LEBANON AND FINANCIAL CRISIS: IMF SAYS GOOD OVERSIGHT HAS

UNCLAS SECTION 01 OF 03 BEIRUT 001725 SENSITIVE SIPDIS STATE FOR NEA/ELA STATE PASS USTR FRANCESCKI STATE PASS USAID BEVER/LAUDATO/SCOTT TREASURY FOR MNUGENT AND SBLEIWEISS USDOC FOR 4520/ITA/MAC/ONE NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT E.O. 12958: N/A TAGS: ECON EFIN PREL PGOV LE SUBJECT: LEBANON AND FINANCIAL CRISIS: IMF SAYS GOOD OVERSIGHT HAS SHIELDED BANKING SYSTEM (ECONOMIC WEEK IN REVIEW, DECEMBER 1 - 7, 2008) CONTENTS -------------- -- IMF ISSUES FIRST REPORT ON LEBANON SINCE ONSET OF FINANCIAL CRISIS -- MP HARIRI HOSTS ROUNTABLES TO DEAL WITH GLOBAL ECONOMIC CRISIS -- GOL TAKES CHARGE OF ALFA MOBILE NETWORK -- BASSIL THANKS USAID FOR ASSISTANCE, SAYS NOTHING ABOUT PRIVATIZAITON -- MERRILL LYNCH MAINTAINS ITS RECOMMENDATION ON LEBANON DEBT -- BEIRUT STOCK EXCHANGE RANKED THIRD BEST IN THE REGION -- SYRIA CANCELS FUEL TAX ON TRUCKS -- CABINET TO SUBSIDIZE DIESEL DURING THE WINTER SEASON -- LEBANON JOINS UN CONVENTION ON SALE OF GOODS -- BEIRUT RANKS 43 IN WORLDWIDE RETAIL LOCATION IMF ISSUES FIRST REPORT ON LEBANON SINCE ONSET OF FINANCIAL CRISIS -------------- ¶1. (U) In its first report on Lebanon since the onset of the global financial crisis, the IMF indicated that oversight by local supervisory authorities has so far shielded the banking system from direct impact of the crisis. It warned that the crisis could impact Lebanon through weakening conditions in the Gulf, as deposit inflows, remittances, and direct investment from the region may slow down and erode bnks' profitability. The IMF said banking supervsory authorities should be ready to step up supervsion to minimize risks and continue to monitor the quality of loan portfolios closely. It also noted that Lebanon's top priority is to reduce the public debt-to-GDP ratio. According to the IMF, the GOL's fiscal adjustment program is serious, since it should decrease the debt-to-GDP ratio even if telecom privatization does not take place in 2009. MP HARIRI HOSTS ROUNTABLES TO DEAL WITH GLOBAL ECONOMIC CRISIS -------------- ¶2. (U) On December 1, Parliamentary Majority Leader Saad Hariri hosted a second economic roundtable in less than two weeks to discuss the global financial crisis and its economic and social repercussions in Lebanon. A committee will be in charge of issuing a working document giving suggestions on the appropriate course of action for the GOL to tackle the effects of the crisis. The roundtable gathered a wide variety of economic and business leaders from the private and public sectors, including Finance Minister Chatah, Central Bank Governor Riad Salameh, former ministers of economy and finance, MPs, representatives of leading local banks, the chairman of the Beirut Stock Exchange, members of the IMF resident team, and the president of the Association of Lebanese Industrialists. Hariri was quoted as saying that he will organize more roundtables to discuss issues affecting citizens' livelihoods. ¶3. (SBU) The General Manager of Beirut-based Arab Finance House, Fouad Matraji, told us on December 3 that these roundtables are serious and hope to provide useful suggestions to help the GOL minimize the impact of the global crisis on Lebanon. Hariri, heading the largest parliamentary bloc, believes that he will be the future prime minister of Lebanon, Matraji said, and as such, is trying to deal with any crisis before he officially "takes charge." GOL TAKES CHARGE OF ALFA MOBILE NETWORK -------------- ¶4. (U) On December 1, the Lebanese Ministry of Telecommunications took charge of the Alfa mobile network for the next two months, until the GOL issues a tender for the management of the two mobile companies. Minister Gebran Bassil noted that the "biggest challenge during the next two months will be to prove that the Lebanese are capable of running a mobile phone company without any foreign assistance." (Note: Bassil previously indicated his preference for placing foreign ownership limits on the two companies when they are privatized later this year. His nationalistic rhetoric reflects that. End note.) BEIRUT 00001725 002 OF 003 BASSIL THANKS USAID FOR ASSISTANCE, SAYS NOTHING ABOUT PRIVATIZAITON -------------- ¶5. (U) On December 3, AID Mission Director and EconOff attended the launch of the Telecommunications Regulatory Authority's (TRA) new