The Lebanese Republic Global Medium Term Note Program

U.S. $13,500,000,000 The Lebanese Republic Global Medium Term Note Program

Under this U.S. $13,500,000,000 Global Medium Term Note Program (the "Program"), the Lebanese Republic (the "Republic") may, from time to time, subject to compliance with all relevant laws, regulations and directives, issue notes in either bearer or registered form (the "Notes"). The maximum aggregate principal amount of all Notes from time to time outstanding under the Program will not exceed U.S. $13,500,000,000 (or its equivalent in other currencies determined at the time of the agreement to issue), subject to any duly authorized increase. The Notes may be denominated in U.S. Dollars, euro and such other currencies as may be agreed between the Republic and the relevant Dealers (as defined below). The Notes will have maturities of not less than three months nor more than 30 years and will bear interest on a fixed or floating rate basis. Attention is drawn to the limitations and qualifications regarding the description of the economic situation in the Republic appearing on page 8 of this Offering Circular. This Offering Circular supersedes all prior Offering Circulars relating to the Program. Any Notes to be issued after the date hereof under the Program are issued subject to the provisions set out herein. This does not affect any Notes issued prior to the date hereof. The Notes may be issued on a continuing basis to the Dealers and any additional Dealer(s) appointed under the Program from time to time pursuant to the terms of a Program Agreement dated March 8, 1999 (as the same may be amended from time to time, the "Program Agreement"), which appointment may be for a specific issue or on an ongoing basis (each, a "Dealer" and, together, the "Dealers"). References in this Offering Circular to the "relevant Dealer," in the case of an issue of Notes being (or intended to be) subscribed by more than one Dealer, shall be to all Dealers agreeing to subscribe for such Notes. Notes will be issued in Series (each a "Series"), with all Notes in a Series having the same maturity date and terms otherwise identical (except in relation to issue dates, interest commencement dates, issue prices and related matters). Notes in each Series may be issued in one or more tranches (each a "Tranche") on different issue dates. Details applicable to each particular Series or Tranche will be supplied in a pricing supplement to this Offering Circular (each a "Pricing Supplement"), which will contain the aggregate principal amount of the Notes, interest (if any) payable in respect of Notes, the issue price of Notes and any other terms and conditions not contained herein which are applicable to each Tranche. This Offering Circular may not be used to consummate sales of Notes unless accompanied by a Pricing Supplement. Application has been made to list the Notes issued under the Program on the Luxembourg Stock Exchange. This Offering Circular may be used to list the Notes issued under the Program on the Luxembourg Stock Exchange during the period of twelve months from the date hereof. The Program provides that Notes may be listed on such further stock exchange(s) as may be agreed upon by and among the Republic, the Fiscal Agent and the relevant Dealer. The Republic may also issue unlisted Notes. The Pricing Supplement with respect to Notes to be listed on the Luxembourg Stock Exchange will be delivered to the Luxembourg Stock Exchange on or before the date of issue of the Notes of such Tranche. Notes of each Tranche will initially be represented by either a Temporary Global Note, a Permanent Global Note, a Regulation S Global Note, a Restricted Global Note, Definitive Bearer Notes and/or Definitive Registered Notes (each as defined herein) as indicated in the applicable Pricing Supplement. See "Forms of the Notes". Notes offered otherwise than in reliance on Regulation S under the United States Securities Act of 1933, as amended (the "Securities Act") pursuant to the Program Agreement may be offered by the Dealers through their respective agents in the United States. Arranger Merrill Lynch International Dealers ABN AMRO BNP PARIBAS Commerzbank Securities Credit Suisse First Boston Deutsche Bank JPMorgan Merrill Lynch International Morgan Stanley Nomura International Schroder Salomon Smith Barney

The date of this Offering Circular is December 23, 2002

The Republic, to the best of its knowledge and belief, having made all reasonable inquiries, confirms that this Offering Circular contains or incorporates all information with respect to the Republic and the Notes to be issued by it which is material in the context of the Program and the issue and offering of the Notes thereunder, that the information contained herein is true and accurate in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein in relation to it are honestly held and that there are no other facts with respect to the Republic or the Notes the omission of which would make this document as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect. The Republic accepts responsibility for the information contained herein relating to the Republic and the Notes accordingly.

This Offering Circular is to be read in conjunction with all documents which are deemed to be incorporated herein by reference (see "Documents Incorporated by Reference" below). This Offering Circular shall, save as specified herein, be read and construed on the basis that such documents are so incorporated and form part of this Offering Circular.

The Dealers have not independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Dealers as to the accuracy or completeness of the information contained in this Offering Circular or any other information provided by the Republic or any other person in connection with the Program or the Notes or their distribution. The statements made in this paragraph are made without prejudice to the responsibility of the Republic under the Program.

No person is or has been authorized to give any information or to make any representation not contained in or not consistent with this Offering Circular, the Program Agreement or any other information supplied in connection with the Program or the Notes and, if given or made, such information or representation must not be relied upon as having been authorized by the Republic or any of the Dealers.

Neither this Offering Circular nor any other information supplied in connection with the Program or any Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation or constituting an offer by the Republic or any of the Dealers that any recipient of this Offering Circular or any other information supplied in connection with the Program or any Notes should purchase any Notes in any jurisdiction where it is unlawful for such person to make such a recommendation or offer. Each investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs and its own appraisal of the creditworthiness of the Republic. Neither this Offering Circular nor any other information supplied in connection with the Program or any Notes constitutes an offer or invitation by or on behalf of the Republic or any of the Dealers to any person to whom it is unlawful to make such offer to subscribe for or to purchase any Notes.

The delivery of this Offering Circular does not at any time imply that the information contained herein concerning the Republic is correct at any time subsequent to the date hereof or the date as of which it is expressed to be given or that any other information supplied in connection with the Program is correct as of any time subsequent to the date indicated in the document containing the same. The Dealers expressly do not undertake to review the financial condition or affairs of the Republic during the life of the Program. Investors should review, inter alia, documents incorporated by reference herein when deciding whether or not to purchase any Notes.

The distribution of this Offering Circular and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Republic and the Dealers do not represent that this document may be lawfully distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Republic or the Dealers (save for the approval of this document as listing particulars by the Luxembourg Stock Exchange) which would permit a public offering of any Notes or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Offering Circular nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations and the Dealers have represented that all offers and sales by them will be made on the same terms. Persons into whose possession this Offering Circular or any Notes come must inform themselves about and observe any such restrictions. In particular, there are restrictions on the distribution of this Offering Circular and the offer or sale of Notes in the United States, the United Kingdom and The Netherlands. For a description of these and certain further restrictions on offers and sales of the Notes and distribution of this Offering Circular, see "Subscription and Sale" and "Notice to Purchasers and Holders of Restricted Notes and Transfer Restrictions" below.

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The Notes have not been registered with, recommended by or approved or disapproved by the United States Securities and Exchange Commission (the "SEC") or any other federal or state securities commission in the United States nor has the SEC or any other federal or state securities commission confirmed the accuracy or determined the adequacy of this Offering Circular. Any representation to the contrary is a criminal offense in the United States. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under applicable federal or state securities laws pursuant to a registration statement or an exemption from registration. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time.

In making an investment decision regarding the Notes, prospective investors must rely on their own examination of the Republic and the terms of the Program, including the merits and risks involved. The offer and sale of Notes is made on the basis of this Offering Circular. Any decision to purchase Notes offered and sold must be based on the information contained herein.

The Notes may include Notes in bearer form that are subject to U. S. tax law requirements. Subject to certain exceptions described below, the Notes may not be offered, resold or delivered within the United States to, or for the account or benefit of, U. S. persons (as defined in Regulation S under the Securities Act (" Regulation S")). See "Subscription and Sale."

This Offering Circular has been prepared by the Republic for use in connection with the offer and sale of Notes in reliance upon Regulation S outside the United States to non- U. S. persons and, with respect to Notes in registered form only, within the United States (1) in reliance upon Rule 144A under the Securities Act (" Rule 144A") to qualified institutional buyers ("QIBs") within the meaning of Rule 144A or (2) to a limited number of institutional accredited investors (as defined in Rule 501( a)( 1), (2), (3) or (7) under the Securities Act) (" Institutional Accredited Investors") pursuant to Section 4( 2) of the Securities Act or in transactions otherwise exempt from registration. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

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NOTICE TO FLORIDA RESIDENTS

THESE NOTES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER SECTION 517.061 OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT AND HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. ALL FLORIDA RESIDENTS (OTHER THAN EXEMPT INSTITUTIONAL INVESTORS) HAVE THE RIGHT TO VOID THE PURCHASE OF THESE NOTES WITHOUT PENALTY WITHIN THREE (3) DAYS OF MAKING SUCH PURCHASE.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ANNOTATED, 1955, AS AMENDED ("RSA"), WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER SUCH RSA CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

PRESENTATION OF FINANCIAL INFORMATION

All references in this document to "Lebanese Pounds," "LL" and "LBP" are to the currency of the Republic of Lebanon; to "U.S. Dollars," "U.S. $," and "$" are to the currency of the United States of America; and to "euro" are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended by the Treaty on European Union. References in this document to "billions" are to thousands of millions, to "Lebanon" or the "Republic" are to the Republic of Lebanon and to the "Government" are to the Government of Lebanon.

For ease of presentation, certain financial information relating to the Republic included herein is presented as translated into U.S. Dollars. On December 20, 2002 the closing U.S. Dollar/Lebanese Pound rate of exchange as reported by Banque du Liban, the Republic's Central Bank, was LBP 1,507.50 = U.S. $1.00. However, this translation should not be construed as a representation that the Lebanese Pound amount actually represents such U.S. Dollar amount or could be converted into U.S. Dollars at the rate indicated or any other rate.

Certain monetary amounts included in this Offering Circular have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an exact arithmetic aggregation of the figures that precede them.

IN CONNECTION WITH THE ISSUE OF ANY SERIES OF NOTES UNDER THE PROGRAM, THE DEALER (IF ANY) DESIGNATED FOR THIS PURPOSE AS THE STABILIZING DEALER IN THE APPLICABLE PRICING SUPPLEMENT OR ANY PERSON ACTING FOR SUCH DEALER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES IN SUCH SERIES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL FOR A LIMITED PERIOD AFTER THE ISSUE DATE. HOWEVER, THERE IS NO OBLIGATION ON THE STABILIZING DEALER OR ANY AGENT TO DO SO. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD. SUCH STABILIZING WILL BE CARRIED OUT IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RELEVANT REGULATIONS. SEE "SUBSCRIPTION AND SALE".

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TABLE OF CONTENTS

Page

JURISDICTION AND ENFORCEMENT ...... vi

DOCUMENTS INCORPORATED BY REFERENCE ...... vii

GENERAL DESCRIPTION OF THE PROGRAM ...... viii

SELECTED LEBANESE ECONOMIC INDICATORS...... 8

THE LEBANESE REPUBLIC...... 9

TERMS AND CONDITIONS OF THE NOTES ...... 57

USE OF PROCEEDS ...... 80

FORMS OF THE NOTES...... 81

BOOK-ENTRY CLEARANCE SYSTEMS ...... 83

SUMMARY OF PROVISIONS RELATING TO DEFINITIVE REGISTERED NOTES...... 88

NOTICE TO PURCHASERS AND HOLDERS OF RESTRICTED NOTES AND TRANSFER RESTRICTIONS...... 89

TAXATION ...... 92

SUBSCRIPTION AND SALE ...... 103

GENERAL INFORMATION...... 106

ANNEX A FORM OF THE PRICING SUPPLEMENT...... 108

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JURISDICTION AND ENFORCEMENT

Jurisdiction and Immunity

The Republic is a sovereign state. Consequently, it may be difficult for investors to obtain or realize upon judgments against the Republic in the courts of the United States. The Republic has irrevocably submitted to the non-exclusive jurisdiction of any New York State or federal court sitting in The City of New York in the Borough of Manhattan for purposes of any suit, action or proceeding arising out of or relating to the Notes (a "Related Proceeding"). The Republic has also irrevocably agreed that all claims in respect of any Related Proceeding may be heard and determined in any such New York State court or any such federal court, subject to the following. The Republic has irrevocably waived the defense of an inconvenient forum to the maintenance of any Related Proceeding whether on the grounds of venue, residence or domicile; however, the Republic will not waive any right to seek removal or transfer of any Related Proceeding from any such court of the State of New York to any United States federal court sitting in New York City, in the Borough of Manhattan.

