LEBANON: SCENESETTER FOR U/S STUART LEVEY'S VISIT

S E C R E T BEIRUT 000523

SIPDIS

TREASURY FOR U/S LEVEY, DAS BAUKOL
STATE FOR NEA/FO, NEA/ELA
STATE ALSO FOR EEB ACTING A/S NELSON, PDAS HENGEL,
EB/IFD/ODF MARCELLUS, EB/ESC/TFS BACKEMEYER
NSC FOR SHAPIRO, MCDERMOTT

E.O. 12958: DECL: 05/10/2019
TAGS: EFIN ETTC PARM KNNP EAID PTER LE
SUBJECT: LEBANON: SCENESETTER FOR U/S STUART LEVEY'S VISIT

REF: A. STATE 43043

B. BEIRUT 469

C. BEIRUT 442

Classified By: Ambassador Michele J. Sison for reasons 1.4 (b) and (d).


1. (SBU) You arrive three weeks before Lebanon's June 7
parliamentary elections, in which the current moderate March
14 majority faces a tough battle against the Hizballah-led
opposition. The race is still too close to call, but the
outcome will hinge on the electoral results in a few key
Christian-majority districts. Another national unity
government, with the two blocs sharing cabinet seats, is a
possibility. In the current government, the opposition holds
a "blocking third" veto power in the cabinet. March 14 has
struggled to present unified candidate lists, with some
leaders promoting their own parties to the detriment of the
March 14 alliance.


2. (C) U.S. policy in Lebanon reflects the conviction that a
democratic state able to exercise responsibility over all its
territory can transcend extremism and the threat posed by the
arms of Iranian-backed Hizballah. U.S. interests in the
Middle East would be seriously affected if Lebanon
disintegrated through sectarianism or a return to civil war.
Such results could foster increased terrorism or renewed
conflict on Israel's border.


3. (C) The U.S. publicly supports Lebanon's sovereignty and
independence and seeks to promote moderate voices. Such
voices include those of March 14, as well as those of
independents who share the same democratic values. U.S.
support for President Sleiman and the office of the
presidency reinforce this message. However, no one group
will attain effective control of the parliament or the new
government given Lebanon's carefully balanced confessional
system (the President is a Maronite Christian, the Prime
Minister a Sunni, and the Parliament's Speaker a Shia).
Thus, while seeking to influence the 2009 outcome, we must
also remain focused on Lebanon's longer-term political
evolution.


4. (SBU) Meanwhile, the Lebanese economy has proven its
resilience once again, emerging thus far unscathed from the
financial crisis that has affected countries across the
world. In 2008, growth exceeded 8% with inflation at 8%,
attributed in large part to a robust and stable financial
sector and sound monetary policies enforced by the Central
Bank of Lebanon (CBL). Lebanon's banking sector is perceived
as a safe haven for depositors, and this continued in the
first quarter in 2009, raising total deposits to $80.5
billion in March 2009. The CBL has been working with
commercial banks and the Finance Ministry on increasing
interest rates subsidies to all productive sectors to
encourage lending to the private sector to stimulate growth
and investments. Meanwhile, the CBL and IMF project GDP
growth of 4% in 2009, with inflation below 6%.


5. (SBU) Lebanon's Financial Intelligence Unit, the Special
Investigation Commission (SIC),an independent legal entity
to investigate suspicious financial transactions, continues
to make progress in developing an effective money laundering
and terrorism finance regime. SIC's activity is regulated by
Law 318 dated 2001, which created a framework for lifting
bank secrecy and mandating suspicious transaction reporting.
A new draft law upgrading Law 318 has been sent to the
Council of Ministers; the draft takes into account SIC
experience, FATF recommendations, and best practices. The SIC
has also submitted to the Central Bank a draft circular
concerning "hawala" transactions, in accordance with FATF.
Former SIC secretary Muhammad Baasiri was appointed Central
Bank Vice Governor in April 2009 and continues to oversee SIC
activities. The SIC issues a yearly report on its
activities, which is also published on its website.


6. (SBU) SIC forwards UN designations to all banks in
Lebanon, and maintains informal discussions with banks on
non-UN designations. The SIC refers requests for designation
or asset freeze regarding Hizballah and groups affiliated
with Hizballah to the Ministry of Foreign Affairs, but does
not require banks to freeze these assets, because the GOL
does not consider Hizballah a terrorist organization.


7. (SBU) Lebanon is under mutual evaluation by MENA FATF. A
MENA FATF team was in Beirut in February for on-site
examination, and their report will be discussed at the second
MENA FATF Plenary (tentatively in November 2009). The first
Plenary will take place May 18 in Bahrain. Lebanon is not a
party to the UN International Convention for the Suppression
of the Financing of Terrorism.


8. (S) You should also be aware that both the Ambassador and
EEB Acting Assistant Secretary David Nelson recently raised
with Finance Minister Chatah the issue of the GOL's March 12
Memorandum of Understanding signed with Export Development
Bank of Iran (EDBI) for the reactivating of a 45 million Euro
loan originally signed in 2003 (Refs A and B),urging the GOL
not to proceed with the loan. (Note: EDBI was designated by
the U.S. under Executive Order (E.O.) 13382 on October 22,
2008 for providing financial services to multiple Ministry of
Defense and Armed Forces Logistics (MODAFL)-subordinate
entities. End note.) In his April 26 meeting with Chatah
(Ref A),Acting A/S Nelson explained that the bank was listed
for being involved in WMD proliferation, and urged the GOL to
reconsider to avoid not only adverse foreign policy
implications but also an adverse effect on Lebanon's status
as an international banking center. Chatah told the
Ambassador May 6 that he had taken steps to ensure that the
agreement was kept "asleep" by tying it up in lengthy GOL
bureaucratic reviews. Prime Minister Fouad Siniora raised
this issue on May 9 with visiting NEA DAS David Hale and the
Ambassador, urging that a solution be found so that the GOL
can use the loan for road-building. SQ+yQ@QQ for growth and prosperity.

- We will evaluate the shape of our assistance programs based
on the composition of the new government and the policies it
advocates.

- There is no change in the U.S. position regarding
Hizballah, which we regard as a terrorist organization. It
is important to understand this because we know there has
been recent attention on the UK's position, which is
different.

- Given that, we would of course have to evaluate Hizballah's
role in a new Lebanese government.

- (If raised) The United States is confident that the Special
Tribunal for Lebanon will bring to justice those responsible
for financing, planning, and carrying out the assassination
of former Prime Minister Hariri and so many others.

- We understand all too well how terrorism has hurt Lebanon.
Hundreds of American and Lebanese lives were lost in the 1983
and 1984 attacks against the U.S. Embassy and Marine Barracks.

-The terrorists hit us but failed to destroy the
U.S.-Lebanese relationship, which today is stronger than ever.
SISON