web portal and information database, www.tra.gov.lb, funded by USAID under its Transparency and Accountability Grants (TAG) program, implemented by AMIDEAST. In his remarks, Telecom Minister Gebran Bassil thanked USAID for its valuable assistance, and hoped it would continue to support the telecom sector in the future. He stressed the need for the speedy establishment of Liban Telecom, the new company meant to take over fixed line operations from the government, and said he wanted the process of development of the sector to happen smoothly. He mentioned nothing about privatization of the mobile telecom companies. TRA Chairman Kamal Shehadi highlighted his and his agency's commitment to development of the sector, and said TRA was ready to move forward with privatization at any time, once the political decision-makers give him the go-ahead. MERRILL LYNCH MAINTAINS ITS RECOMMENDATION ON LEBANON DEBT -------------- ¶6. (U) Merrill Lynch (ML) maintained its recommendation on Lebanon's external debt to "Market Weight" in its model portfolio of emerging markets debt and increased Lebanon's market weight to 7.7 percent due to the performance of Lebanese Eurobonds so far this year, given the global financial crisis. In comparison, the Europe, Middle East, and North Africa (EMEA) region and countries rated similar to Lebanon maintained an "Under Weight" recommendation. Lebanon's external debt posted the highest return among 10 EMEA countries at 3.42 percent from January-November 2008, as well as the best return among the 29 emerging economies included in ML's Sovereign Plus Debt Index. BEIRUT STOCK EXCHANGE RANKED THIRD BEST PERFORMER IN THE REGION -------------- ¶7. (SBU) President of Beirut Stock Exchange (BSE) Fadi Khalaf told us December 2 that the BSE ranked as third best stock exchange performer in the Arab region year to date, after Tunis and Morocco. Given the financial crisis and plummeting markets, the ranking is more a reflection of "less bad" performance than "good" performance. Khalaf said the BLOM index (issued by BLOM Bank and used by the BSE) showed a drop of 17 percent for the first eleven months of ¶2009. SYRIA CANCELS FUEL TAX ON TRUCKS -------------- ¶8. (U) Daily As-Safir reported on November 4 that the Syrian authorities will cancel the so-called "diesel tax" that was imposed in April 2008 on trucks and buses running on diesel and crossing into Lebanon, Jordan, Iraq, and Turkey, in order to prevent smuggling of subsidized Syrian diesel across borders. The cancellation was attributed to the worldwide decrease in energy prices, which brought prices closer to Syrian levels. Agricultural syndicates were quoted as saying that they were grateful to the GOL for achieving this, as it will reduce their transportation costs on this vital export route to the Arab region. CABINET TO SUBSIDIZE DIESEL DURING THE WINTER SEASON -------------- ¶9. (SBU) According to the local press, PM Siniora stated that the cabinet will agree December 5 to subsidize diesel by two dollars per 20 liters during the winter months. In the last few years, the GOL has subsidized diesel sold to households in winter (December-February); this measure essentially targeted households in remote areas so they can afford to heat their houses during winter without cutting trees. BEIRUT 00001725 003 OF 003 LEBANON JOINS UN CONVENTION ON SALE OF GOODS -------------- ¶10. (U) Lebanon joined the UN Convention on Contracts for the International Sale of Goods (CISG),Byblos Bank's economic report noted. Lebanon became the 72nd country to join the convention worldwide and the fourth in the MENA region. The CISG will be implemented in January 2009. BEIRUT RANKS 43 IN WORLDWIDE RETAIL LOCATION -------------- ¶11. (U) According to property consultants Cushman & Wakefield's 2008 "Main Streets Across the World" report, Beirut ranked 43 worldwide in terms of most expensive retail location, out of 236 locations across 48 countries. Within the top ten most expensive locations in the Middle East and Africa (MEA) region, four were in the Greater Beirut area (ABC Achrafieh, Verdun, Kaslik, and Beirut Center District). The report noted that following the end of political instability witnessed in recent years, the retail market in Lebanon has started to recover, especially in Beirut, where there has been solid aggregate rental growth. SISON