To the extent that the Republic or its assets have or hereafter may acquire any immunity (sovereign or otherwise) from the jurisdiction of any such courts or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) in any such court, the Republic has, to the extent it is lawfully entitled to do so, irrevocably agreed not to claim and will irrevocably waive such immunity in respect of any Related Proceeding. This waiver of immunity by the Republic will have the fullest scope permitted under the Foreign Sovereign Immunities Act of 1976 of the United States but will not constitute a general waiver or a waiver of immunity in respect of property that is used solely or principally for official purposes (such as ambassadorial and consular real property and buildings and the contents thereof, or any bank accounts of embassies or consulates to the extent of monies maintained therein for ambassadorial, consular or other official purposes, but not commercial purposes, in each case necessary for the proper official, ambassadorial or consular functioning of the Republic).

Prospective investors in Notes should be aware that, pursuant to Lebanese law, including Article 860 of the Code of Civil Procedure of Lebanon, the Republic's properties and assets are immune from execution, attachment or other legal or judicial process and, in any Related Proceeding brought in the courts of Lebanon against the Republic or brought in those courts to enforce or seek recognition of a judgment obtained outside Lebanon, the Republic's waiver of immunity referred to above would not be given effect to the extent it violates Article 860 of the Code of Civil Procedure of Lebanon.

Proceedings and Enforcement

The enforcement of foreign judgments in Lebanon is governed by Articles 1013, 1014, 1015 and 1016 of the Lebanese Code of Civil Procedure. Under those provisions, a judgment obtained in any U.S. court would be recognized and enforced by the courts in Lebanon without reconsideration of its merits provided that the foreign judgment satisfies the following additional conditions: (i) the foreign judgment must have been issued by a court competent to do so under the law of the relevant country in a proceeding in which the court's jurisdiction was not based solely on the nationality of the plaintiff; (ii) the foreign judgment must be final and enforceable in the country in which it was rendered, and the foreign judgment must not be based on documents subsequently deemed or found to be untrue and must not contain contradictory terms; (iii) the laws of the country in which the foreign judgment was rendered must permit the enforcement of judgments rendered by Lebanese courts without reconsideration of the merits; (iv) the defendant must have been properly served with legal process with respect to the proceeding in which the foreign judgment was rendered and due process must have been observed in connection with the proceeding, and no party to the litigation must have failed to deliver to the court material documents relating to the dispute; (v) the foreign judgment must not be contrary to Lebanese public policy; (vi) a final judgment in the same case between the same parties must not have been rendered by a Lebanese court; and (vii) no action commenced prior to the relevant foreign proceeding may be pending with respect to the same subject matter and between the same parties before the Lebanese courts.

Enforcement of foreign judgments in Lebanon also involves the payment of significant court and related fees, which may be as high as 2.5 per cent. of the amount claimed. Court costs and fees in connection with a direct action brought against the Republic in Lebanese courts may be as high as 5 per cent. of the amount claimed.

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DOCUMENTS INCORPORATED BY REFERENCE

The following documents shall be deemed to be incorporated in, and to form part of, this Offering Circular:

(a) all supplements and amendments to this Offering Circular circulated by the Republic from time to time in accordance with the provisions of the Program Agreement described below; and

(b) any Pricing Supplement prepared in respect of any Notes issued under the Program; except that any statement contained herein or in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Offering Circular to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise).

The Republic will provide, without charge, to each person to whom a copy of this Offering Circular has been delivered, upon the written request of such person, a copy of any or all of the documents deemed to be incorporated herein by reference, unless such documents have been modified or superseded as specified above. Written requests for such documents should be directed to the Republic at its address set forth at the end of this Offering Circular. In addition, such documents will be available free of charge from the principal office in Luxembourg of Deutsche Bank Luxembourg S.A., in its capacity as listing agent (the "Luxembourg Listing Agent") for the Notes listed on the Luxembourg Stock Exchange.

The Republic has agreed to comply with any undertakings given by it from time to time to the Luxembourg Stock Exchange in connection with Notes in a Series to be listed on the Luxembourg Stock Exchange and, without prejudice to the generality of the foregoing, shall in connection with the listing of the Notes on the Luxembourg Stock Exchange or any other relevant stock exchange, so long as any Note remains outstanding, prepare a supplement to the Offering Circular, or, as the case may be, publish in a new Offering Circular, whenever required by the rules of the Luxembourg Stock Exchange or any other relevant stock exchange and in any event (i) if the maximum aggregate principal amount of Notes that may be issued under the Program is increased, (ii) upon the Republic becoming aware that (A) there has been a significant change (including any change to the Terms and Conditions of the Notes in a Series to be listed on the Luxembourg Stock Exchange) affecting any matter contained in this Offering Circular or (B) a significant new matter has arisen, the inclusion of information in respect of which would have been required to be in the Offering Circular if it had arisen before the Offering Circular was issued or (iii) if the terms of the Program are modified or amended in a manner which would make this Offering Circular, as supplemented, materially inaccurate or misleading. In the event that a supplement to the Offering Circular is produced pursuant to such undertakings, a copy of such supplement will accompany this Offering Circular. Any such supplement to the Offering Circular will also be available from the specified office of the Fiscal Agent and Transfer Agent in Luxembourg. See "General Information—Documents Available."

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GENERAL DESCRIPTION OF THE PROGRAM

Under the Program, the Republic may, from time to time, issue Notes denominated in U.S. Dollars, euro or in any other currency and with a minimum maturity of three months and a maximum maturity of 30 years, subject to the terms more fully set forth herein. A summary of the terms and conditions of the Program and the Notes appears below. The applicable terms of any Notes will be agreed upon by and between the Republic and the relevant Dealer prior to the issue of the Notes and will be set forth in the Terms and Conditions of the Notes endorsed on, or incorporated by reference into, the Notes, as modified and supplemented by the applicable Pricing Supplement attached to, or endorsed on, such Notes, as more fully described under "Forms of the Notes" below.

This Offering Circular and any supplement will only be valid for listing Notes on the Luxembourg Stock Exchange in an aggregate principal amount of the Notes which, when added to the aggregate principal amount then outstanding of all Notes previously or simultaneously issued under the Program, does not exceed U.S. $ 13,500,000,000 or its equivalent in other currencies. For the purpose of calculating the U.S. Dollar equivalent of the aggregate principal amount of Notes issued under the Program from time to time, the U.S. Dollar equivalent of Notes denominated in another Specified Currency (as defined below) shall be determined, at the discretion of the Republic, either as of the date on which agreement is reached for the issue of Notes or on the first preceding day on which commercial banks and foreign exchange markets are open for business, in each case on the basis of the spot rate for the sale of the U.S. Dollar against the purchase of such Specified Currency in a foreign exchange market quoted by any leading international bank selected by the Republic on the relevant day of calculation.

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SUMMARY OF THE PROGRAM AND TERMS AND CONDITIONS OF THE NOTES

The following summary does not purport to be complete and is qualified in its entirety by the more detailed information provided elsewhere in this Offering Circular and, in relation to the terms and conditions of any particular Tranche or Series of Notes, by the Pricing Supplement. Words and expressions used in this Summary and not otherwise defined shall have the meanings ascribed to such words and expressions in "Terms and Conditions of the Notes" and "Forms of the Notes" below. References to a specific "Condition" shall be deemed to refer to the relevant Condition set forth in of the Terms and Conditions of the Notes.

Issuer: ...... The Lebanese Republic.

Description:...... Global Medium Term Note Program.

Arranger: ...... Merrill Lynch International.

Dealers:...... ABN AMRO Bank N.V., BNP PARIBAS, Commerzbank Aktiengesellschaft, Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG London, J.P. Morgan Europe Limited, Merrill Lynch International, Morgan Stanley & Co. International Limited, Nomura International plc and Salomon Brothers International Limited.

Pursuant to the terms of the Program Agreement, the Republic may issue Notes to persons other than Dealers and may terminate the appointment of any Dealer or appoint further Dealers for a particular Tranche or Series of Notes or for the Program.

Offers of Notes otherwise than in reliance on Regulation S under the Securities Act may be offered by Dealers through their respective agents in the United States.

Fiscal Agent, Transfer Agent, Registrar and Exchange Agent:...... Deutsche Bank Trust Company Americas.

Paying Agent and Transfer Agent in London:... Deutsche Bank AG London.

Paying Agent and Transfer Agent in Luxembourg and Listing Agent:...... Deutsche Bank Luxembourg S.A.

Size:...... Up to U.S. $ 13,500,000,000 (or its equivalent in other currencies, calculated as described in "General Description of the Program") outstanding at any time, subject to any duly authorized increase.

Authorizations: ...... The establishment of the Program was duly authorized pursuant to a Resolution of the Council of Ministers dated February 24, 1999. Any issuance of Notes under this Program is subject to, and conditional upon, (i) the existence or adoption of a law by the Lebanese Parliament authorizing the issuance of such notes (and the underlying borrowing) and (ii) obtaining any other necessary consents, approvals and

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authorizations in connection with the issuance of any such Notes.

Distributions: ...... Notes may be distributed on a syndicated or non- syndicated basis.

Currencies:...... U.S. Dollars, euro and, subject to compliance with all relevant laws, regulations and directives, such other currencies as may be agreed between the Republic and the Dealers and specified in the applicable Pricing Supplement (each a "Specified Currency").

Each issue of Notes denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements (see "Subscription and Sale" below).

Redenomination: ...... If the Specified Currency of an issue of Notes is a currency of one of the member states of the European Union, the Republic may specify in the applicable Pricing Supplement that such Notes will include a redenomination clause providing for the redenomination of the Specified Currency to euro (a "Redenomination Clause") and, if so specified, the wording of the Redenomination Clause will be set out in full in the applicable Pricing Supplement.

Issuance in Series: ...... Notes will be issued in Series, with all Notes in a Series having the same maturity date and terms otherwise identical (except in relation to issue dates, interest commencement dates, issue prices and related matters). The Notes in each Series may be issued in one or more Tranches on different issue dates.

Maturities:...... Such maturities as may be agreed between the Republic and the relevant Dealer as indicated in the applicable Pricing Supplement, subject to a minimum maturity of three months and a maximum maturity of 30 years and subject to such other minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Republic or the relevant Specified Currency.

Any Notes in respect of which the issue proceeds are received by the Issuer in the United Kingdom and which have a maturity of less than one year must (a) have a minimum redemption value of £100,000 (or its equivalent in other currencies) and be issued only to persons (i) whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their

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businesses or (ii) who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses; or (b) be issued in other circumstances that do not constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 by the Issuer.

Amortization:...... If specified in the applicable Pricing Supplement, the Notes will be redeemed in the Amortization Amounts and on the Amortization Dates set forth in the applicable Pricing Supplement.

Issue Price: ...... Notes may be issued at an issue price which is at par or at a discount to, or at a premium over, par.

Forms of the Notes: ...... Notes may be issued in bearer or in registered form, as specified in the applicable Pricing Supplement. Notes in bearer form (" Bearer Notes") will not be exchangeable for Notes in registered form (" Registered Notes"), and Registered Notes will not be exchangeable for Bearer Notes.

Each Tranche of Bearer Notes will initially be represented by a temporary global note (a "Temporary Global Note") or a permanent global note (a "Permanent Global Note") which, in each case, will be deposited on the relevant date of issue (" Issue Date") with a common depositary for Euroclear Bank S.A./N.V., as operator of the Euroclear System (" Euroclear"), Clearstream Banking, société anonyme (" Clearstream, Luxembourg") and/or any other agreed clearance system. A Temporary Global Note will be exchangeable, upon request as described therein, for either a Permanent Global Note or definitive Bearer Notes (" Definitive Bearer Notes") (as indicated in the applicable Pricing Supplement and subject, in the case of Definitive Bearer Notes, to such notice period as is specified in the applicable Pricing Supplement) upon certification of non-U.S. beneficial ownership as required by United States Treasury regulations. A Permanent Global Note will be exchangeable, unless otherwise specified in the applicable Pricing Supplement, only in the limited circumstances described therein, in whole but not in part for Definitive Bearer Notes upon written notice to the Fiscal Agent as described in "Forms of the Notes" below. Any interest in a Temporary Global Note or a Permanent Global Note will be transferable only in accordance with the rules and procedures for the time being of Euroclear, Clearstream, Luxembourg and/or any other agreed clearance system, as appropriate.

