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French Version

Salameh keeps up drumbeat in support of reform

Central bank chief says $4.4 billion of paris III aid hangs in the balance

A positive political climate in Lebanon is crucial for the implementation of fiscal and economic reforms in 2007 and the coming years, Central Bank Governor Riad Salameh said on Wednesday.

"There should have been a general consensus before going to Paris III last month but unfortunately the timing was not under our control. That's why we went there to make the best of it," Salameh told bankers, businessmen and reporters during a launch ceremony held in his honor by Lebanon Opportunities magazine at the Crowne Plaza Hotel in Hamra.

Salameh was alluding to January's Paris III donor conference to ease the burden of Lebanon's public debt, speed up reforms and inject cash into the private sector.

Prime Minister Fouad Siniora managed to come back to Lebanon from Paris with a total of $7.6 billion in pledges from the donor states and international organizations.

In Speaker Nabih Berri's Parliament, the government faces an obstacle to pushing for reforms and privatizing state-owned companies. Berri is aligned with the opposition.

Salameh said the donor states agreed unconditionally to give Lebanon $2 billion to finance foreign-currency-denominated bonds maturing this year.

The government hopes to reduce the cost of debt-servicing through the injection of cash from donors' soft loans, which carry interest rates of less than 4 percent.

"The second phase of the assistance is the support of the private sector, and for this reason the donor states agreed to provide Lebanon with $1.2 billion in soft loans," Salameh said.

But the bank chief admitted that the remaining $4.4 billion in pledges are linked to government reforms.

He said that the International Monetary Fund (IMF) would follow the progress of reforms.

Opposition parties and trade unions have blasted the government reform proposal because it supports new taxes.

Salameh said the tax raises in the reform paper "may be delayed if they will affect the purchasing power of the Lebanese."

According to the proposal, the value added tax (VAT) will jump from 10 percent to 12 percent in 2008 and to 15 percent in 2010.

In addition, the government intends to impose a new tax on gasoline that could lift the price of 20 liters from $14.66 to more than $20.00, according to some estimates.

Responding to a question, Salameh said that Lebanese banks can help in reducing the cost of debt servicing, but emphasized that banks would act on a voluntary basis.

"The Central Bank will engineer some plans to help the government in its task to reduce debt servicing and we hope that the banks will help us endure this difficult situation," Salameh said.

Lebanese banks provided that government in 2002 with $4 billion in Treasury bills and Eurobonds that carried zero percent interest.

But the president of the Association of Banks in Lebanon, Francois Bassil, has repeatedly said that the banks would not repeat the same scenario.

Salameh defended the privatization program on the grounds that the state was not a successful merchant.

"The government can act as a regulator and supervise the performance of all the privatized companies," he said.

Salameh said the Central Bank will continue its monetary policy to keep the Lebanese pound stable at a time of political adversity.

He also gave a bright picture of the banking sector in Lebanon, noting that bank deposits continue to rise despite the political situation.

"The Central Bank policies are effective and as you can see not a single bank went into bankruptcy and not a single individual lost his deposit over the past 13 years," he said.

"I sleep sound at night knowing that the bank deposits and foreign currency reserves are high," Salameh said, noting that deposits by Lebanese living abroad are also high.

Beirut 22-02-2007
The Daily Star

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