LEBANON: LEBANON BEGINS DISBURSING ASSISTANCE TO GAZA

UNCLAS SECTION 01 OF 02 BEIRUT 000082

SENSITIVE

SIPDIS

STATE FOR NEA/ELA
STATE PASS USTR FRANCESCKI
STATE PASS USAID BEVER/LAUDATO/SCOTT
TREASURY FOR PARODI/BLEIWEISS/AHERN
USDOC FOR 4520/ITA/MAC/ONE
NSC FOR ABRAMS/RAMCHAND/YERGER/MCDERMOTT

E.O. 12958: N/A
TAGS: ECON EFIN PREL PGOV LE
SUBJECT: LEBANON: LEBANON BEGINS DISBURSING ASSISTANCE TO GAZA
(ECONOMIC WEEK IN REVIEW, JANUARY 12 - 18, 2009)

REF: BEIRUT 56

CONTENTS
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-- LEBANON BEGINS DISBURSING ASSISTANCE TO GAZA
-- CABINET APPOINTS OPERATORS TO MANAGE AND EXPAND MOBILE NETWORK
-- CENTRAL BANK PLANS TO ENCOURAGE PRIVATE SECTOR LENDING...
-- ... AND EXPECTS BANKS TO ROLLOVER 2009 EUROBOND MATURITIES
-- CABINET WILL CONTINUE 2009 BUDGET DISCUSSIONS NEXT WEEK
-- EIU: GDP GROWTH DOWN TO 2.7 PERCENT, MOBILE PRIVATIZATION
UNLIKELY IN 2009
-- EFG HERMES: 4.5 PERCENT GDP GROWTH AND FOUR PERCENT INFLATION IN
2009
-- LEBANON'S QUALITY OF LIFE SUPERIOR TO AVERAGE IN MENA REGION

LEBANON BEGINS DISBURSING
ASSISTANCE TO GAZA
--------------


1. (SBU) After the Lebanese Cabinet's $1 million assistance pledge
to Gaza on December 30 (reftel),Lebanon sent its first shipment of
in-kind assistance to Gaza by plane via Jordan on January 3. The
shipment consisted of 17 tons of medical supplies and equipment and
2,060 blankets. Ambassador Khalil Mekkawi, Head of the
Lebanese-Palestinian Dialogue Committee, estimated the value of this
first load of assistance to be approximately $200,000, and said
Lebanon will send subsequent deliveries to fulfill the
million-dollar pledge based on needs submitted by the Palestinian
Health Ministry in Gaza.


2. (SBU) In its December 30 meeting, the cabinet also approved the
launch of a campaign to collect contributions for Gaza. The
Lebanese-Palestinian Dialogue Committee launched a media campaign
and opened an account for donations.

CABINET APPOINTS OPERATORS TO MANAGE
AND EXPAND MOBILE NETWORK
--------------


3. (U) The cabinet selected Egyptian company Orascom and Kuwaiti
Zain (currently managing one of the GOL-owned companies) for a
one-year management contract, renewable for a second year, starting
in early February for the two GOL-owned mobile companies. Ina
press conference on January 15, Telecom Ministe Gebran Bassil said
the contracts should result in each company absorbing 400,000
additional subscribers by the end of April 2009. This will allow
the GOL to lower tariffs without losing revenues. Bassil pledged to
submit a proposal to lower mobile tariffs to the cabinet by the end
of January, hoping to begin implementation by February or March at
the latest, he said.

CENTRAL BANK PLANS TO ENCOURAGE
PRIVATE SECTOR LENDING...
--------------


4. (U) On January 13, Governor of the Central Bank of Lebanon (CBL)
Riad Salameh publicly said the CBL is working with the GOL to
encourage commercial bank lending in Lebanese pounds to the private
sector to stimulate economic growth. Salameh explained that the
fall in the dollarization rate of deposits since the start of the
global financial crisis (from 77.3 percent at the end of 2007 to
69.7 percent by November 2008) has increased banks' liquidity in
Lebanese pounds. The proposal consists of subsidizing interest
rates on loans in Lebanese pounds as well as lowering obligatory
reserves imposed by the CBL on pound-denominated deposits in banks.
(Note: The GOL already subsidizes loans in the industry, tourism,
agriculture, and information technology sectors. End note.)


5. (U) Meanwhile, Salameh estimated GDP growth at six percent for
2008 and inflation between eight to ten percent, and concurred with
the IMF's projection of five percent growth for 2009. He expects
the dollarization rate of deposits to drop further in 2009. He also
expects interest rates on local currency to remain stable or drop
slightly in 2009.

... AND EXPECTS ANKS TO ROLLOVER
2009 EUROBOND MATURITIES
--------------

BEIRUT 00000082 002 OF 002




6. (U) Salameh said the CBL's foreign currency assets (excluding
gold) reached a record high $20 billion in 2008 as a result of
conversions of foreign currency-denominated deposits to Lebanese
pound deposits which offer higher returns. The CBL purchased about
$8 billion in excess dollar supply from the foreign exchange market,
he said. This increased demand for Lebanese pounds will also
encourage a drop in interest rates on certificates of deposit in
Lebanese Pounds and consequently will facilitate the roll-over of
$2.6 billion in Eurobonds that will mature in 2009, he said.

CABINET WILL CONTINUE 2009
BUDGET DISCUSSIONS NEXT WEEK
--------------


7. (SBU) On January 12 and 13, the cabinet discussed the 2009 budget
proposal and approved the budget figures, but discussions were
postponed because of disagreement on allocations to the Council for
the South for compensation for the 2006 war, a senior source at the
Finance Ministry told us. The source said the cabinet will meet
next week to continue budget discussions. (Note: The Council for
the South, along with several other GOL institutions, has long been
criticized as little more than an instrument of political patronage.
The annual budget discussion always includes calls for closure of
these institutions, but political horse-trading has thus far always
resulted in their continued existence. End note.)

EIU: GDP GROWTH DOWN TO 2.7 PERCENT,
MOBILE PRIVATIZATION UNLIKELY IN 2009
--------------


8. (U) The Economist Intelligence Unit's (EIU) latest report on
Lebanon maintained its estimate for real GDP growth at 4.2 percent
in 2008, and revised downwards its forecast for 2009 from 3.1
percent to 2.7 percent. It attributed lower growth in 2009 to
spillovers from the global economic slowdown (indirectly impacting
local tourism, real estate, construction, and the financial sector),
a rise in political uncertainty due to upcoming parliamentary
elections, economic contraction in the U.S. and EU, and slower
growth in the Gulf, which will have a negative impact on
remittances.


9. (U) The EIU expects little progress on the GOL's economic reform
plan, especially mobile privatization, because of unfavorable global
market conditions and domestic opposition. Immediate risks from the
global crisis to the local banking sector remain limited. The
report also noted its fears that the global liquidity freeze could
increase pressure on the GOL, which needs to roll over large volumes
of debt instruments and take on new debt.

LEBANON'S QUALITY OF LIFE SUPERIOR
TO AVERAGE IN MENA REGION
--------------


10. (U) International Living Magazine's annual Quality of Life Index
ranked Lebanon 105 out of 195 countries worldwide, and four out of
20 MENA countries in 2009, compared to 104 out of 194 countries
worldwide and five out of 20 MENA countries in the previous survey.
Lebanon's quality of life was considered above average in the MENA
region. The index assesses nine components of quality of life,
including: cost of living, culture and leisure, economy,
environment, freedom, health, infrastructure, safety and risk, and
climate.

SISON