Each Tranche of Registered Notes, which are sold outside the United States in reliance on Regulation S, will, unless otherwise specified in

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the applicable Pricing Supplement, be represented by a Permanent Global Note in registered form, without interest coupons (a "Regulation S Global Note"), which will be deposited on or about its Issue Date with a custodian for the accounts, and registered in the name of a nominee, of DTC Euroclear and Clearstream, Luxembourg. With respect to all offers or sales by a Dealer of an unsold allotment or subscription and in any case prior to the expiry of the Distribution Compliance Period, beneficial interests in a Regulation S Global Note of such a Tranche may be held only through Clearstream, Luxembourg or Euroclear. After the expiry of the Distribution Compliance Period, beneficial interests in a Regulation S Global Note may be held through DTC directly by a participant in DTC or indirectly through a participant in DTC. Regulation S Global Notes will be exchangeable for notes in definitive registered form (" Definitive Registered Notes") only in the limited circumstances more fully described herein.

Any Series of Registered Notes sold in private transactions to QIBs and subject to the transfer restrictions described in "Notice to Purchasers and Holders of Restricted Notes and Transfer Restrictions" will, unless otherwise specified in the applicable Pricing Supplement, be represented by a restricted permanent global note in registered form, without interest coupons (a "Restricted Global Note") which will be deposited on or about its Issue Date with a custodian for, and registered in the name of a nominee of, DTC on its Issue Date. Persons holding beneficial interests in Registered Global Notes will be entitled or required, as the case may be, under the circumstances described in Condition 2, to receive physical delivery of Definitive Registered Notes.

Notes represented by the Registered Global Notes will trade in DTC's same day fund settlement system. Beneficial interests in a Regulation S Global Note and a Restricted Global Note will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct or indirect participants, including Clearstream, Luxembourg and Euroclear. See "Book-Entry Clearance Systems."

Notes initially offered and sold in the United States to Institutional Accredited Investors pursuant to Section 4(2) of the Securities Act or in a transaction otherwise exempt from registration under the Securities Act and subject to the transfer restrictions described in "Notice to Purchasers and Holders of Restricted Notes and Transfer Restrictions" will be issued only in definitive registered form and will not be represented by a

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Global Note or Notes.

The Notes have been accepted for clearing and settlement through the facilities of DTC, Euroclear and Clearstream, Luxembourg. In addition, application may be made to have the Notes of any Series accepted for clearing and settlement through MIDCLEAR, the Lebanese Republic's central clearing and settlement agency. See "Book-Entry Clearance Systems."

Fixed Rate Notes:...... Fixed interest will be payable on such date or dates as may be agreed upon by the Republic and the relevant Dealer (as indicated in the applicable Pricing Supplement) and on redemption and will be calculated on the basis of the Fixed Coupon Amount specified in the applicable Pricing Supplement or, in the case of interest required to be calculated for a period other than a full year, on the basis of the Fixed Day Count Fraction specified in the applicable Pricing Supplement.

Floating Rate Notes ...... Floating Rate Notes will bear interest at a rate determined on the same basis as the floating rate under a notional interest-rate swap transaction in the relevant Specified Currency governed by an agreement incorporating the 2000 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc. and as amended and updated as at the Issue Date of the first Tranche of the Notes of the relevant Series, the "ISDA Definitions") or on the basis of a reference rate appearing on the agreed screen page of a commercial quotation service or on such other basis as may be agreed between the Republic and the relevant Dealer (in each case as indicated in the applicable Pricing Supplement).

The margin (if any) relating to such floating rate (the "Margin") will be as set forth in the applicable Pricing Supplement.

Floating Rate Notes may also have a maximum interest rate, a minimum interest rate or both (as indicated in the applicable Pricing Supplement).

Interest on Floating Rate Notes in respect of each Interest Period, as set forth in the applicable Pricing Supplement, will be payable on the relevant Interest Payment Dates specified in the applicable Pricing Supplement on the basis of the actual number of days in the Interest Period concerned divided by 360 unless otherwise indicated in the applicable Pricing Supplement.

Redemption:...... The Pricing Supplement relating to each Tranche of Notes will indicate either that the Notes of such Tranche cannot be redeemed prior to their stated maturity (other than in specified installments (see below), if applicable, or following an Event of

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Default) or that such Notes will be redeemable at the option of the Republic or the Holders of the Notes, upon giving not less than 30 nor more than 60 days irrevocable notice (or such other notice period (if any) as is indicated in the applicable Pricing Supplement) to the Holders of the Notes or the Republic, as the case may be, on a date or dates specified prior to such stated maturity and at a price or prices and on such terms as are indicated in the applicable Pricing Supplement.

Notes may be redeemed in two or more installments of such amounts and on such dates as are indicated in the applicable Pricing Supplement.

Withholding Tax: ...... The principal of, and interest on, the Notes will be payable by the Republic without withholding or deductions for, or on account of, taxes imposed by or in the Republic, except as otherwise required by law. If the Republic is required by law to deduct or withhold any taxes, imposed or levied by or in the Republic, the Republic will, subject to certain exceptions, be required to pay such additional amounts as necessary to enable Holders of Notes to receive, after such deductions or withholding, the amounts they would have received in the absence of such withholding or deductions. See Condition 8 of the Terms and Conditions of the Notes.

Denominations:...... Notes will be issued in the denominations indicated in the applicable Pricing Supplement (the "Specified Denominations") save that the minimum denomination of each Note will be such as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency.

Notes in registered form sold pursuant to Rule 144A shall be issued in denominations of U.S. $100,000 (or its equivalent in any other currency) and higher integral multiples of U.S. $1,000 (or its equivalent as aforesaid) or the higher denomination or denominations specified in the applicable Pricing Supplement. Definitive Registered Notes sold in the United States to Institutional Accredited Investors pursuant to Section 4(2) of the Securities Act or in a transaction otherwise exempt from registration under the Securities Act shall be issued in minimum denominations of U.S. $250,000 (or its equivalent in any other currency) and higher integral multiples of U.S. $1,000 (or its equivalent as aforesaid) or the higher denomination or denominations specified in the applicable Pricing Supplement.

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Negative Pledge: ...... The terms of the Notes will contain a negative pledge provision as further described in Condition 4.

Cross Default: ...... The terms of the Notes will contain a cross- default provision as further described in Condition 10.

Status of the Notes:...... The Notes will constitute direct, general, unconditional, unsubordinated and (subject to Condition 4, relating to the Republic's negative pledge covenant) unsecured obligations of the Republic which will rank pari passu in priority of payment among themselves, and at least pari passu with all other present and future unsecured (subject to Condition 4, relating to the Republic's negative pledge covenant) Indebtedness (as defined in the terms and conditions of the Notes) of the Republic, other than any Indebtedness preferred by Lebanese law. The full faith and credit of the Republic will be pledged for the due and punctual payment of the Notes and for all obligations of the Republic in respect thereof.

Listing:...... Application has been made for Notes to be issued under the Program to be listed on the Luxembourg Stock Exchange. The Notes may also be listed on such other or further stock exchange(s) as may be agreed between the Republic and the relevant Dealer in relation to each Series. The Pricing Supplement relating to each Tranche of Notes will state whether or not and, if so, on which stock exchange(s) the Notes are to be listed.

Governing Law:...... The Program Agreement and the Notes will be governed by, and construed in accordance with, the laws of the State of New York.

Submission to Jurisdiction: ...... Non-exclusive jurisdiction of any New York State or federal court sitting in The City of New York, in the Borough of Manhattan. See "Jurisdiction and Enforcement" above.

Selling Restrictions:...... The offer and sale of Notes and the delivery of the Offering Circular is restricted in certain jurisdictions, including the United States, the United Kingdom and The Netherlands. There are selling restrictions in relation to the United States, the United Kingdom and The Netherlands and certain other jurisdictions in connection with the offering and sale of a particular Tranche of Notes of a particular Series. See "Subscription and Sale" and "Notice to Purchasers and Holders of Restricted Notes and Transfer Restrictions."

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SELECTED LEBANESE ECONOMIC INDICATORS(1) Set forth below is a summary of certain information contained elsewhere in this Offering Circular. It does not purport to be complete and is qualified in its entirety by the more detailed information appearing elsewhere, or incorporated by reference in, this Offering Circular.

1997 1998 1999 2000 2001 The Economy GDP (at current market prices in billions of Lebanese Pounds)...... 22,880 24,509 24,816 24,816 25,188 GDP(2) (at current market prices in millions of U.S. Dollars) ...... 14,867 16,167 16,462 16,462 16,708 Real Growth Rate (per cent.)...... 4.0 3.0 1.0 0.0 1.5

Balance of Payments (in millions of U.S. Dollars) Current account ...... (4,153) (5,863) (5,619) (5,630) (5,985) Capital account...... 4,573 5,375 5,879 5,341 4,816

Overall balance of payments ...... 420(3) (488)(4) 261(4) (289) (1,169)

Reserves (in millions of U.S. Dollars) Foreign exchange(5) ...... 2,959 3,318 4,968 2,678.8 1,912 Gold(6)...... 2,670.3 2,651.0 2,678.0 2,524.6 3,861 Gold (Thousands of Troy Ounces) ...... 9,222 9,222 9,222 9,222 9,222

Public Finance (in billions of Lebanese Pounds) Central Government Revenues...... 3,753 4,449 4,873 4,552 4,648 Central Government Expenditures(7) ...... 9,162 7,906 8,454 10,424 8,878 Central Government Overall Deficit ...... (5,409) (3,457) (3,582) (5,872) (4,230) Primary Deficit/Surplus(8)...... (2,031) 691 890 99 82

Public Debt Net Domestic Public Debt (in billions of Lebanese Pounds) ...... 18,381 19,544 21,377 24,530 26,321 Public External Debt (in millions of U.S. Dollars)(9) ...... 2,402 4,166 5,539 7,029 14,526 Public Debt as a % of GDP ...... 97% 105% 120% 142% 162%

______Notes: (1) Certain figures differ from previously published data. (2) Translated at period average exchange rates. (3) Includes a U.S. $500 million deposit from Saudi National Commercial Bank made in December 1997. (4) Includes a U.S. $500 million deposit from Saudi National Commercial Bank made in December 1997, a U.S. $100 million deposit from the Kuwaiti Investment Authority made in February 1998 and a U.S. $100 million deposit from the National Bank of Abu Dhabi made in May 1998. (5) Foreign exchange reserves are owned by Banque du Liban and do not include foreign exchange deposits held at Banque du Liban by banks and other financial institutions. U.S. $1,824 million as at June 30, 2001. (6) Parliament passed Law No. 42/86 dated September 24, 1986 forbidding dispositions of gold reserves without parliamentary legislation. (7) Not including expenditures by the Council for Development and Reconstruction financed with foreign funds (see “Public Finance — Operations of the Central Government”). (8) Budget surplus or deficit, excluding domestic and external debt service and net treasury operations for 1998, 1999, 2000 and 2001. (9) Calculated at end of period exchange rates, commencing in 1998.

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THE LEBANESE REPUBLIC

Prospective investors in the Notes should review the following description of the economic situation and prospects in Lebanon in light of the following general observations. At present, only the monetary accounts, the fiscal operations of the Lebanese government and trade data are available on a regular basis. Other data (balance of payments components, prices, production, employment and finances of both public and private sectors) remain, for all practical purposes, best estimates.

Information for official national income accounts (that is, accounts which refer to aggregate measures of production such as gross domestic product (" GDP") was not systematically collected between the period when the Republic's statistical office ceased functioning in 1976 until it reopened in September 1994. Statistics in relation to production and growth for that period should, therefore, be treated with particular caution. Recent estimates of output have been made on the basis of a 1990 United Nations Development Program- sponsored study, which, in turn, was based on extrapolated data in respect of four major sectors (agriculture, manufacturing, trade and public administration) for the 1988- 1989 period. Since then, updates have been undertaken by international organizations, Lebanese authorities and private entities utilizing available indicators such as trade, construction permits, electricity generation, cement deliveries and public sector finances. In 1997, the Central Administration of Statistics (the "CAS") published GDP figures for 1994 and 1995. The CAS has not published GDP figures for subsequent years. There are no official data on prices, although some estimates have been collected for price developments in the greater Beirut metropolitan area by the Beirut Chamber of Commerce and Industry, Confédération Générale des Travailleurs Libanais, and other private entities, on the basis of a limited basket of goods and services. The CAS is in the process of publishing data on prices.

