of the Naqura-Marjeyoun road.
Shibani said that "Iran's assistance is part of efforts to remove
the impact of the July 2006 war against Lebanon," and noted that
"Iran did not set a ceiling for such assistance and contribution,"
stressing that "Iran's position on this is strategic." He also
expressed Iran's readiness to "strengthen bilateral cooperation
politically, economically, socially and culturally." Shibani
thanked the CDR and the previous Siniora Cabinet for their
"cooperation facilitating Iranian reconstruction efforts, and
expecting such cooperation to continue with the current government."


CENTRAL BANK GOVERNOR PROJECTS
FIVE PERCENT GROWTH IN 2008
--------------


13. (U) On August 4, Central Bank of Lebanon (CBL) Governor Riad
Salameh projected a five percent real growth in 2008 as a result of
confidence and optimism in the markets, with inflation to range
between ten to 13 percent. Dollarization of deposits fell from 79
percent a year ago to 74 percent today, he said. Also, Salameh
reportedly said that the environment was favorable to move ahead
with listing 25 percent of national passenger carrier MEA shares, of
which 99 percent is held by the CBL, on the Beirut Stock Exchange.


WORLD BANK: COST OF ENVIRONMENT DEGRADATION FOLLOWING THE
JULY 2006 WAR AROUND $729 MILLION
--------------


14. (U) According to the World Bank, the overall cost of
environment degradation in Lebanon caused by the July 2006 war is
estimated between $537 million and $831 million, for an average of
$729 million or 3.6 percent of GDP. The waste sector suffered the
most damage, estimated between $207 million and $374 million due to
the high costs of disposing demolition waste and to casualties and
losses in agriculture production caused by unexploded ordnances.
This was followed by losses due to damages from the oil spills
(between $166 -$240 million),impact on water supply and repairing
water infrastructure ($131 million),landscape damages caused by
quarries and non-rehabilitation of quarries (between $15.4 - $176
million),and damages to forests (between $7 - $11 million).

GRANT