LEBANON: LABOR STRIKES AND NEW TAX ON SYRIAN BORDER AFFECT

UNCLAS SECTION 01 OF 04 BEIRUT 000478 SIPDIS 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 E.O. 12958: N/A TAGS: ECON EFIN PREL PGOV LE SUBJECT: LEBANON: LABOR STRIKES AND NEW TAX ON SYRIAN BORDER AFFECT ECONOMY (ECONOMIC WEEK IN REVIEW, MARCH 31 - APRIL 6, 2008) CONTENTS -------------- -- TEACHERS HOLD ONE-DAY STRIKE, GENERAL STRIKE SCHEDULED FOR MAY 7 -- GENERAL LABOR CONFEDERATION VICE PRESIDENT CONSIDERS STRIKE POLITICIZED, DETAILS ILLEGAL LABOR ELECTIONS -- SYRIAN DIESEL TAX CAUSES CONGESTION ON LEBANESE-SYRIAN BORDERS -- GOL TO SWAP REMAINING 2008 EUROBOND MATURITIES -- CORE GROUP MEETING TO BE HELD ON SIDELINES OF WORLD BANK/IMF SPRING MEETINGS -- LEBANESE ECONOMY WILL NOT COLLAPSE, ARAB ECONOMIC FORUM TO BE HELD IN MAY -- DUE DILIGENCE FOR INDEPENDENT POWER PRODUCER COMPLETED, MORE TRAINING UNDERWAY -- POLITICAL WILL KEY TO POWER SECTOR REFORM -- BANKING SECRECY LIFTED FOR 54 CASES SUSPECTED OF MONEY LAUNDERING -- PARTICIPANTS IN CROSS BORDER CASH SMUGGLING SEMINAR ASK FOR ICE TRAINING -- THE ECONOMIST INTELLIGENCE UNIT LOWERS GROWTH FORECASTS FOR 2008 AND 2009 -- MERRILL LYNCH INCLUDES LEBANON IN NEW FRONTIER INDEX -- LEBANON DROPS IN KNOWLEDGE ECONOMY INDEX TEACHERS HOLD ONE-DAY STRIKE, GENERAL STRIKE SCHEDULED FOR MAY 7 -------------- ¶1. (U) The Teachers' Union (including public, private and technical school teachers, and Lebanese University professors) held a "warning" strike on April 3 demanding higher wages, citing dramatic increases in the cost of living. Teachers' wages have been unchanged since 1996. Organizers stressed the strike is not political, as representatives of both March 8 and March 14 have separately expressed support for the teachers' demands. ¶2. (U) The General Labor Confederation (GLC)'s executive council announced that it would hold a strike on May 7, following the failure of the Cost of Living Index Committee to reach an agreement to increase both the minimum wage and current salaries. Head of the GLC and pro-March 8 Ghassan Ghosn and resigned Labor Minister Trad Hamadeh, who presides over the Committee, blamed the Siniora government and pro-government members of the Committee for the impasse. Ghosn called on all GLC members and labor syndicates to put their differences aside and work together, alluding to pro-March 14 members who have unofficially boycotted GLC meetings since the 
June 2007 board elections. GENERAL LABOR CONFEDERATION VICE PRESIDENT CONSIDERS STRIKE POLITICIZED, DETAILS ILLEGAL LABOR ELECTIONS -------------- ¶3. (SBU) GLC vice president, pro-March 14, and head of the GLC "Salvation Committee" Maroun Khawli believes that the proposed May 7 strike is being prepared in direct coordination with the opposition Amal Movement (to which Ghosn is close) and Hizballah, which makes the strike highly politicized. Khawli claims to have been threatened if he and the pro-March 14 GLC members do not join the May 7 strike. Moreover, Khawli stated that the GLC has been secretly and illegally reshuffling positions within its board, SIPDIS sidelining Khawli among others and increasing pro-March 8 members' influence. This would enable March 8 to use the GLC in its future activities if it wishes to do so, for example to "topple the GOL," according to Khawli. SYRIAN DIESEL TAX CAUSES CONGESTION ON LEBANESE-SYRIAN BORDERS -------------- ¶4. (SBU) Syrian authorities imposed on April 1 a new "diesel tax" on trucks and buses running on diesel and crossing into Lebanon, Jordan, Iraq, and Turkey, in order to prevent diesel smuggling. Diesel prices are subsidized in Syria and are much cheaper than in neighboring countries. This new tax has caused congestion on both sides of the Lebanese-Syrian borders, as every truck crossing into Lebanon now must pay a flat fee ranging between $600 and $860, Customs sources told us. At the same time, trucks on the Lebanese side of the borders opted to wait, fearing that they