Information on central government revenues and expenditure is collected by the Ministry of Finance and presented herein on a cash basis, but there are still coverage gaps.

Firm data on the balance of payments are derived from monetary accounts, i. e., net changes in foreign assets of the banking system. The components of the current account have been estimated from other available sources such as customs data, the International Monetary Fund (the "IMF") Direction of Trade statistics, the partial export data of the Beirut Chamber of Commerce and Industry, import letters of credit from the Central Bank accounts, factor services from the IMF International Financial Statistics and the International Bank for Reconstruction and Development Debtor Reporting System.

Statistical weaknesses constitute serious obstacles to the analysis of the Republic's economy, and most available data should be viewed as best estimates by potential investors.

Certain figures included in this Offering Circular differ from previously published figures for a number of reasons, including continuing implementation of a debt management system, consultation with the IMF and ongoing statistical revisions.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this Offering Circular constitute forward- looking statements. Statements that are not historical facts are forward- looking statements. These statements are based on the Republic's current plans, objectives, assumptions, estimates and projections. Therefore, undue reliance should not be placed on them. Forward- looking statements speak only as of the date that they are made and the Republic does not undertake to update any of them in light of new information or future events. Forward- looking statements involve inherent risks and uncertainties. The Republic cautions that a number of important factors could cause actual results to differ materially from those contained in any forward- looking statement. Forward- looking statements include, but are not limited to, the privatization process and estimates of external debt repayment.

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GENERAL BACKGROUND

Area and Population

The Republic is situated in the Levant on the eastern most part of the Mediterranean Sea. The Republic's Mediterranean shoreline extends 192 kilometers from north to south; its greatest width from west to east is 85 kilometers. The total area of the Republic is 10,452 square kilometers.

The Republic is a mountainous country with over half its area lying above 1,000 meters. There are two parallel ranges of mountains running north to south: the Mount-Lebanon Range hugging the Mediterranean coast reaches an altitude of 3,088 meters and the Anti-Lebanon Range, reaching an altitude of 2,814 meters, runs along the eastern border. The fertile Bekaa valley lies between these two mountain ranges. The two main rivers, the Asi (Orontes) and the Litani, flow out of this valley.

The climate of the Republic is alpine in the mountains and Mediterranean along the coast. All four seasons are equally distributed throughout the year. The rain in winter can be torrential and snow falls on mountains above 1,000 meters. There is high humidity in the coastal regions with hot, rainless summers.

The historic and cultural heritage of Lebanon dates back over six thousand years to the Phoenicians and the subsequent civilizations that were established in or interacted with the Lebanese. Throughout its history Lebanon has been a contact center between various cultures and civilizations, which has in the past rendered the Republic a highly cosmopolitan country with a great deal of tourism.

According to a survey conducted by CAS, the number of Lebanon's permanent residents was estimated in June 1997 at 4,005,000, 92.4 per cent. of whom were Lebanese. This number does not include temporary residents such as migrant workers.

The following table shows the breakdown of population by age:

Total (per cent.) Under 20...... 38.9 20-59...... 51.2 60 and over ...... 9.9

______Source: CAS – Conditions de Vie des Ménages en 1997 – February 1998 (the “CAS Survey”).

The population is composed of Christians, Muslims and minorities and is Arabic speaking, with French and English being widely used. In the period 1975-1993, a decline in population of about 300,000 occurred, as a result of relocations mainly to North and South America, Europe, Africa, Australia and the Arabian Gulf States.

The main cities are Beirut, the capital, Tripoli, Sidon, Jounieh, Zahle and Tyre. Approximately 32 per cent. of the population lives in Beirut and its suburbs.

History

Overview

From 1516 to 1918, Lebanon was under the administrative rule and political sovereignty of the Ottoman Empire. In 1920, the territory defined by the present-day boundaries became a state called "Grand-Liban" (Greater Lebanon) by decree of General Gouraud, head of the French troops in the Levant. The state remained under French Mandate until November 26, 1941. A constitution was adopted on May 25, 1926 establishing a democratic republic with a parliamentary system of government. Effective political independence of the Republic occurred on November 22, 1943 (Independence Day). In 1945, Lebanon became a founding member of the League of Arab States, then of the United Nations. Departure of the foreign troops then on the Republic's territory was completed on December 31, 1946.

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Over the next 30 years, Lebanon became a melting pot with a diverse cultural heritage. The instability in surrounding countries caused Lebanon to experience large waves of immigration from neighboring countries and attracted thousands of skilled laborers, entrepreneurs and intellectuals. The economic force of the Republic has mainly revolved around its entrepreneurs. In addition, Lebanon's democratic traditions, its attachment to freedom of speech and expression and its educated population enabled the Republic to become the cultural, academic and medical center of the region.

A combination of internal and external factors led to the outbreak of conflict in 1975. The regional instability and conflicting relations between neighboring countries contributed to destabilizing the domestic political and economic situation. Successive rounds of fighting took place, aggravated by two Israeli military invasions in 1978 and 1982. The period of conflict witnessed a significant reduction of government authority, large losses in human lives, substantial physical and infrastructure damage and a considerable emigration of skilled labor from the country.

In the aftermath of the Taif Reconciliation Accord (the "Taif Agreement") signed in Saudi Arabia in 1989, military hostilities effectively came to an end in October 1990. President Elias Hrawi assumed office with Dr. Salim Al Hoss as Prime Minister. In 1992, Mr. Rafik Hariri was appointed as Prime Minister and the first parliamentary elections in 20 years were held. In 1995, President Hrawi's term of office was extended for an additional three year period, after a constitutional amendment.

In October 1998, General Emile Lahoud was elected President and appointed Dr. Salim Al Hoss as Prime Minister. In his inaugural speech before Parliament, President Lahoud emphasized the preeminence of the rule of law, the strengthening of governmental institutions, the requirement for transparency and accountability in the conduct of public affairs and the promotion of social justice and equality.

In October 2000, Mr. Hariri was appointed Prime Minister by President Lahoud after parliamentary elections in August and September 2000.

Description of the Conflict

An attempt is made below to describe the Lebanese conflict briefly. Investors are urged to do further research should they wish to gain a fuller understanding of the conflict.

The 1975- 1990 Conflict

The heavily militarized turmoil lasted from April 1975 until October 1990. In 1975, the conflict first appeared to be contained between the Palestinians and the Christian militia but instead it continued to escalate and subsequently included many factions, mostly supported by foreign governments. Many alliances among these factions took place only to be broken. Almost every faction was at war with another. Coalitions were unstable and often short-lived, resulting in widespread fighting between and among all of the factions involved.

Upon his election in 1976, President Elias Sarkis asked the Arab League to intervene and an Arab deterrent force (the "Arab Deterrent Force") was sent to impose law and order. However, fighting resumed shortly thereafter and continued lawlessness persisted.

In 1982, Israel invaded the southern half of Lebanon up to and including Beirut. The United States, France, Italy and the United Kingdom sent a Multi-National Force to provide security while Israel pulled back and Palestinian forces left for Tunis.

President Amine Gemayel was elected in 1982. There was a relative return to normality until early 1983. However, car bombs at the United States Embassy and the United States and French barracks led the MultiNational Force to pull out. Fighting resumed in late 1983.

In 1988, the crisis intensified when Parliament failed to elect a president. The departing president, Amine Gemayel, appointed General Michel Aoun as Prime Minister. However, Dr. Salim Al Hoss, Prime Minister of the then existing government, refused to recognize the appointment and remained in office at the same time. General Aoun began heavy fighting against Syrian troops in Lebanon.

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In October 1989, the Taif Agreement was signed and, in November of the same year, Elias Hrawi was elected President. A new government, known as the national reconciliation government, was formed and began implementation of the Taif Agreement.

In January 1990, General Aoun attacked the Lebanese Forces (the successor to the Christian militia) and a battle ensued. In October 1990, General Aoun capitulated and in September 1991 left for exile in France.

In October 1990, the fighting came to an end and in 1991 most of the militias were disbanded by the Lebanese Army.

Syrian Presence

In May 1976, at the request of the Lebanese Government, the Arab League agreed to send the Arab Deterrent Force to restore security in the Republic. The Riyadh and Cairo summits arranged for a 30,000 strong Arab Deterrent Force composed mostly of Syrian troops but including Saudis, Yemenis, Libyans and troops from the United Arab Emirates. As the conflict persisted, the Syrian forces stayed while the other Arab forces departed.

The Lebanese Army, which was reconstituted when General Emile Lahoud was its commander in chief, has been instrumental in providing security, especially since the cessation of hostilities in October 1990, assisted by Syrian troops in Lebanon.

The presence of Syrian troops in Lebanese territory is currently being debated among various leaders in Lebanon. Certain leaders are requesting the withdrawal of Syrian troops from Lebanese territory. In its policy statement, the Government declared that the presence of Syrian troops is legal, temporary and necessary. In June 2001, Syrian troops withdrew from some areas around Beirut.

Israeli Occupation

An armistice agreement was signed between the Republic and Israel in 1949. The agreement governs the security issues related to the southern border. However, since then, Israeli attacks on Lebanese territory persisted, culminating in Israeli invasions of the Republic's territory in 1978 and 1982.

In 1978, Israel invaded the southern part of Lebanon and declared that part of the country a security zone for its border. In 1982, Israel invaded Lebanon up to and including Beirut. The United States, France, Italy and the United Kingdom sent a multi-national force to provide security while Israel pulled back and Palestinian forces left for Tunis. The multi-national force left Lebanon in 1984. Israel partially withdrew from central Lebanon in 1984 and 1985 but enlarged its occupation of the southern part of the country up to the area of Jezzine.

On April 11, 1996, following an escalation in intermittent skirmishes, Israel commenced a bombardment of southern Lebanon and certain other targets in Lebanon, including the southern suburbs of Beirut. On April 27, 1996 a cease-fire came into effect. The cease-fire was based on a written but unsigned agreement drawn up by France and the United States and setting out a position mutually acceptable to Israel, Syria and Lebanon, which expanded and consolidated oral cease-fire understandings reached in July 1993. These arrangements established an international group composed of representatives of the United States, France, Syria, Lebanon and Israel to monitor the cease-fire. Meetings of the monitoring group took place on a regular basis for the purpose of addressing repeated breaches of the cease-fire.

On June 24, 1999, February 7, 2000 and May 5, 2000, Israeli military aircraft attacked several power stations and bridges near Beirut, as part of more frequent recent air attacks on Lebanese territory. The rehabilitation of the infrastructure damaged by these Israeli attacks has been completed.

On May 24, 2000, Israel withdrew its troops from territory in southern Lebanon which it had been occupying since 1978. The withdrawal followed a notification by Israel to the United Nations that it planned to withdraw its troops in Lebanon to the internationally recognized borders between Lebanon and Israel, in fulfillment of United Nations Resolution 425 which was passed by the United Nations Security Council in 1978, following the first Israeli invasion of Lebanese territory. The Government is

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reasserting its authority over that territory. A significant issue relating to the withdrawal remains unsettled. This relates to the status of certain villages and adjacent land on the eastern side of Alsheikh Mountain, known as the "Shebaa Farms," which have been occupied by Israel since 1967. The Government advised the United Nations that it considers the area to be Lebanese territory and that, as such, the withdrawal must encompass it.

There exists a United Nations Interim Force in Lebanon (UNIFIL) deployed in southern Lebanon with a mandate to help the Lebanese Government restore security after the Israeli withdrawal requested in Resolution 425 by the Security Council. The number of UNIFIL personnel was increased from 4,500 to 5,730 following the Israeli withdrawal. The Lebanese army and UNIFIL are working jointly to clear landmines in southern Lebanon.

On January 22, 2001, the Secretary General of the United Nations submitted to the United Nations Security Council a report covering the period between July 18, 2000 to January 18, 2001 which described the situation in southern Lebanon as generally stable, with the exception of certain breaches of the line of withdrawal (the so called "Blue Line"). The breaches consist of Israeli attacks on Lebanese territory and attacks on Israeli military targets in the "Shebaa Farms" area.

