LEBANON: IMF DENIES DISCUSSIONS WITH HIZBALLAH ON NEW

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TAGS: ECON EFIN EAIR EIND PGOV KFLU LE
SUBJECT: LEBANON: IMF DENIES DISCUSSIONS WITH HIZBALLAH ON NEW
PROGRAMS (ECONOMIC WEEK IN REVIEW, MAY 25 - 31, 2009)

CONTENTS
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-- IMF DENIES DISCUSSIONS OF NEW PROGRAMS WITH HIZBALLAH
-- CABINET ENDORSES ECONOMIC PROGRAM TO COUNTER GLOBAL CRISIS
-- ARAB TELECOM MINISTERS: COOPERATE TO INCREASE INTERNET
PENETRATION



IMF DENIES DISCUSSIONS OF
NEW PROGRAMS WITH HIZBALLAH
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1. (SBU) An IMF press statement clarified that the IMF
February-March 2009 mission to Beirut met with major political
parties, including Hizballah, as part of outreach activities within
the scope of Article IV consultation discussions but did not make
any agreement with Hizballah on a loan deal. Responding to local
press claims that Hizballah met with the IMF to secure continued
financial support to Lebanon if the opposition wins the June 7
parliamentary elections, IMF Beirut office economist Najla Nakleh
told us the mission met separately with economic experts of the
pro-government Future Movement, the opposition Free Patriotic
Movement, and Hizballah. The purpose of IMF meetings was to explain
IMF's activity in Lebanon and its Emergency Post-Conflict Assistance
(EPCA II) program, as well as gather support for Lebanon's economic
reforms.


2. (SBU) Domenico Fanizza, IMF Division Chief for the Middle East
and Central Asia, said the IMF mission met with Abdel Halim
Fadlallah -- then Deputy Director of Hizballah's economic research
center -- and Hizballah Minister of Labor Mohammad Fneish to discuss
labor and social issues. According to Fanizza, the mission
emphasized that although the monitoring of Lebanon's macroeconomic
performance under Article IV would continue regardless of election
results, the IMF's Executive Board of Directors would determine the
possibility of a financial arrangement with Lebanon following the
expiration of the EPCA II in June 2009.

CABINET ENDORSES ECONOMIC PROGRAM
TO COUNTER GLOBAL CRISIS
--------------


3. (SBU) On May 26, the cabinet endorsed Prime Minister Fouad
Siniora's 2009-2010 economic program to counter the potential impact
of the global crisis on the Lebanese economy. The cabinet also
tasked a ministerial committee, headed by the PM and including
ministers of finance, economy and trade, industry, agriculture, and
energy to prepare the appropriate legislation for implementation.
The government and central bank implemented some measures already,
such as salary increases to the public sector. Other measures
require cabinet or cabinet plus parliament approval, and so will not
be acted on for one or two months at least.


4. (SBU) The economic plan aims to inject liquidity in the market by
expediting the settlement of government debts to the private sector,
financing expropriations necessary to launch infrastructure projects
financed through soft loans from donor countries, and continuing to
pay compensation for damage from the 2006 Hizballah-Israel war to
Lebanese beneficiaries. The plan also expands the interest rates
subsidy program to increase lending to the private sector (the
Central Bank has already issued circulars for that purpose),calls
to abolish some taxes, and to work with local and international
institutions to set up equity funds. The implementation of
structural reforms endorsed at the Paris III donor conference and
the creation of three industrial and economic zones throughout
Lebanon are highlighted.

ARAB TELECOM MINISTERS: COOPERATE
TO INCREASE INTERNET PENETRATION
--------------


5. (U) On May 28-29, Beirut hosted the eleventh Arab International
Telecom Development Summit, attended by Arab telecom ministers,
telecom operators, and industry experts from across the MENA region.
Participants noted that the penetration rate of high speed internet

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in the Arab region was only 21%, far below the rate in Europe of
56%. Quoting studies that suggest a 10% increase in internet
penetration contributes to a 1-2% increase in GDP, participants
proposed greater government to government cooperation to increase
penetration, given the high cost of projects and geographical
proximity of the MENA countries.


6. (U) Meanwhile, during a meeting of Arab Telecom Ministers on May
27, Minister of Telecom Gebran Bassil noted that the Ministry was in
the process of expanding Lebanon's fiber optic network to increase
high speed internet access. He hoped to be able to increase
internet access from 200,000 to 650,000 subscribers in the short
term, as well as increase penetration of laptops (from four percent
to 35 percent) and personal computers (from 28 percent to 50
percent) through the "Computers for Lebanon" project. Bassil also
announced that five new international call centers have been opened,
in addition to the ten already in operation; the call centers,
located across Lebanon, create job opportunities.

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