الاقتصاد اللبناني مدمّر بفعل الغارات والحصار

UNCLAS SECTION 01 OF 04 BEIRUT 002422 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ELA 
STATE PASS USTR 
TREASURY FOR MNUGENT 
USDOC FOR 4250/ITA/MAC/OME 
NSC FOR ABRAMS/DORAN/SINGH 
 
E.O. 12958: N/A 
TAGS: PGOV, EFIN, ECON, EINV, LE 
SUBJECT: TFLE01:  LEBANESE ECONOMY DEVASTATED BY AIR 
STRIKES AND BLOCKADE 
 
(SBU)  Summary.  A week of Israeli air strikes and a naval 
blockade has devastated Lebanon's economy, destroying key 
infrastructure and displacing hundreds of thousands of 
Lebanese.  Damage to public and private infrastructure is 
estimated to exceed USD 500 million, and the Lebanese economy 
could suffer GDP losses of USD 500 million for each week the 
fighting continues and in the near aftermath of the conflict. 
 Total losses to the Lebanese economy are likely to exceed 
USD 6-7 billion, as the air strikes occurred during peak 
periods for both the tourism and construction sectors.  The 
demand for dollars remains high, although Central Bank 
Governor Riad Salameh states that the Central Bank of Lebanon 
has sufficient foreign currency reserves (although 
insufficient banknotes).  Several factories have been hit in 
recent days, and petroleum supplies are in danger of running 
out soon.  There has been a strong demand for foodstuffs, as 
GOL officials tell the population that there are sufficient 
supplies of wheat, flour, and diesel.  Food supplies are 
larger than expected, as many traders imported additional 
quantities in recent months in anticipation of strong summer 
demand.  The Beirut Stock Market remains closed for the week 
after dropping 15 percent on Friday July 14.  End Summary. 
 
ECONOMIC POTENTIAL CRIPPLED 
ESTIMATED BILLIONS IN LOSSES 
---------------------------- 
 
2.  (SBU)  Estimates vary at the extent of economic damage to 
Lebanon of the Israeli air strikes, but it is clear that the 
damage will be extensive.  Prime Minister Siniora told the 
press on July 18 that the economic cost to Lebanon of the 
Israeli air strikes would be in the "billions of dollars". 
Private economist Charbel Nahas told the Embassy on July 19 
that the GOL had tasked the Council for Development and 
Reconstruction to do an assessment of economic damages. 
Nahas said he would be among the team of 30 experts that 
would be responsible for estimating economic damages.  The 
team would look at four major areas--damage to public 
properties, damage to private properties, human losses, and 
economic losses and lost revenue.  Nahas provided the Embassy 
with his rough estimates for losses during the first week of 
the crisis; according to Nahas, damage to public property is 
roughly USD 250 million so far and damage to private property 
is roughly USD 350 million.  He estimated that total economic 
loss since the crisis began would be roughly USD one billion. 
 Because the strikes hit during the high point of tourist 
season and in the middle of greater than average construction 
activity, Nahas estimates that the Lebanese economy will 
suffer roughly USD 500 million per week as long as the 
conflict continues and in the near aftermath.  Nahas 
estimated that the economy was now operating at 50 percent of 
its normal mid-July activity. 
 
3.  (U)  On July 18, the Chairman of the Association of 
Lebanese Banks Francois Bassil estimated the losses to the 
Lebanese economy of USD 6-7 billion, nearly one-third the 
total GDP of Lebanon. Finance Minister Jihad Azour told the 
press on July 17 that direct losses from the Israeli air 
raids could be estimated at USD 500 million, excluding lost 
earnings.  Azour's estimates are far lower than other leading 
economists; economist Marwan Iskandar declared on July 17 
that physical damage may be estimated at USD one billion 
while lost earnings may be estimated at USD 1.4 billion. 
 
TOURISM INDUSTRY DECIMATED 
-------------------------- 
 
4.  (U)  The tourism sector was expecting its most profitable 
year ever, as Beirut hotels and restaurants were completely 
full on July 11, the day before the current crisis started. 
Tourism Minister Joe Sarkis stated that lost tourist earnings 
for the remainder of the tourist season could reach USD 4.4 
billion and the livelihood of half a million people who earn 
a living from tourism is directly threatened.  On July 18, 
Minister of Economy and Trade (MOET) Sami Haddad estimated 
that the tourism industry will lose USD six million in 
revenues during 2006.  Tourism Ministry Director General Nada 
Sardouk said many businesses dependent on tourist revenue 
 
BEIRUT 00002422  002 OF 004 
 
 
gathered at the Ministry of Tourism on July 13 and July 14 
"shouting and crying" about lost revenues.  She said 
Hizballah is pushing the tourism sector towards bankruptcy 
and wondered who will compensate the industry for its lost 
revenues. 
 