On January 30, 2001, the Security Council adopted a resolution extending UNIFIL's mandate for a further period of six months, until July 31, 2001 and reducing the military personnel of UNIFIL to approximately 4,500 (from 5,730). In April 2001, the Secretary General announced an intention to further reduce the number of UNIFIL personnel to 2,000 by July 2002.

In April and June 2001, Israeli aircraft attacked military positions maintained by Syrian troops in Lebanon, following attacks by members of the "Hizbollah" party on Israeli troops in the disputed "Shebaa Farms" area.

Following the September 11, 2001 events in the United States, the United States informally requested that the Government freeze certain assets of the "Hizbollah" party in the banking system in the Republic. To date, the Government has not acceded to the informal request on the grounds that the "Hizbollah" party is conducting a national liberation campaign and is not engaged in terrorist activities.

Constitutional System

Three laws have governed the constitutional system of the Lebanese parliamentary democracy. The first was promulgated in 1926, the second in 1943 and the third in 1990, following the Taif Agreement.

The Constitution of September 21, 1990 (the "Constitution") amended the 1926 Constitution and reiterates the principle that the Republic is an independent, united and internationally acknowledged sovereign state. It also confirms the Republic's Arab identity and involvement in both the Arab League and the United Nations, as a founding and active member. Furthermore, the Constitution emphasizes the respect for freedom of speech and belief and the Republic's commitment to human rights, parliamentary democracy, private ownership, free market economics and balanced regional development and emphasizes the firm support for peaceful co-habitation between the various religious communities.

The Republic's political system is based on the separation of executive, legislative and judicial powers and a system of checks and balances. The Government determines overall policy, appoints senior administrators and submits proposed legislation to Parliament. Parliament, which is elected every four years, proposes and adopts laws and supervises government policy. Judicial power is fully vested in the courts and is autonomous. The Constitution provides for the formation of a Constitutional Council to rule on the constitutionality of laws and on challenges to the validity of presidential and parliamentary elections. The Constitutional Council was formed in 1994. It consists of a maximum of ten members, five of whom are elected by a simple majority of Parliament and five of whom are appointed by the Council of Ministers acting by vote of a two-thirds majority of the Ministers. The Constitutional Council acts by vote of a majority of seven members and has rendered several significant decisions to date, including the invalidation of the 1996 election of four members of Parliament and the invalidation of governmental decrees extending the term of municipal councils. The Constitution also specifies that a Supreme Council, constituted of seven deputies elected by Parliament and eight of the highest ranking judges, has jurisdiction to try the Presidents (President of the Republic, Speaker of Parliament,

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President of the Council of Ministers) and Ministers. The members of the Supreme Council are appointed for a period of four years. The present Supreme Council was constituted in 1996 after the Parliamentary elections.

The Taif Agreement provided the framework for a two-stage process of political reform. The first stage resulted in improving the distribution of political power among representatives of the various religious communities: seats in Parliament are equally divided between Christian and Muslim communities and the powers of the Council of Ministers and of Parliament have been reinforced. The second stage calls for the elimination of the sectarian political system.

The Executive Branch consists of the President of the Republic and the Council of Ministers (the Cabinet). The President, currently Emile Lahoud, is the Head of State. The President is elected for a six-year term by a two-thirds majority of Parliament in the first voting round and by a simple majority if a subsequent round is required. The President's functions include: Chairman of the High Defense Council, Commander in Chief of the Army, which is subject to the authority of the Council of Ministers, and chairing the Council of Ministers whenever he attends its meetings, although he has no voting power at these meetings. The President appoints the Prime Minister, currently Mr. Hariri, following consultations with Parliament. The President must appoint the prime ministerial candidate who has the greatest level of support in Parliament. The President also negotiates treaties in conjunction with the Prime Minister. Treaties become final after the approval of the Council of Ministers and ratification by Parliament. Pursuant to constitutional custom in effect since the Republic's independence in 1943, the President is a Christian Maronite, the Speaker of Parliament is a Shiite Muslim (currently Nabih Berri) and the Prime Minister is a Sunni Muslim. The Vice-Speaker and the Vice-Premier traditionally come from the Christian Greek Orthodox community. The Cabinet is headed by the Prime Minister. The Prime Minister is the President of the Council of Ministers, supervises and follows up on the work of ministries and administrators and co-ordinates ministerial policies.

The Legislative Branch consists of a single-chamber Parliament of 128 members. Members are elected for four-year terms in regional ballots, with the number of members for each region determined on the basis of the size and population of each region, subject to an overall number of members for each religious community. Parliament may be dissolved by the Council of Ministers, acting by vote of a two-thirds majority of the Ministers, upon request of the President of the Republic only on the basis of one of the following grounds:

• if the Parliament fails to meet during one ordinary session or two extraordinary sessions (except in the event of force majeure); or

• if the Parliament fails to pass a budget law.

The court system consists of one administrative court, the State Council Court (" Conseil d'Etat") and civil courts (which include commercial courts and criminal courts). The Supreme Court is the highest court of appeal for civil and commercial matters. Constitutional matters and conflicts relating to elections are referred to the Constitutional Council discussed above. The judges of the various courts (excluding certain members of the Constitutional Council) are appointed by the Government after favorable recommendation of the Supreme Council of Justice.

Elections

Parliamentary elections took place in 1992, 1996 and 2000. The 1992 parliamentary elections were the first such elections in Lebanon since 1972. Certain political groups abstained from participating in the elections, although the 1996 and 2000 parliamentary elections were characterized by high voter participation. The current Government under the leadership of Mr. Hariri as Prime Minister took office in October 2000 after the 2000 elections, in which Mr Hariri and his allies registered significant successes.

In May and June 1998, municipal elections took place for the first time since 1963. All political parties participated. There are 624 municipal councils in Lebanon with a total of 7,401 elected members.

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Government and Political Parties

The democratic political system in the Republic and the constitutional rights to freedom of speech and belief have nurtured a wide and diversified spectrum of political parties. The classification and categorization of the parties are blurred and the criteria adopted for their description are far from accurate.

There are more than 30 parties and political groups in Lebanon reflecting many ethnic backgrounds and political beliefs.

In accordance with the Constitution in October 2000, mandatory consultations between the President and members of Parliament regarding the appointment of the Prime Minister took place following the 2000 elections. A majority consisting of 106 members of Parliament selected Mr. Hariri as their nominee for Prime Minister and the President appointed Mr. Hariri Prime Minister in accordance with the decision of Parliament. Following consultations between Mr. Hariri and members of Parliament, a new Government was formed in October 2000.

On November 29, 2000, the Government adopted an across-the-board reduction in customs duties, effective December 1, 2000, to rates ranging from zero per cent. (for certain items such as information technology products, including computer hardware and software) to a maximum of 70 per cent. (compared to 105 per cent previously). The average rate on most products has been reduced from 12 per cent. to 6 per cent.

Legal System

The Republic's legal framework is based on the Constitution and on a body of well-established laws, dating back to 1930. The Constitution and the laws thereunder guarantee the private ownership of property, the free flow of funds and currencies in and out of the country and the freedom of contract between parties (so long as contracts do not contravene public policy).

Lebanese civil law is mostly based on the Code of Obligations and Contracts (which is based on the French Civil Code and was promulgated in 1932) and the Land Ownership Law. Other major legislation includes the Commercial Code (promulgated in 1942), the Code of Money and Credit (promulgated in 1963) and the complementary legislative decrees (issued in 1967) related to commercial agency representation, stock exchange, limited liability companies and business concerns and the New Code of Civil Procedure (promulgated in 1983).

An active legislative reform movement is taking place both in Parliament and through special committees formed by the Central Bank and the Ministry of Justice to modernize Lebanese law following the end of the period of conflict. Significant laws and regulations have been adopted in various areas, including a law authorizing and regulating fiduciary activities, a law eliminating the different classes of shares for banks, a law regulating the issuance of notes and other debt securities by banks and authorizing the public placement and listing of shares representing up to 30 per cent. of a bank's capital and a law regulating electronic banking operations.

International Relations

Lebanon is a founding member of the United Nations and the League of Arab States and is a member of all international organizations under the auspices of the United Nations (United Nations Educational, Scientific and Cultural Organization, Food and Agriculture Organization, International Fund for Agricultural Development and others), the International Bank for Reconstruction and Development (the "World Bank"), (and its affiliates, the International Finance Corporation and the Multilateral Investment Guaranty Agency), the International Monetary Fund and the International Development Association.

The Republic maintains diplomatic relations with 86 countries and has 84 diplomatic and consular missions abroad. It hosts a similar number of diplomatic missions in its territory. The Republic also hosts international organizations such as the United Nations Regional Office for Education, Science and Culture in the Arab Countries, the United Nations Commission for Refugees, Food and Agriculture Office of the United Nations, the World Health Organization, the United Nations Fund for Childhood,

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United Nations Development Program and the Arab Center for Legal and Judicial Research affiliated to the Arab League. The Economic and Social Commission for Western Asia (ESCWA), an agency of the United Nations, relocated its headquarters to Beirut in October 1997 and the World Bank opened an office in Beirut in January 2000.

In January 2001, the Secretary General of the United Nations appointed a personal representative for southern Lebanon and entrusted him with responsibility for coordinating UN activities in that region.

Having successfully liberated most of its territory from Israeli occupation in May 2001, Lebanon remains committed to the principles agreed upon at the Madrid Peace Conference in 1991. Lebanon supports United Nations and international efforts towards the achievement of a just, comprehensive and lasting settlement in the region. Such a settlement should involve the total withdrawal of Israeli troops from all Arab Occupied Territories up to the borders in place on June 4, 1967 and the implementation of the right of Palestinian refugees to return to their homeland in Palestine.

The Republic has entered into a number of treaties with Syria relating to co-operation in various areas. These treaties include the Treaty of Fraternity, Co-operation and Co-ordination, which was entered into on May 22, 1991 and ratified by Parliament on May 29, 1991. This treaty provides for co-ordination between the two countries in economic, social, foreign and military affairs and establishes a number of high level joint commissions to implement such co-ordination.

The Republic has a long tradition of openness to the international community with close ties to the Arab world, Europe and America. The Government is implementing a comprehensive strategy for trade liberalization. The Republic is committed to democratic principles.

Since January 1, 1999, the Republic has started to implement free trade agreements entered into with Syria (1993), Kuwait (1996) and Egypt (1998). It also signed a free trade treaty with the United Arab Emirates in April 2000, which Parliament has now ratified. The free trade agreement with Syria was implemented in two stages. In February 1998, the two countries agreed to reduce tariffs on industrial goods by 25 per cent. per year, with effect from January 1999 and on agricultural goods by 50 per cent. with effect from November 1999, with further annual reductions of ten per cent. over a period of five years. The Republic is also a party to the Arab Free Trade Agreement pursuant to which tariffs between 14 Arab countries are reduced by 10 per cent. annually with effect from January 1, 1998. All tariffs are expected to be eliminated by 2005.

Since 1992, the Republic has ratified or signed a number of treaties for the promotion and protection of investments . The Republic has ratified such treaties with each of Armenia, Austria, Azerbaijan, Belarus, Benelux, Bulgaria, Canada, Chile, China, Cuba, Cyprus, Czech Republic, Egypt, Finland, France, Gabon, Germany, Greece, Hungary, Iran, Italy, Kuwait, Malaysia, Morocco, the OPEC Fund, Pakistan, Romania, Russia, Spain, Sweden, Switzerland, Syria, Tunisia, Ukraine the United Arab Emirates, the United Kingdom and Yemen. The Republic has signed such treaties with each of Austria, Benelux, Cyprus, Gabon and Hungary. The Republic has also ratified treaties for the avoidance of double taxation with 20 countries and signed such treaties with eight additional countries.

The Republic has applied for membership in the World Trade Organization ("WTO") and was granted observer status in April 1999. On May 15, 2001, the Government submitted to the WTO a report on its external trade sector as a second step toward its accession. As of early October 2002, the Government entered into negotiations with the WTO for full membership and has provided replies to all queries presented to-date by member states.