will be subject to this tax when returning back to Lebanon. BEIRUT 00000478 002 OF 004 GOL TO SWAP REMAINING 2008 EUROBOND MATURITIES -------------- ¶5. (SBU) The Finance Ministry has mandated international financial institution Credit Suisse and local Audi Bank as lead managers to re-finance the remaining Eurobonds that mature in 2008, head of the Econ Unit at the Ministry of Finance (MOF) told us. In early March, Credit Suisse and Audi bank successfully refinanced $875 million to meet March 12 Eurobond maturities. Remaining Eurobond maturities for this year amount to about $1.2 billion. CORE GROUP MEETING TO BE HELD ON SIDELINES OF WORLD BANK/IMF SPRING MEETINGS -------------- ¶6. (SBU) Lebanon will hold a Core Group meeting Saturday April 12, in Washington, D.C., on the sidelines of the World Bank/IMF Spring meetings. The GOL will send invitations to Paris III donor countries/institutions, Ministry of Finance (MOF) sources told us. The MOF expects to send out its Paris III Fifth Progress report next week. LEBANESE ECONOMY WILL NOT COLLAPSE, ARAB ECONOMIC FORUM TO BE HELD IN MAY -------------- ¶7. (U) On April 1, Governor of the Central Bank of Lebanon (CBL) Riad Salameh discarded the possibility that Lebanon's economy will collapse, with assurances of current monetary stability and IMF projected growth rates of around three to four percent in 2008. The fact that the Lebanese banking sector was not affected by the US subprime crisis was attributed to a series of circulars issued by the CBL four years ago, limiting financial institutions' investment in such financial instruments. At the same time, Salameh also announced that the 16th edition of the Arab Economic Forum would be held on May 2-3 in Beirut, organized by al-Iktissad wal-Aamal business group, CBL, and the IFC. DUE DILIGENCE FOR INDEPENDENT POWER PRODUCER COMPLETED, MORE TRAINING UNDERWAY -------------- ¶8. (SBU) A Higher Council for Privatization (HCP) source told us on March 31 that the due diligence (technical, accounting, and legal) for the construction of a new 450 MGW power plant in Deir Ammar (north Lebanon) has been completed and will be discussed with the consultants this week. Three separate consultancy firms -- K&M (U.S) for the technical; Grant Thornton (British/Lebanese) for accounting, and Dewey LeBoeuf (U.K.) for the legal aspects -- worked on the due diligence. ¶9. (SBU) Meanwhile, K&M held a two-day seminar on March 31-April 1 for staff from the national power company, the Ministries of Energy and Water and of Finance, and from the Council for Development and Reconstruction (CDR). Topics covered included training on Independent Power Producers (IPP),identifying risks associated with IPP projects, basic power plant engineering factors, fundamentals for structuring and bidding for IPPs, and characteristics of Power Purchase Agreements. POLITICAL WILL: KEY FOR POWER SECTOR REFORM -------------- ¶10. (U) At the conference, "Can we reform the power sector," organized by the Issam Fares Center for Lebanon on April 2, advisor to Hizballah resigned Minister of Energy and Water (MEW) Mohammad Fneish noted that the GOL adopted the Fneish power sector reform program because "there was a political will and a government that supported this political will." Advisor to Acting MEW Minister Mohammad Safadi noted that "there is no reform without political will and a unified vision." SYG of the Higher Council for Privatization (HCP) Ziad Hayek stressed that successive governments must stick to this reform program and move forward on implementation. Speakers stressed the need for appointing the Power Regulatory Authority, amending power sector privatization Law 462, and passing legislation for gas exploration. BANKING SECRECY LIFTED FOR 54 CASES BEIRUT 00000478 003 OF 004 SUSPECTED OF MONEY LAUNDERING -------------- ¶11. (SBU) According to the annual report of the Special Investigation Commission (SIC) Fighting Money Laundering, the SIC lifted