KEY INFRASTRUCTURE DESTROYED 
---------------------------- 
 
5.  (SBU)  Crucial economic infrastructure has been hit and 
hit often by Israeli strikes.  The runways of Beirut 
International Airport, the Kleyate Airport near Tripoli and 
the Riyaq Military Airport in the Biqa Valley have been 
severely damaged as a result of repeated shelling.  Multiple 
air strikes have also damaged Lebanon's three major seaports 
of Beirut, Tripoli, and Jamil Gemajel.  A major focus of the 
Israeli air campaign has been the dismantling of the road 
network that links southern Lebanon to Beirut and the rest of 
Lebanon.  According to preliminary estimates, at least 38 
roads have been cut off and 42 bridges have been destroyed, 
with others partially destroyed.  The Beirut-Damascus 
international road has sustained severe damage and repeated 
shelling.  Side roads that link up with the Beirut-Damascus 
road have also sustained repeated shelling, making the 
journey to enter Syria from eastern Lebanon more difficult. 
The El Qaa (Lebanon)--Homs (Syria) road in northeast Lebanon 
has also been repeatedly shelled and is now closed.  The only 
viable road exit from Lebanon now is the road network north 
of Tripoli linking to Syria. 
 
6.  (U)  Destroyed bridges include the new Qassimieh bridge 
linking Sidon to Tyre, five bridges in Nabatieh, three 
bridges in Dammour, the two bridges of Hadid linking Bqosta 
in the South to Alman in the Chouf, the Hajje bridge in 
Maamarieh, the Namlieh bridge in Dahr-el-Baidar, the new 
bridge at Mdayrej on the Beirut-Damascus international road, 
and bridges that link the airport to the southern suburbs. 
Several important public building have been destroyed, 
including the Mayss al-Jabal Hospital and several schools in 
Kounin. 
 
DEMAND FOR DOLLARS 
------------------ 
 
7.  (SBU)  Demand for dollars remains high, although at a 
lower rate than July 17 and 18.  The Central Bank of Lebanon 
reportedly injected USD 300 million into the exchange market 
on July 18, bringing the total amount of its intervention to 
USD 1.2 million since the start of events.  Dollar bank notes 
are in short supply and the closure of Beirut International 
Airport has prevented the shipment of dollar bills into the 
country.  Banks have taken a number of operational measures 
to counter the problem, including: placing a withdrawal limit 
of USD 1000-2000, issuing travelers checks, and encouraging 
traveling clients to use their credit cards.  Exchange 
dealers are selling the dollar for 1600 Lebanese pounds, 
compared to the official rate of 1512 - 1514 Lebanese pounds 
to the dollar.  Central Bank Governor Riad Salameh told the 
press on July 17 that the Central Bank of Lebanon (CBL) has 
the means to meet increased dollar demand in the market. 
Salameh said the CBL now has about USD 13 billion in foreign 
currency reserves. 
 
8.  (SBU)  Audi Bank Head of Foreign Exchange Fouad Dibo told 
us on July 18 that Audi Bank was allowing its Lebanese 
clients to withdraw up to USD 1000 and was encouraging its 
clients to withdraw Lebanese pounds.  He said that the bank's 
money courier Mecattaf had no way of bringing in dollars to 
Lebanon.  According to Dido, there is currently no flight of 
capital but an outflow of dollars in cash.  Dido said that, 
theoretically, if 50,000 persons departed Lebanon carrying 
USD 1,000 each that would be an outflow of USD 50 million, 
but he expects many Lebanese are now hoarding dollars now and 
will redeposit them back into the banking system when the 
situation calms down. 
 
9.  (SBU)  According to the Chairman of BLC Bank Shadi Karam, 
"Despite the negative situation, the demand for dollars in 
 
BEIRUT 00002422  003 OF 004 
 
 
the past few days was far less than when former Prime 
Minister Rafik Hariri was assassinated" on February 14, 2005, 
but Karam and other bankers warned that if the security 
situation continues to deteriorate dollar notes could "dry 
up". 
 