On June 17, 2002, the Republic signed an association agreement with the European Union ("EU"), as part of the EU's Euro-Mediterranean partnership initiative. The EU is one of the Republic's major trading partners. The proposed partnership covers several areas of cooperation, including the progressive liberalization of trade in goods through a gradual phasing out of tariff and non-tariff barriers, with an ultimate goal of creating a Mediterranean free-trade area. In addition, the agreement seeks to liberalize the right of establishment and trade in services and addresses various other aspects dealing with economic and financial cooperation. Under the agreement, customs duties on industrial imports from the EU will be gradually reduced by 12 per cent. per year from the fifth year following the entry into force of the agreement until they reach zero in year 12. Reductions in tariffs on agricultural products are scheduled to begin in the twelfth year, with customs duties on EU imports of

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Processed Agricultural Products (PAPs) falling to a maximum of 30 per cent., provided that imports currently subject to a 5 per cent. tariff will be fully liberalized. Lebanon's exports of industrial products to the EU will continue to be allowed free of customs duties (with the exception of certain listed sensitive agricultural and agro-industrial imports). Currently, this agreement is under debate in Parliament and is expected to be ratified by the end of 2002.

THE ECONOMY

Economic System

Lebanon has a long tradition of domestic free trade and investment policies, with free market pricing for most goods and services, an unrestricted exchange and trade system and extensive links with the developed world in practically all economic activities. The Government has maintained a generally non-interventionist stance toward private investment, and public ownership has generally been limited to infrastructure and utilities. There are no restrictions on the movement of capital and goods by residents and non-residents of the Republic, including on entry or exit of firms or on access to foreign exchange, which makes Lebanon a supportive system for private sector development.

The Government continues to favor a strong role for the private sector in a liberal policy environment. It welcomes foreign investment in the economy. There are no legal restrictions on setting up and operating private businesses in Lebanon, subject to limited exceptions (See "External Sector—Foreign Direct Investment"). Investment in infrastructure activities historically has been undertaken by the public sector. The absence of exchange controls in Lebanon allows foreign investors freely to import and export capital in any form they wish.

The Lebanese economy, characterized by freedom of exchange and transfers, is based on private initiative. The private sector is estimated by CAS to contribute over 80 per cent. to aggregate demand and includes industries such as agriculture, manufacturing, construction, trade and tourism, in addition to services such as banking and finance, hotels and restaurants, media and advertising, and consulting and engineering. The manufacturing and industrial sectors are estimated by the CAS to contribute approximately one-fifth of the national income. They are provided only with a limited level of protection from international competition.

Recent Economic History

The Republic had developed into a prosperous, lower middle income country by the mid-1970s. Economic growth averaged 5 per cent. per year during the period 1960-1970 and then accelerated to 7 per cent. per year in the period 1970-1975. The main source of growth was the services sector, in particular, tourism, banking, insurance and free port activities. The banking sector, aided by a stable and liberal regime, a freely convertible currency, favorable regulations and skilled management, permitted Beirut to serve as a financial center to the Middle East. This environment allowed Lebanese entrepreneurial and financial skills to evolve to a high degree, and in the 1970s its bankers and traders enjoyed an excellent reputation in the region. Although smaller in size than the services sector, the export-oriented agricultural and manufacturing sectors also grew (at annual rates averaging between 4 per cent. and 6 per cent.), contributing to overall growth of income. Having grown at an average of 3 per cent. per annum since 1960, per capita gross national product (" GNP") was estimated at U.S. $1,070 in 1974, just prior to the outbreak of the conflict in April 1975.

Estimates put the Republic's GNP per capita at about U.S. $820 in 1990, barely one third of its 1975 level in real terms. Damage to infrastructure and physical assets due to the conflict amounted to U.S. $25 billion, according to United Nations estimates, with none of the principal sectors emerging from the conflict unscathed. While limited investment and maintenance expenditure led to the erosion of the capital base, the sizeable emigration of skilled manpower constituted a major loss to the economic potential of Lebanon. As a result, from 1975 to 1990, aggregate national output steadily declined. In addition, the confidence in, and credibility of, the Lebanese Pound and economic stability began to erode. The shift in authority from the Government to non-official entities gave rise to a parallel economy that severely hampered the Government's ability to collect revenues as most trading was conducted through unofficial ports of entry. This dearth in Government revenue and the growing expenditure on public services led to large and rapidly growing Government budget deficits. These negative developments, along with the prevailing political uncertainty, plunged the Lebanese economy

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into a vicious cycle of large budget deficits leading to monetary expansion and inflation, which translated into dollarization of the economy and capital flight. This in turn led to a dramatic depreciation of the value of the Lebanese Pound and further inflation.

The cessation of hostilities was followed by a recovery in the economy in 1991; according to IMF estimates, GDP rose by almost 40 per cent. and inflation moderated in the course of the year. Large capital inflows, along with a partial recovery of exports, resulted in an overall balance of payments surplus of over U.S. $1 billion. However, the fiscal deficit remained high in 1991 (56 per cent. of expenditures). By the beginning of 1992, the Central Bank had stopped supporting the Lebanese Pound, the value of which declined to all time lows. The cycle of deficit financing, dollarization and capital outflows led to escalating inflation and exchange rate depreciation, with the value of the Lebanese Pound reaching LL 2,420 per U.S. Dollar in September 1992.

Following the appointment of the first Government led by Mr. Hariri in October 1992, the Government took measures to restore economic stability and renew confidence in the Lebanese Pound.

Between 1993 and 1998, the economic program of the successive Hariri Governments rested on the dual, and sometimes conflicting, tasks of economic revival and stabilization. This framework aimed to rehabilitate the country's damaged infrastructure, replenish the depleted capital stock, reinstate traditional public services, implement programs for the return of displaced persons to their villages and provide a condusive environment for the return of the expatriate Lebanese community, while pursuing exchange rate stability and anti-inflationary policies. This strategy has been successful to a certain extent. As the Government-led reconstruction program got underway and with the normalization of the economic environment, real economic growth averaged 5.7 per cent. over the period from 1992 to 1997. At the same time, the foreign exchange rate gradually appreciated, reaching LL 1,516 per U.S. Dollar at the end of 1998. The inflation rate was reduced from over 120 per cent. in 1992 to approximately three per cent. in 1998. Interest rates have gradually declined since 1995. However, efforts at improving monetary stability and expenditures on large scale reconstruction projects contributed to increased fiscal deficits and consequential public borrowings. As at December 31, 1997, the fiscal deficit represented 23.64 per cent. of GDP.

The previous Government, which was headed by Dr. Al Hoss and which held office from December 1998 until October 2000, continued to foster monetary stability. Inflation was further reduced to 0.25 per cent. in 1999, the foreign exchange rate remained stable and the balance of payments registered a surplus in 1999. The Al Hoss Government prepared and adopted a five year fiscal reform plan which was designed to reduce the budget deficit and gross public debt to 5 per cent. and 95 per cent. of GDP, respectively, by December 31, 2003.

When it assumed office, the current Government faced a number of challenges, including an economic slowdown, a large fiscal deficit and a significant debt service burden. For the years ended December 31, 1999 and December 31, 2000, the fiscal deficit represented approximately 14.4 per cent. and 23.6 per cent., respectively, of GDP and debt service represented approximately 74 per cent. and 92 per cent., respectively, of total revenues. Net Public Debt (consisting of Net Domestic Debt and Public External Debt) represented approximately 120 per cent. of GDP as at December 31, 1999 and 142 per cent. of GDP as at December 31, 2000. See "Public Finance – The Budget Deficit."

To address these challenges, the Government is implementing a four-pronged strategy seeking to:

• revitalize the economy by inducing the private sector to act as the conduit for growth, adopting measures designed to promote investment and growth and further integrating Lebanon into the global economy; these measures include the adoption of a new customs law, the extension by the Central Bank of interest subsidies and partial guarantees of loans to enterprises in certain sectors, the easing of restrictions on foreign ownership of real property and the reduction of employers' contributions to social security;

• improve the Republic's overall fiscal condition, by (among other things) controlling discretionary expenditures and enhancing revenues, reducing its heavy debt service burden, imposing VAT on most goods and services, pursuing a comprehensive privatization program, reactivating development projects put on hold by the previous Government (for which external financing has been secured through soft loans), acceding to the WTO, implementing a policy of open skies for

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the airline industry, reducing customs duties and relaxing other trade barriers, and concluding additional agreements with the EU and other Arab countries;

• modernize the legal system; and

• maintain monetary stability and lower inflation.

As a result of this strategy, economic activity has slightly improved, recording, in 2001, a growth rate of 1.5 per cent., 0.0 per cent. inflation rate and a decline in the fiscal deficit by 7 per cent. to 16.8 per cent. of GDP. In 2001, debt service represented 93 per cent. of total revenues and Net Public Debt rose to 162.5 per cent. of GDP.

The balance of payments registered overall surpluses during the period from 1993 to 1997, despite growing trade deficits. In 1998, however, the balance of payments registered a deficit of U.S. $787 million for the first time since the end of the conflict. While a small surplus of U.S. $261 million was then realized in 1999, in 2000 and 2001, the balance of payments again registered deficits of U.S. $289 million and U.S. $1.17 billion, respectively, mainly due to the large trade deficit and the effect of regional developments. As at October 31, 2002, the balance of payments registered a surplus of U.S. $310 million.

Role of the Government in the Economy and Privatization

Lebanon has a long and established tradition of having an open and free market economy. The state sector has traditionally been small, with the Government having a history of minimal intervention in economic activity.

For the first eight years of the conflict (until 1983/84), Government authority was still present, albeit in a much weaker form than before the conflict began, and some tax revenue was forthcoming. From 1983/84, the Government effectively lost control of all ports, and non-payment of direct taxes and bills to state-owned utilities became widespread, leading to a financing of current Government expenditure through money creation.

After the conflict, the Government continued the policy of reliance on private sector initiative, which had served the country well in the pre-conflict era. However, in recent years, the Government has assumed a larger role than it had historically by making substantial investments in infrastructure needed to create an environment conducive to long-term growth based on private sector activity. See "Public Finance— Operations of the Central Government". However, the various post-conflict governments have also been seeking to increase private sector participation in infrastructure financing.

In May 2000, Parliament adopted a privatization law, which sets the framework for the privatization of state-owned enterprises. The privatization law established a Higher Privatization Council and provides that the proceeds from privatization will be applied towards debt repayment. A law regulating the water sector, in anticipation for its privatization, was adopted by Parliament in May 2000. While the state sector in Lebanon does not account for a large portion of GDP (7.4 per cent. of GDP in 1995, excluding certain government agencies), it nevertheless includes several enterprises and types of assets which have been successfully privatized in other emerging markets. The Government owns Electricité du Liban ("EDL") (which supplies virtually all electricity in the Republic), Société des Eaux de Beyrouth and other water companies, the airport and port companies, the fixed-line telephone monopoly and other assets, many of which may be eligible for privatization. The Central Bank also owns significant commercial assets, including substantially all of the shares of the national air carrier, Middle East Airlines.

With the exception of the sale in 1997 by the Central Bank of its shares in Credit Libanais S.A.L., a commercial bank, prior Lebanese governments did not conduct sales of state-owned enterprises. The current Government, however, is pursuing a comprehensive privatization program. The Government believes that privatization is likely to result in significant economic benefits, including a reduction in public debt and a consequence decrease in the budget deficit, an increase in capital in-flows, as well as the acquisition of new technology and a broadening of the domestic capital markets. The current status of privatization activities is as follows:-

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Telecommunications Sector

In May 2002, Parliament passed a law authorizing and regulating the sale of two licenses for the provision of mobile telephony services in Lebanon during a period of up to 20 years and related assets which were held by the existing operators of the mobile networks. This law authorizes qualified bidders to submit offers for one or more of the following options:

• the first option authorizes bidders to submit a cash offer on the basis that the Government retains 40% of the revenues from domestic calls and all other services provided to customers and 100% of the revenues from international calls;

• the second option authorizes bidders to submit a cash offer on the basis that the Government shall not retain any portion of the revenues referred to above;

• the third option authorizes bidders to submit an offer for the management of the mobile networks for a period of up to three years; the Government has indicated that the management option would be considered if it shall not be satisfied with the results of the other options.

The Government has appointed an investment bank and other specialists to conduct the auction and the tender.

