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French Version

Lebanese Central Bank: Privatize or securitize now (Daily Star)

Central Bank Governor Riad Salameh suggested on Monday that Lebanon cannot raise taxes as this may have a negative economic impact.

Salameh also underlined the need to trim the size of the public sector by allowing private companies to operate the state's commercial entities."The government's taxes represent 22 percent of the country's gross domestic product and this percentage is very high," Salameh said during a lecture on the public debt at Universite St. Joseph in Beirut.

He added that it would be difficult for the state to increase taxes without negatively affecting the overall economic growth."Taxes will affect the capabilities of the economy to attract investments and create job opportunities."

The government of Prime Rafik Hariri did not include any new taxes in the 2004 budget, which was approved by Parliament earlier this year. Trade Unions and political parties threatened to take to the streets if the government imposed new taxes in 2004.

In 2001, the government introduced the value-added tax to boost revenues. This consumer tax represents 25 percent of the Treasury's total revenues. The government also introduced a 5 percent tax on interest deposits, a move which was not welcomed by local banks.

Salameh said if the government was unable to privatize the state owned assets, then it should resort to securitization of government revenues.

The government failed to privatize any sector in 2003 due to the political differences between the ruling classes.

Privatization was a key element in the government five year plan that was submitted at the "Paris II" conference in November 2002. "The proceeds from securitization will be used to reduce the public, which is estimated at $33 billion," Salameh said. He added that securitization involves selling a sector's future revenues for a period of time and is not considered an additional public debt.

The government hopes to securitize part of the telecom revenues, which are estimated at more than $750 million a year."We estimate the proceeds from the securitization of the government owned Regie Tobacco Company and cellular networks at more than $2 billion if we are able to sell the future revenues of these two sectors over a seven-year period."

Salameh reminded the participants that the International Monetary Fund has asked the government to implement radical reforms in the electricity sector, which is costing the government $400 million a year.

But Salameh stressed that privatization is needed in some areas to reduce the deficit and control the public debt."We must have profitable institutions in order to boost investments and enhance Lebanon's competitive edge," the Central Bank governor said.

Beirut 17-05-2004
Osama Habib
The Daily Star

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