LEBANON: CAMPAIGN ISSUE: THE ELECTIONS AND THE

C O N F I D E N T I A L SECTION 01 OF 03 BEIRUT 000624

SIPDIS

DEPT FOR NEA/FO, NEA/ELA
ALSO FOR IO A/S BRIMMER
P FOR DRUSSELL, RRANGASWAMY
USUN FOR WOLFF/GERMAIN/SCHEDLBAUER
NSC FOR SHAPIRO, MCDERMOTT
DOD/OSDFOR FLOURNOY/KAHL/DALTON
DRL/NESA FOR WHITMAN
VP FOR HMUSTAFA
PARIS FOR RWALLER

E.O. 12958: DECL: 06/02/2019
TAGS: PREL PGOV PTER EFIN MARR LE SY
SUBJECT: LEBANON: CAMPAIGN ISSUE: THE ELECTIONS AND THE
FOREIGN AID DEBATE

REF: A. BEIRUT 605

B. BEIRUT 598

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

SUMMARY
--------------


1. (C) Both the March 14 coalition and the opposition are
seeking to capitalize on the possible economic impact of the
international community's reactions to the June 7
parliamentary elections to gain votes. March 14 leaders have
floated the idea that an opposition-led Lebanese government
would face Hamas-style international isolation, arguing to
voters that only a March 14 majority government can guarantee
continued international assistance for Lebanon.


2. (C) In response, the Hizballah-led opposition has worked
to quell apprehension that international economic assistance
to Lebanon will diminish if the opposition wins on June 7.
Opposition leaders have pointed to public statements from
abroad to show international aid will continue despite
election results. Following Vice President Biden's May 22
visit to Lebanon, Hizballah SYG Hassan Nasrallah and his
allies claimed Iran would provide assistance to the Lebanese
Armed Forces if U.S. military assistance were lost. End
summary.

ECONOMIC THREATS FOR
CAMPAIGN GAINS
--------------


3. (C) March 14 leaders have sought to foment uncertainty
that a negative international, and especially U.S., reaction
to an opposition victory in the June 7 elections could hurt
the Lebanese economy and diminish international aid to the
country. March 14 leaders have highlighted the broad
international backing that March 14 receives to argue that
only a future March 14 majority would enjoy the same level of
support. March 14 leaders Walid Jumblatt and Saad Hariri
have also claimed publicly that an opposition victory would
have a negative impact on the Lebanese economy.


4. (C) In response, the opposition has sought to reassure
voters that international economic assistance to Lebanon and
confidence in the Lebanese economy will continue if the
opposition wins the June 7 elections. Opposition figures
have consistently refuted March 14's assertion that the
upcoming elections are "fateful," in part to reassure
Lebanese voters that the international community will not
abandon Lebanon. Opposition Christian leader Michel Aoun, in
response to March 14 claims that a victory by the opposition
will affect U.S. and EU assistance to Lebanon, has claimed to
voters that the United States "would be the first" government
to hold discussions with an opposition majority government
and joked that "maybe China will have compassion towards
Lebanon."

HIZBALLAH REFUTES POSSIBILITY
OF INTERNATIONAL ISOLATION
--------------


5. (C) Meanwhile, Hizballah has pointed to its interactions
with the financial community and donor countries to
demonstrate to Lebanese voters that a March 8 government
would be accepted internationally. Opposition supporters
pointed to the Hizballah meeting with IMF representatives
during the Fund's February-March mission to Lebanon to argue
that IMF support would continue if the opposition wins June

7. (Note: The IMF, with a $114 million program,
acknowledged that it met Hizballah officials as part of its
normal interaction with a range of political parties, but
reiterated that future IMF support will depend on a decision
by the Fund's executive board, of which the U.S. is a member.
The IMF has denied a "Financial Times" story that it had

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reached an agreement with Hizballah to continue IMF programs
under a Hizballah-led government. The IMF team explained that
it had met with Abed Al Halim Fadlalah, then deputy director
of an economic research center close to Hizballah, to explain
IMF activities and gather support for economic reforms, and
with Minister of Labor Fneish to discuss labor market and
social issues. End note.) Meanwhile, World Bank
representatives in Lebanon have told econoffs that the World
Bank will deal with any democratically-elected government.


6. (C) Hizballah, Aoun, and their allies have capitalized on
statements from abroad indicating international acceptance of
a democratically-elected opposition-led government in
Lebanon. Russian Foreign Minister Sergei Lavrov made such a
statement in his late May visit to Beirut. The
recently-arrived Saudi ambassador told us privately (ref A)
that the Kingdom will deal equally with all political
parties. French statements that Paris will deal with
Hizballah as it does with all other political parties if the
group and its allies win a majority on June 7 have been
widely covered in the media, as well as the EU's position
that it makes no distinction between Hizballah and other
political parties in Lebanon and will work with any
democratically elected government. All these bolster the
opposition's claims.

SUPPORT TO THE ARMY WILL CONTINUE
--------------


7. (C) The opposition also continues to reassure voters that
international assistance to the Lebanese Armed Forces (LAF)
will continue, and even improve, in the case of an opposition
victory on June 7. Following Vice President Biden's May 22
visit to Lebanon, during which the Vice President highlighted
extensive U.S. military aid to the LAF, Hizballah SYG Hassan
Nasrallah said via video feed to a May 27 rally in Baalbeck
that Iran is ready to give the LAF military equipment,
including an air-defense system, to target Israeli aircraft.
He clarified that Lebanon had not yet asked for arms from
Iran, and Iran had not yet offered, but that Iran is willing
to help "any Lebanese government" that requests military aid.
Nasrallah dismissed U.S. aid to the LAF, saying that Lebanon
needed air defense systems to confront Israel. Urging people
to vote for the opposition, he implied that only his
coalition would work to make the LAF a "strong and armed army
capable of defending Lebanon."

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


8. (C) Since 2005, there has been broad-based international
confidence in the government led by the March 14 coalition.
This has provided Lebanon with significant funds from abroad,
beneficial relationships with international financial
organizations, and a positive investment atmosphere. This
support has helped Lebanon's economy weather political storms
well. Particularly crucial was the Paris III assistance from
international donors following the 2006 war with Israel.


9. (C) Several Lebanese bankers recently told Treasury
Undersecretary Stuart Levey (ref B) that bankers worry a
negative U.S. reaction to an opposition victory could
potentially affect bank deposits and capital inflows.
Political instability or delayed cabinet formation could hurt
investments and tourism. Some wonder whether Arab and Gulf
deposits in Lebanese commercial banks -- deposited following
the onset of the financial crisis because of the perceived
safety of Lebanese banks -- will leave the country after an
opposition electoral victory. March 14 is continuing to play
up the possible effect of an opposition win on the economy in
the final days before the Sunday, June 7 election. Finally,
Vice President Biden's statement that "...we (the United
States) will evaluate the shape of our assistance programs
based on the composition of the new government and the
policies it advocates" continues to be widely discussed. End
comment.

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SISON