In addition, in July 2002, Parliament passed a telecommunications law which, among other matters, provides for the establishment of an independent regulator and the formation of Liban Telecom, which shall be in charge of providing fixed line telephony services in the Republic.

Electricity Sector

In September 2002, Parliament passed a law regulating the electricity sector which, among other matters, provides for the establishment of an independent regulator, the separation of production, transmission and distribution activities, the privatization of production and distribution activities through the granting of concessions and/or the formation of new entities whose shares will be initially owned by the Government and subsequently transferred to strategic and other private investors. The Government has also appointed an investment bank and other specialists to assist it in the privatization.

Water sector

A draft law regulating the water sector is in the process of being prepared by the Government for submission to Parliament. Work on the privatization of this sector has commenced, with the Government appointing an investment bank and other specialists to assist it in the privatization.

Securitization

Following its desire to reduce borrowing costs and its debt levels, the Government submitted to Parliament, and, in June 2002, Parliament adopted a law authorizing the Government to engage in securitization transactions and mandating that the Government deposits in a special account at the Central Bank, dedicated to the payment, management and reduction of public debt, the proceeds of any securitization transaction, as well as the revenues derived by the Government from specific sectors, such as telecommunications, tobacco, Casino du Liban and others. The Government has announced its intention to securitize customs revenues in respect of the importation of tobacco products into the Republic and has appointed two investment banks to arrange for this transaction.

Prospective holders of notes should be aware that, to the extent the Government undertakes securitization transactions, future revenues from the assets or flows being transferred pursuant to any such transactions may no longer be available for the payment of interest and principal in respect of Notes.

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Gross Domestic Product

With the restoration of peace and stability, GDP registered high growth rates for the period from 1993 to 1995, averaging an estimated real growth rate of 7.2 per cent. per annum. Real GDP grew at slower estimated rates of 4 per cent. in 1996 and 1997, 3 per cent. in 1998, 1 per cent. in 1999 and was flat in 2000. Real GDP growth in 2001 is estimated at 1.5 per cent.

The following table shows GDP estimates(1) for the years 1997 to 2001:

1997 1998 1999 2000 2001 GDP (at market prices), billions of LL...... 22,880 24,639 24,945 24,721 25,115 Exchange rate, LL per U.S. $ (period average)...... 1,539 1,516 1,507.5 1,507.5 1,507.5 GDP (at market prices), millions of U.S. Dollars(2) ...... 14,867 16,253 16,547 16,399 16,660 Growth of Real GDP ...... 4.0% 3.0% 1.0% (0.5%) 2.0% Growth of Nominal GDP...... 12.1% 7.7% 1.2% (0.9%) 1.6% GDP Inflation ...... 7.8% 4.5% 0.2% (0.4%) (0.4)%

______Source: Ministry of Finance, Banque du Liban and IMF Article IV. Note: (1) The figures in this table have been revised and may differ from previously published data. (2) Translated at period average exchange rates.

No official GDP calculations have been made since 1977. The CAS has calculated GDP for 1994 and 1995 and is in the process of calculating GDP for 1996 and 1997. Prospective investors should be aware that actual amounts may differ from current estimates included in this Offering Circular.

The following table shows the composition of the Republic's GDP for the years 1994 and 1995, as calculated by the CAS. No figures are available for later years, but it is believed that the composition of the Republic's GDP has not changed significantly since 1995.

Composition of GDP by Sector 1994 1995 (at current prices) (per cent.) Agriculture...... 12.0 12.4 Energy, Water and Industry...... 17.7 173 Construction ...... 9.4 9.2 Transport and Communication ...... 2.8 2.8 Commerce ...... 28.7 30.1 Housing ...... 4.5 4.2 Other Services(1) ...... 16.7 16.4 Public Administration...... 8.3 7.4 Total...... 100.0 100.0

______Notes: (1) Includes financial services, hotels, restaurants, health services and education.

Principal Sectors of the Economy

At the end of the conflict, all sectors of the Republic's economy were characterized by widespread damage to physical assets and an obsolescence of remaining facilities, given the reluctance during the years of conflict to invest in new capital or spend funds on maintenance. In addition, there was an outflow of professional and entrepreneurial skills from Lebanon. A lower production capacity, together with rigidities in internal flows of goods and labor, led to low levels of output.

The end of the conflict in 1990 marked the unification of the internal market and an upsurge in output in most sectors of the economy. Since then, there has been an increase in investment and a gradual

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return of skilled workers to the country. Although the economy suffered a slow-down in 1998 to 2000, it resumed a modest recovery in 2001.

The following table sets forth selected indicators of economic activity in significant sectors for the periods indicated:

Selected Indicators of Economic Activity

June 30, 1997 1998 1999 2000 2001 2002 Industry Recorded Exports (million of U.S. Dollars) ...... 513.0 715.9 676.8 714.6 889.0 494 Electricity Production (million kwh) ...... 8,364 9,009 9,025 9,111 9,438 4,777 Cement Production (’000 tons)...... 3,654 3,514 2,970 2,623 2,710 1,165

Construction Construction Permits...... 17,787 15,060 14,349 11,614 11,638 6,306 Area (‘000 sq. meters)...... 11,397 9,817 8,422 6,725 6,879 3,645

Commerce Port of Beirut (no. of ships) ...... 3,117 2,892 2,796 2,514 2,647 1,227 Beirut Airport (no. of passengers ’000s) ...... 2,007 2,060 2,222 2,341 2,445 1,117

Documentary Credits for Imports (million of U.S. Dollars) ...... 2,960 2,766 2,369 2,434 2,592 1,306

______Source: Ministry of Finance, Banque du Liban.

Services

The Lebanese economy is based primarily on the service sector, which accounts for approximately 60 per cent. of GDP (down from approximately 70 per cent. in the 1970s). Major subsectors are commerce, tourism and financial services. Other components include health care and higher education.

Commerce

The Port of Beirut plays an important role in Lebanon's commercial activities. After World War II, Beirut became the most important Arab port on the Eastern Mediterranean serving the Arab world. A free-port area for re-exports added to Beirut's success. During the conflict, the Port of Beirut virtually closed down and related commerce ground to a halt.

Work has been completed on the reconstruction of the Duty Free Zone at the Port of Beirut to restore its prewar capacity and a project for the rehabilitation and expansion of the Port of Beirut is underway. A contract to equip and operate the new Beirut container terminal was entered into in 1998 by the Beirut Port Authority and the Port Development Group on the basis that the Beirut Port Authority would construct the infrastructure required for this terminal. This contract was awarded to the Port Development Group following an international public tender. The Port Development Group is a Lebanese company cooperating technically with the Dubai Port Authority. The chairman of the board of the Port Development Group is the director of the Dubai Port Authority. The Beirut Port Authority completed the execution and financing of the required infrastructure in September 2000 at a cost of approximately U.S. $150 million. While the Port Development Group has purchased some of the equipment required for the operation of the new Beirut container terminal, it has, as yet, failed to deliver this equipment to the site and, accordingly, is in breach of its obligations. The Port Development Group recently announced its intention to terminate the contract.

The following table sets forth data concerning trade activity at Beirut Port for the years 1997 to 2001 and for the six months ended June 30, 2002:

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Trade Activity at Beirut Port

June 30, 1997 1998 1999 2000 2001 2002 No. of ships...... 3,117 2,892 2,796 2,514 2,647 1,227 Incoming freight(1) ...... 5,612 5,283 5,248 4,540 5,134 2,274 Outgoing freight(1)...... 270 279 307 295 329 178 Freight in transit(1)...... 146 144 126 140 163 92

______Source: Ministry of Finance, Banque du Liban. Note: (1) In thousands of metric tonnes.

Tourism

The strategic position of Lebanon, its mild climate and natural beauty, consisting of snow-capped mountains, valleys and the Mediterranean Sea, make it a natural tourist attraction. Apart from its privileged geographical and natural situation, Lebanon benefits from qualified and experienced human resources in the tourism industry.

Prior to the outbreak of the conflict, tourism (including hotels and restaurants) contributed approximately 20 per cent. to Lebanon's GDP. This is notable given that, at that time, the international tourism industry was not as developed as it is today.

Significant private investment is currently being made in the modernization and expansion of this sector and international hotel companies have returned to Lebanon. Casino du Liban, which historically constituted a major tourist destination, reopened in 1996. Lebanon is the only country in the Arab world that offers skiing and related winter sports activities. The largest ski resort in the country has been expanded and modernized. The Government believes that, because of the return of peace and stability to the country and with the development of the necessary infrastructure, tourism will again contribute significantly to Lebanon's economy. Lebanon's tourism industry also relies on the large number of Lebanese living abroad, who return regularly to the country during the summer season.

During 2001 and 2002, and especially after the events of September 11, 2001, Lebanon has regained its attraction for tourists from the Gulf region. The number of tourists from the Gulf has increased significantly.

Financial Services

From the 1950s to the start of the conflict in 1975, Beirut was the region's financial services center. At the onset of the oil boom starting in the 1960s, Lebanon-based banks were the main recipients of the region's petrodollars.

Currently, the main financial services offered are commercial banking, investment banking, private banking and insurance. Despite the conflict and a crisis in the late 1980s involving a small number of banks, the commercial banking sector remains a centerpiece of the Republic's service-oriented economy. The Lebanese banking sector has witnessed unprecedented growth during the period from 1992 to the present. Resident and non-resident private sector deposits with commercial banks increased from U.S. $6.6 billion at the end of 1992 to U.S. $39.5 billion at the end of June 2002. In addition, since 1996, Lebanese banks have been successfully accessing the international capital markets. Since 1996, Lebanese banks have raised over U.S. $2.5 billion on the international debt markets. The banking system is seen as having a key role by being the entry point for capital inflows for the region's development. At the same time the authorities are aiming at widening and deepening the financial sector by facilitating the establishment and evolution of, and providing a regulatory framework to, more diversified private financial institutions. Several investment banks, with capital raised offshore, have been established in Beirut and offer a variety of traditional investment banking services, including debt and equity raising and corporate finance advisory services. Several commercial banks have established investment banking subsidiaries offering similar services.

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As part of the Government's strategy of reestablishing Beirut as a regional financial services center, the Central Bank established in 1994 a central depositary, settlement and clearing agency, MIDCLEAR, which is a joint stock company organized under the laws of the Republic. The Government reopened the Beirut Stock Exchange in 1996.

Construction

Prior to the conflict, the property sector had always been important, with a substantial portion of the activity concentrated in Beirut, where the housing needs of the city's rapidly increasing urban population had to be met. Beirut saw an almost uninterrupted boom from the late 1950s to the early 1970s, when it expanded dramatically, eventually to house half of the country's population. Mountain towns and villages close to Beirut favored by tourists, such as Aley and Bhamdoun, also experienced a boom.

The post-conflict era has witnessed a significant construction boom. Real estate prices have risen steeply, especially for prime property, but have recently stabilized. The boom has been fuelled by a mixture of local, expatriate and Gulf Arab funds. With respect to residential property, it has been concentrated mostly at the upper end of the housing market. As the stock market has resumed its operations only recently, land and construction have been viewed by many as attractive investment opportunities. Construction projects are financed mainly by equity investments. In 1995, construction activity accounted for 9.2 per cent. of GDP, a significant increase from approximately 4.5 per cent. in 1972. Since 1996, construction activity has slowed, as witnessed by lower cement deliveries and a decline in the number of construction permits being issued.

Industry

In 2001, the industrial sector (mainly production of cement, furniture, paper products, printing and packaging, detergents, fertilizers, cosmetics, pharmaceuticals, jewelry, clothing and food products) accounted for 17.3 per cent. of GDP, an increase from 15.7 per cent. of GDP in 1972. Both industrial development and exports of manufactured goods registered a strong rebound in the first five months of 2002, increasing by 101 per cent. and 22 per cent., respectively, over the same period in 2001.

Exchange rate and price stability coupled with the gradual decline in Lebanese Pound interest rates have contributed to a better environment for investment and growth in industry. Infrastructure bottlenecks resulting from the conflict are being addressed as improvements in roads, telephones and electricity supply are realized. The Government provides various monetary and fiscal incentives for the establishment of industrial facilities in Lebanon, including tax exemptions and low interest financing. As export promotion is considered a priority by the Government, other export-financing incentives are under consideration.

