Identifier
Created
Classification
Origin
08BEIRUT450
2008-03-31 15:18:00
CONFIDENTIAL
Embassy Beirut
Cable title:  

LEBANON: FINMIN AZOUR HOPES CONTINUED REFORMS

Tags:  ENIV PGOV PREL PTER PINR MCAP PINS LE 
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VZCZCXRO9177
PP RUEHBC RUEHDE RUEHKUK RUEHROV
DE RUEHLB #0450/01 0911518
ZNY CCCCC ZZH
P 311518Z MAR 08
FM AMEMBASSY BEIRUT
TO RUEHC/SECSTATE WASHDC PRIORITY 1398
INFO RUEHEE/ARAB LEAGUE COLLECTIVE
RUEHNO/USMISSION USNATO 2348
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RHEHNSC/NSC WASHDC
C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 000450 

SIPDIS

SIPDIS

NSC FOR ABRAMS/SINGH/GAVITO, STATE FOR NEA/ELA, DEPT PASS
TO EU MEMBER STATES COLLECTIVE

E.O. 12958: DECL: 03/30/2018
TAGS: ENIV PGOV PREL PTER PINR MCAP PINS LE
SUBJECT: LEBANON: FINMIN AZOUR HOPES CONTINUED REFORMS
WILL DEFEAT OPPOSITION; COMMENTS ON SECURITY SPENDING
(C-NE8-00440)

REF: STATE 29685

Classified By: CDA Michele Sison for reasons 1.4 (b) and (d)

Summary
-------

C O N F I D E N T I A L SECTION 01 OF 02 BEIRUT 000450

SIPDIS

SIPDIS

NSC FOR ABRAMS/SINGH/GAVITO, STATE FOR NEA/ELA, DEPT PASS
TO EU MEMBER STATES COLLECTIVE

E.O. 12958: DECL: 03/30/2018
TAGS: ENIV PGOV PREL PTER PINR MCAP PINS LE
SUBJECT: LEBANON: FINMIN AZOUR HOPES CONTINUED REFORMS
WILL DEFEAT OPPOSITION; COMMENTS ON SECURITY SPENDING
(C-NE8-00440)

REF: STATE 29685

Classified By: CDA Michele Sison for reasons 1.4 (b) and (d)

Summary
--------------


1. (C) Finance Minister Azour told Charge that the reform
agenda for Lebanon, successful so far but facing serious
challenges in light of the paralyzed GOL, is the only way to
maintain the credibility of the government in the face of
Hizballah's political attacks. Keys to success of the reform
program include privatization of the telecom sector, passing
draft bills on economic reform, and approving project
financing. Azour plans to formally ask the IMF for a new
EPCA program, and suggests that the USG consider what he
hopes will be a EPCA agreement as benchmarks for Paris III
donations. His proposals for new benchmarks are not
completed, and he offered to meet with Charge at a later
date, before the IMF spring meetings, to review them. USG
agreement with the GOL on new benchmarks will be a critical
step in our continuing efforts to identify practical ways to
support the Siniora government, which continues to be under
pressure from Syria and its allies in Lebanon. We will
convey Azour's benchmark proposalso to the Department when we
have them. Azour said that military and security spending
have increased largely due to heavy recruitment of personnel.
We do not believe this reflects an increase in the LAF's
combat capability. End summary.

IN THE ABSENCE OF A FUNCTIONING GOVERNMENT
REFORMS ARE STILL PRIORITIES
--------------


2. (C) In a March 28 meeting, Finance Minister Jihad Azour,
accompanied by key staff members Roula Rizk Azour, Houda
Saigh, and Nadine Yazbeck, reviewed for Charge, USAID
Director, and Econoff his plans for continued reform in 2008.

Azour had not expected the protracted absence of a
functioning government, due to the failure of efforts to
elect a new president, to last as long as it has (since
November 2007). Now, however, faced with the need to plan
for the year ahead, Azour's goal is to "shift gears on
reforms, with the same priorities." The keys to moving ahead
include privatization of the mobile telephone sector, which
is still possible, according to Azour. In addition, there
are more than thirty draft laws waiting for parliamentary
approval which will enhance economic reform. Finally, the
GOL has received more than $1 billion from international
donors for reform projects which require parliamentary
approval.

