LEBANON: TREASURY UNDER SECRETARY EXPRESSES PRAISE FOR

UNCLAS SECTION 01 OF 02 BEIRUT 000556 SIPDIS SENSITIVE STATE FOR NEA/ELA AND EEB/IFD/ODF STATE PASS USTR FRANCESCKI STATE PASS USAID LAUDATO/NANDY/SCOTT TREASURY FOR PARODI/BLEIWEISS/AHERN USDOC FOR 4520/ITA/MAC/ONE NSC FOR SHAPIRO/MCDERMOTT E.O. 12958: N/A TAGS: ECON EFIN EAIR EIND PGOV KFLU LE SUBJECT: LEBANON: TREASURY UNDER SECRETARY EXPRESSES PRAISE FOR BANKS PERFORMANCE AND CONCERNS ABOUT HIZBALLAH (ECONOMIC WEEK IN REVIEW, MAY 11 - 17, 2009) CONTENTS -------------- -- TREASURY UNDER SECRETARY IN LEBANON -- FIRST QUARTER MACRO INDICATORS IMPROVE, EXCEPT PUBLIC DEBT -- UN FACT FINDING MISSION ON DIAMONDS VISITS BEIRUT -- LEBANON'S EASE IN PAYING TAXES UNCHANGED TREASURY UNDER SECRETARY EXPRESSES SUPPORT AND CONCERN -------------- ¶1. (U) Under Secretary of the Treasury for Terrorism and Financial Intelligence Stuart Levey visited Beirut on May 15. He met with Minister of Finance Mohammad Chatah, the four Central Bank Vice Governors, Chairman of the Banking Control Commission Walid Alameddine, and members of the banking community to discuss a range of issues including Lebanon's role as a regional leader in anti-money laundering and countering the financing of terrorism. ¶2. (SBU) During his meetings, Levey expressed appreciation for the resilience of Lebanon's banking system in the wider financial downturn. He also expressed U.S. concerns about a May 13 article in the Financial Times in which Hizballah described its extensive support of Palestinian Hamas. (Note: Visit will be reported septel. End note.) FIRST QUARTER MACRO INDICATORS IMPROVE, EXCEPT PUBLIC DEBT -------------- ¶3. (U) Central Bank of Lebanon (CBL) figures showed that Lebanon's balance of payments posted a surplus of $297 million in the first quarter of 2009, compared to a deficit of $241 million in the same period in 2008. This surplus was mainly attributed to the 5.3% year-on-year increase in capital inflows, reaching $2.54 billion in the first quarter of 2009. The trade deficit, although still high at $2.2 billion, represented a 14.6% decrease compared to the first quarter 2008. ¶4. (U) Deposit dollarization reached a five-year low of 67.7% in the first quarter of 2009. Leading Bank Audi economic research department noted that decline in dollarization of deposits has still not been matched with a decline on the lending side, as foreign currency loans account for 86% of total loans. The CBL is working with the GOL to encourage commercial bank lending in Lebanese pounds to the private sector to stimulate economic growth. ¶5. (U) Meanwhile, Lebanon's gross public debt continued to rise at the end of the first quarter, by 1.8% from end-2008 and 10.7% from end-March 2008, to reach $47.8 billion. Domestic debt increased by 22.7% to $26.5 billion, while external debt decreased by 1.2% to reach $21.3 billion. UN FACT FINDING MISSION ON DIAMONDS IN BEIRUT -------------- ¶6. (SBU) A UN group of experts on Cote d'Ivoire visited Lebanon May 11-14 on a fact finding mission regarding the implementation of the Kimberly process in Lebanon, acting Director General and head of the Kimberly Process Office at the Ministry of Economy and Trade (MOET) Fouad Fleyfel told us. The UN team's visit - its first to Beirut -- may be related to recent press reports about illicit diamond trade in Cote d'Ivoire involving Lebanese citizens residing in Cote d'Ivoire and elsewhere. ¶7. (SBU) The UN team met with Fleyfel, head of Customs at Beirut's International Airport (BIA),the sole authorized entry for rough diamonds, large jewelry shop owners, and four rough diamond factories in the Greater Beirut area. Fleyfel noted that in 2007 and 2008 his office arrested two Lebanese for smuggling diamonds, and referred their cases to the courts. EASE IN PAYING TAXES BEIRUT 00000556 002 OF 002 REMAINS UNCHANGED -------------- ¶8. (U) According to the World Bank/PricewaterHouseCoopers "Paying Taxes 2009" report, Lebanon ranked 45 out of 181 countries worldwide and 10 out of 18 MENA countries in terms of ease of paying taxes. This constitutes a drop compared to 2008, when Lebanon ranked 33 worldwide and five regionally. The report noted, however, that the change in ranking indicated improvement in other countries, rather than a decline in Lebanon's performance, which remained almost unchanged. According to the report, a standard 19 tax-related transactions were paid in Lebanon each year and 180 hours per year were required to deal with such transactions. Corporate tax reached 12% and labor tax was at 24%. SISON