FACTORIES HIT, 
RECOVERY WILL TAKE YEARS 
------------------------ 
 
10.  (SBU)  Air strikes on July 17 and July 18 disabled or 
completely destroyed several privately owned factories in 
Lebanon. Wajid al-Bisri, the Vice President of the 
Association of Lebanese Industrialists (ALI), confirmed that 
the country's largest dairy farm, Liban Lait in the Biqa 
Valley; a plastics factory in Tyre; a tissue paper factory in 
Sidon, and a paper mill and a medical supply company in 
Beirut's southern suburbs have been completely or nearly 
completely destroyed.  According to Bisri, the industrial 
outlook will be "much worse that we can possibly imagine when 
the whole thing ends, but the direct damage from the attacks 
on the industrial sector alone will take years to recover 
from."  In a July 17 letter to the Ambassador, ALI President 
Fadi Abboud appealed to the Ambassador to assist Lebanon in 
avoiding "any further destruction by Israel" of the Lebanese 
industrial base.  Future Movement MP Nabil de Freige, a major 
shareholder of Liban Lait, told us that the dairy plant in 
the Baalbeck area of the Biqa Valley had been completely 
destroyed.  He said there was no Hizballah presence around 
the USD 10 million investment, stating that there were "2,000 
cows, not katyushas." 
 
PETROLEUM SUPPLIES, POWER LIMITED 
--------------------------------- 
 
11.  (SBU)  During a July 15 conversation, the Deputy General 
Manager of Mediterannean Oil Shipping and Transport Co. 
(MEDCO), told Econoff that Lebanon had a supply of petroleum 
for 10-12 days under normal circumstances.  Chammas said that 
petroleum was being delivered at two to three times the 
normal rate, and he estimated that petroleum supplies could 
run out by the end of this week.  Other sources have 
indicated that Lebanon may have as much as a 30-day supply of 
petroleum.  Chammas is concerned that the remaining fuel 
supply could be hit by Israeli air strikes.  Several 
petroleum stations have been targeted in the Israeli air 
raids.  Petroleum storage facilities at Dora have so far 
avoided a direct hit from the Israeli air strikes, although 
shells have come close to the tanks.  Lebanon's major oil and 
gas storage facilities were closed July 17 and 18 due to 
fears that they would become the target of Israeli shells. 
The closure has had a major effect on the supply chain, 
mainly affecting gas stations and bakeries.  Fuel stations 
have established a rationing system of 20 liters.  The Jiyeh 
power station, which provides one quarter of Lebanon's power, 
has become unoperational as a result of the Israeli shelling. 
 
HIGH DEMAND FOR FOODSTUFFS 
-------------------------- 
 
12.  (U)  Demand for consumer goods remains high in areas 
that have received a large number of displaced persons. 
Supermarket shelves in Jbeyl, Kesrewan and Alley became empty 
at the end of the day on July 18.  There continues to be 
adequate stocks of most food supplies in many areas not 
targeted by the bombings.  The Beirut Traders Association's 
head Nadim Assi announced that there is enough food supply 
for the coming five months; traders had imported additional 
quantities of food in anticipation of a promising summer 
season.  The trouble, however, is trying to get the food to 
where it is most needed, given security risks and damaged 
roads.  Economy Minister Haddad has warned against any 
unethical increase in prices of consumer goods.  He called on 
consumers to report complaints to the MOET.  Haddad reassured 
citizens during a July 18 press conference that there are 
sufficient supplies of wheat, flour, and diesel.  The 
Secretary General of the Federation of Bakeries Anis Bishara 
 
SIPDIS 
called on citizens not to buy bread in excessive quantities 
 
BEIRUT 00002422  004 OF 004 
 
 
on July 17; Bishara said bakeries located in areas that were 
not shelled can produce enough bread for the existing 
population for a number of weeks.  Consumers continue to 
purchase goods in excessive quantities despite reassuring 
calls from suppliers about sufficient existing stocks. 
Prices of agricultural products are on the rise as the Biqa 
Valley, Lebanon's major agricultural production area, becomes 
further isolated.  Truck drivers are increasingly reluctant 
to transport goods from the Biqa. 
 
STOCK EXCHANGE CLOSED 
--------------------- 
 
13.  (SBU)  After dropping the maximum allowable 15 percent 
on July 14, the Beirut Stock Market (BSM) has remained closed 
on July 17, 18, and 19.  BSM Chairman Fadi Khalaf told the 
Embassy that the BSM will not do any additional trading this 
week.  He said that a decision was made on July 18 to close 
trading on the BSM until further notice.  He said that on 
July 21 the BSM Committee, brokers, and listed companies will 
meet to decide if trading will resume on Monday July 24. 
Khalaf said BSM staff are reporting to work to handle 
internal business and offices were closing at 1 p.m. 
FELTMAN