banking secrecy in 54 cases suspected of money laundering in ¶2007. A total of 234 suspected cases were received by the SIC in 2007, mainly from domestic sources, although the overwhelming majority of cases for which banking secrecy was lifted were referred from foreign sources. In cases related to terrorism, local sources provided 237 names, the U.N. five names, and Embassy Beirut forwarded three names (Saudis Abdul Rahim Al-Talhi, Muhammad Abdallah Salih Sughayr, and Fahd Muhammad Abd Al Aziz Al-Khasiban), most of which have been referred to the judicial authorities. No accounts in the names of the three above-mentioned individuals were traceable in Lebanon's banks, a senior SIC contact told us on April ¶6. The SIC asked the Ministry of Foreign Affairs on February to inform Embassy Beirut that it had transmitted the results of its investigation on this case to the UN Sanctions Committee specific to al Qaeda and the Taliban, the source said. PARTICIPANTS IN CROSS BORDER CASH SMUGGLING SEMINAR ASK FOR ICE TRAINING -------------- ¶12. (SBU) Lebanese participants in the U.S Treasury workshop on Cross Border Cash Smuggling, which was held March 10-13 in Jordan told us on April 1 that the program, particularly the case studies, was "very good." They asked for training on how ICE (Immigration and Customs Enforcement) in the U.S. operates and strategies to use to COUNTER terrorism. ¶13. (SBU) One of the participants at the seminar told us on March 1 that in 2007, 85 people randomly selected by Customs at Beirut International Airport agreed to declare the amount of cash they carried into Lebanon. The total amount was approximately $65-70 million -- not too much, the source remarked. THE ECONOMIST INTELLIGENCE UNIT LOWERS GROWTH FORECASTS FOR 2008 AND 2009 -------------- ¶14. (U) The Economist Intelligence Unit's (EIU) most recent report on Lebanon revised expected real GDP growth rates forecasted earlier this year for 2008 and 2009. Expected real GDP growth rate for 2008 fell from 1.3 percent to 1.1 percent mostly due to the lack of political upturn since the last report. The EIU expects the political deadlock to continue, if not worsen. The report attributed the modest growth rate to a slight increase in exports as represented by transshipment activity through Lebanon and the government's efforts to control spending. Expected real GDP growth for 2009 also fell slightly from 2.5 percent to 2.3 percent. Meanwhile, the EIU forecasted inflation at 5.8 percent in 2008, later to fall to four percent in 2009. MERRILL LYNCH INCLUDES LEBANON IN NEW FRONTIER INDEX -------------- ¶15. (U) Merrill Lynch (ML) included Lebanon's real-estate company Solidere's "A" shares in its newly created Frontier Index, which contains the 50 largest and most liquid stocks from 17 developing markets in Eastern and Central Europe, the Middle East, Africa, and Asia. ML noted that these markets are less exposed to swings in the global economy and less correlated with other equity markets. Lebanon is given a 0.5 percent weight in the index, based on Solidere stocks' liquidity-adjusted market capitalization. Overall, the Middle East accounts for 50 percent of the index weight. LEBANON DROPS IN KNOWLEDGE ECONOMY INDEX -------------- ¶16. (U) Lebanon ranked 66 out of 140 surveyed countries in the World Bank's 2007 Knowledge Economy Index, down from 50 in the last survey conducted in 1995. Within the MENA region, Lebanon ranked 8 out of 17 countries in 2007, compared to fourth place in the previous survey. The index assesses whether a country's environment is conducive for knowledge to be used effectively for economic development by looking at four measures, economic incentive and BEIRUT 00000478 004 OF 004 institutional regime, education and human resources, innovation system, and information and communication technology (ICT). Lebanon dropped in all measures except for a slight increase in the education and human resources categories. SISON