NEW EPCA WILL
BENEFIT THE COUNTRY
--------------


3. (C) In Azour's opinion, there are only two choices facing
the GOL: continue with the reform agenda, or allow Hizballah
to win by destroying the credibility of the majority
government. Azour plans to "keep the compass in the same
direction," and build on the financial success of the GOL
during 2007. With this in mind, he says that the GOL will
ask the International Monetary Fund (IMF) for a new Emergency
Post Conflict Assistance (EPCA) program at the IMF spring
meetings in April. Lebanon cannot ask for a standby, since
that would require approval by parliament, unlike an EPCA.
While seeking an EPCA will not be an easy sell politically,
the country will benefit, in Azour's opinion.

NEW PRIORITIES CAN
BE NEW BENCHMARKS FOR USG ASSISTANCE
--------------


4. (C) In preparing the groundwork for a new EPCA, Azour's
team is developing key priorities for reform in 2008. These
priorities, and the formalization of the EPCA itself, could
provide relevant benchmarks for remaining U.S. Paris III
grants, which were previously tied to gas excise tax
increases and sale of mobile telecom licenses. Azour feels
somewhat confident in proposing this, since his efforts in
2007 were viewed as fully successful by the IMF, and this
week Moody's rating agency upped its outlook on Lebanon to
"stable," in large part due to public finance success in
meeting all financial obligations. Azour rightly takes
credit for managing that effort.

BEIRUT 00000450 002 OF 002



AZOUR WILL REVIEW GOALS
PRIOR TO MEETINGS IN APRIL
--------------


5. (C) Azour proposed discussing his reform program plans
with Charge prior to the April meetings, at which time he
will have a clearly developed set of priorities for 2008.
This will allow his discussions with the USG, which will take
place in DC in April, to dovetail with his request for an
EPCA from the IMF, and align his priorities with those of the
donor community.

HEAVY SPENDING ON SECURITY
TIED TO HEAVY RECRUITING
--------------


6. (C) Azour expanded on earlier statements to Charge about
increased spending on the military and security sectors,
which he had said were increasing rapidly. He pointed out
that the Internal Security Forces (ISF) had added an
additional 12-24,000 new recruits, and the Lebanese Armed
Forces (LAF) have added more than 15,000. Due to the nature
of the Lebanese system of benefits, which adds approximately
$.60 for every $1.00 of salary, this has been a significant
impact on the budget of the GOL.

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


7. (C) Continued U.S. economic support for the Lebanese
government is a critical sign of our political support. In
the current political environment, it is not feasible for the
government of PM Siniora to achieve the existing benchmarks
for disbursement of the remainder of the U.S. cash transfer.
An increase in the gasoline tax, for example, would be
immediately exploited by the pro-Syrian Lebanese opposition
to weaken support for Siniora. We expect FinMin Azour to
provide his proposals for new benchmarks soon. In Embassy's
view, it is important to work with the government to agree on
new benchmarks that will promote reform, but also will ensure
that we can continue our financial and political support to
the Siniora government.


8. (C) Regarding the GOL security budget, it is important to
note that we believe that the numbers Azour mentions for the
security services do not reflect an increase in combat
capability for the LAF. There have been many retirements and
former draftees have left the LAF during the last year, and
the recruits Azour mentions are most likely filling the
positions vacated. Retirement and veterans benefits are paid
for by the Ministry of Finance, and could account for Azour's
assessment of increased costs. Even with the recent
recruiting drive, many units remain undermanned, according to
the recent Comprehensive Training Program Survey conducted by
U.S. Brigadier General (Retired) Les Fuller. This survey
revealed critical shortages in personnel and funding for the
LAF. This comment responds to INL Request C-NE8-00440 in
reftel.
SISON