From 1993 to February 2001, the International Finance Corporation ("IFC") carried out 34 investment and financing projects in Lebanon in an aggregate amount of U.S.$336 million, with an additional U.S. $256 million raised by the IFC through loan participations. Investments during 2000 included loans to three companies for U.S. $21 million. As at February 28, 2001, U.S. $219 million representing IFC loans, loan participations and equity investments had been disbursed and remained outstanding.

Additionally, a Euro 30 million facility provided by the European Investment Bank ("EIB") to local banks, a loan guarantee scheme provided by a joint venture between 50 commercial banks, the Government and the National Institute for Deposits Guarantees known as "KAFALAT" and a newly- created department at the Ministry of Industry providing industrial licenses, planning and building permission are expected to have a positive impact on the growth prospects on the Lebanese industrial sector.

Energy and Electricity

Lebanon has no known fossil fuel resources. Apart from relatively modest hydroelectric resources and the import of approximately 200 megawatts of electricity annually from Syria, all energy needs are met with imports of petroleum products, which represented over 4.4 million TOE (tonnes of oil equivalent) in 2000.

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Two state-owned refineries (one in Tripoli and one in Zahrani) are currently non-operational. The power sector accounts for about two-thirds of fuel imports.

Lebanon's energy sector is dominated by the state-owned monopoly EDL. EDL is a vertically integrated utility which is involved in power generation, transmission and distribution with approximately 1.05 million customers. Lebanon's energy production facilities include two thermal power stations (900 MW combined installed capacity), gas turbine stations in each of Baalbek and Tyre (35 MW installed capacity in each) and one hydroelectric station (10 MW installed capacity) and two new combined cycle power plants (435 MW installed capacity in each). The transmission system measures approximately 1,000 km and the transformer capacity is approximately 1,600 MVA. A 360 km transmission system with ten new substations is currently under construction. EDL's distribution network covers most of Lebanon. EDL is also the majority shareholder in the previously privately- owned Kadisha company, a thermal and hydro power producer and distributor to about 100,000 customers in North Lebanon.

The power sector sustained severe physical damage to all its production, transmission and distribution facilities during the conflict. EDL also incurred financial losses resulting from low tariffs, high technical and non-technical losses, including widespread illegal connections, and loss of control over its commercial operations.

EDL has been regaining control over its operations. In January 2002, a new management team began to formulate and assess a plan to restructure EDL to resolve certain technical difficulties facing the company. This team identified the source of EDL difficulties as insufficient maintenance and lack of coordination, leading to only 60 per cent. production efficiency. The team also noted significant collection difficulties due to both non-invoiced power distribution and uncollected bills, which it quantified at approximately U.S.$ 1 billion. EDL has adopted a new plan with strict measures aimed at increasing control and collection abilities. The plan requires the installation of new counters and the strict surveillance of power theft. Through the end of April 2002, EDL had installed 11,000 new counters throughout the country and, as a result of stricter surveillance, collections increased by 30 per cent. for the period January-April 2002, as compared to the corresponding period in 2001.

Agriculture

Approximately one third of the Republic is arable. The most fertile areas are located along the coastal strip and in the Bekaa valley. The diversity of the Republic's topography and climate enables cultivation of a wide variety of vegetables, fruits, industrial crops and cereals. In 1995, agriculture contributed approximately 12 per cent. to the Republic's GDP, as compared to approximately 9.9 per cent. in 1972. Food and agricultural exports, which include forestry products, provide about 10 per cent. of merchandise export earnings.

Prices and Inflation

Movements in the exchange rate of the Lebanese Pound are intertwined with domestic price developments due to the openness of the Lebanese economy. Since the mid-80s, Lebanon has suffered from rapid increases in prices, peaking at 500 per cent. per annum in Lebanese Pound terms in 1987. This trend was evident until the appointment of the first Hariri Government in October 1992. The last quarter of 1992 saw a significant appreciation in the value of the Lebanese Pound against major currencies. This, together with the gradual appreciation to date, has been accompanied by a decline in the rate of inflation. Since 1993, inflation is estimated to have declined to approximately 7.8 per cent. in 1997, 4.5 per cent. in 1998, 0.2 per cent. in 1999, -0.4 per cent. in 2000 and -0.4 per cent. in 2001. This marks the first prolonged return to relative price stability. The current level of inflation is attributable to the following principal reasons:

• the implementation by the Central Bank of a tight monetary policy, including maintaining a stable exchange rate (by using a nominal anchor policy with the U.S. Dollar) and high interest rates on Lebanese Pound assets; and

• the openness of the Lebanese economy, which causes excess demand on the domestic market to be satisfied by a corresponding increase in imports.

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RECONSTRUCTION

The Council for Development and Reconstruction and the Reconstruction Program

The CDR is a government agency entrusted with a key role in the process of reconstruction and economic recovery. It was established in 1977 in response to the needs of reconstruction as a successor to the Ministry of Planning and was reorganized in 1991. The CDR is an executive agency for the Council of Ministers. It is responsible for formulating and monitoring the implementation of public investment projects as well as seeking foreign funding. In 1992, a three-year (1993-1995) U.S. $2.25 billion National Emergency Reconstruction Program (" NERP") was established by the CDR. The initial program covered a series of rehabilitation investments, in the fields of power, water and wastewater, solid waste, education, housing and development. Financing for the NERP was provided in part by an International Bank for Reconstruction and Development (" World Bank") loan of U.S. $225 million.

Proposals for projects forming part of the reconstruction program are submitted for Parliamentary approval on a project by project basis. Approximately 1,664 contracts with a total value of approximately U.S. $5.4 billion were awarded by the CDR for the period since reconstruction efforts started in 1992 to the end of 1999.

The CDR is directly responsible for implementing a large part of the reconstruction program. It acts in this capacity in coordination with the various institutions (consisting principally of the relevant ministries) which will ultimately use or operate the investments. The other parts of the reconstruction programs have been implemented by various ministries and other governmental agencies, such as the Conseil Exécutif des Grands Projets and the Conseil Exécutif des Grands Projets de la Ville de Beyrouth. In March 2001, Parliament adopted a law merging these two agencies into the CDR, thereby expanding the range of reconstruction and development projects for which the CDR is responsible. In April 2001, the Government extended the powers of the CDR to include a supervisory function and vested it with the responsibility for administering loans to infrastructure and development projects and for the operation of tenders for such projects. The rationale for this merger is the desire of the Government to create a single executive agency to implement infrastructure and development projects.

In March 2000, the CDR prepared and submitted to the Government a five-year development program, covering existing and proposed projects in an aggregate amount of approximately U.S. $6 billion. The development program has been approved by the Government although its implementation is taking place gradually as projects are not being undertaken unless external sources of financing have been secured.

CDR expenditures on reconstruction and development programs are financed partly by grants and borrowings from international development agencies and other overseas entities and partly by appropriations from the budget. These appropriations are included as capital expenditures in the public accounts, but expenditures financed by borrowings as described above are not included in the public accounts (but are included in foreign debt figures). However, interest in respect of these borrowings is included in the national budget for the year in which it is scheduled to be paid. The Government's strategy is to finance the reconstruction and development program principally through the use of external financing, preferably concessionary financing (in the form of grants and soft loans). Other sources of external financing include commercial loans with export credit guarantees and the issuance by the Government of eurobonds and other international debt securities. As discussed elsewhere, the Government also seeks to partially finance the reconstruction program through participation by private sector companies.

Infrastructure

As a major regional entrepot and financial center, the Republic had a well-developed infrastructure prior to the conflict. The country's ports (Beirut, Tripoli, Sidon and Junieh) and Beirut International Airport were especially productive assets of the economy operating under a free exchange system. Catering to the large number of residents, businesses and international visitors, the housing and telecommunications sectors had been built up to high standards. The development of the road network had not, however, kept pace with the growth of the economy. The years of conflict exacted a heavy toll on the infrastructure. Since 1992, significant progress has been made in restoring and upgrading the

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infrastructure: electricity is available on a 24-hour basis to most users; telecommunications systems have been significantly upgraded and are functioning better; emergency water supply repairs have been undertaken; road networks are being upgraded; and collection of solid waste has markedly improved.

Electricity Generation

Work on a rehabilitation program for power plants with a cost of U.S. $410 million started in 1993 and is now completed. This program involved the repair and reconstruction of existing generation, transmission and distribution facilities so that a nominal production capacity of 1,250 megawatts could be attained. Except for temporary interruptions caused by Israeli air attacks, electricity is now available to consumers in all of Lebanon 24 hours a day, with the power supply temporarily being augmented by the purchase from Syria of between 50 and 100 megawatts semi-annually. Another program, aimed at modernizing the electricity sector, began in 1996, with a cost estimated at U.S. $1 billion. This program included the installation of four gas turbines in Sour and Baalbeck, with a capacity of 140 megawatts. These turbines became operational in 1996. In order to meet increasing demand and to anticipate the replacement of some older units, two combined cycle power plants providing additional production capacity of a total of approximately 900 megawatts are also being installed with approximately 600 megawatts currently operational. In addition, a new national 220KV network is being installed.

Water and Wastewater Sectors

A rehabilitation and development program for the water and wastewater sector, which it is estimated will cost approximately U.S. $1 billion, is underway. This program comprises the following principal components:

• the rehabilitation of existing infrastructure, including wells, springs, reservoirs and transmission and distribution networks for water supply, main sewers and collectors for wastewater;

• the development and extension of the water and wastewater infrastructure, including increasing the available water resources, extending the distribution and transmission networks, and constructing sewer networks and wastewater treatment plants to protect water sources, groundwater and coastal areas;

• the establishment of a National Water Resources Authority ("NWRA") and five regional Water sanitation and irrigation companies, with the provision of technical assistance to the Ministry of Hydraulic and Electrical Resources ("MHER") and to the regional water companies; and

• the operation and maintenance of wastewater and storm water systems in the major Lebanese urban centers (Jounieh, Greater Beirut, Tripoli, Zahle, Nabatiya, Saide and Sour).

The rehabilitation program began in May 1993 and cost approximately U.S. $60 million in the first year. This included urgent repairs related to existing networks throughout Lebanon. Extension of the water treatment plant at Dbaye, which supplies clean water to a large part of Beirut was completed at a cost of approximately U.S. $5.7 million. The rehabilitation program for Greater Beirut, (Beirut & Ain al Delbeh Water Authorities) is currently being implemented at a cost of approximately U.S. $50 million. Rehabilitation and replacement of main water treatment plants and pumping stations in the rest of Lebanon is underway and is expected to cost approximately U.S. $43 million.

Contracts for the rehabilitation and development of water and wastewater systems in North and South Lebanon, Mount Lebanon and the Bekaa were awarded between 1996 and 1999 at a value of U.S. $214 million. These contracts comprise feasibility studies, environmental impact studies, design and preparation of tender documents, works and supervision.

Telecommunications

Work on the expansion and rehabilitation of the fixed line system commenced in November 1993. 800,000 new digital lines were commissioned in July 1993 and the current installed capacity is 1,800,000, of which 830,000 were connected to subscribers in January 2001. The total value of rehabilitation and extension contracts entered into was approximately U.S. $800 million. A program to

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add approximately 23,700 lines in Southern Lebanon and other rural areas is due to be undertaken in the near future. Contracts for an Intelligent Network platform, a switched data network to support multimedia services and a public payphone system are currently anticipated to be awarded pursuant to tenders in 2001.

Two compatible mobile phone networks currently aggregating over 700,000 lines are operational, in addition to the fixed line system. The mobile telephone networks are privately financed through two BOT contracts awarded to two different operators. In May 2000, the Government notified the two operators that they had each failed to pay to it an amount of U.S. $300 million on account of back taxes and revenue-sharing under the BOT contracts and that, absent such payments, the BOT contracts would be terminated. Following this dispute, each of the mobile telephone network operators initiated arbitration proceedings. In June 2001, the Government notified the two mobile operators of the early termination of their BOT contracts in accordance with their respective terms and the BOT Contracts were terminated effective on August 31, 2002. The Government has entered into a network operation agreement with each of the operators to operate the network until January 31, 2003, pending the award of licenses or the execution of a management agreement.

See "Role of the Government in the Economy and Privatization – Telecommunication Sector".

Transportation

The first phase of road projects has been substantially completed. It included the rehabilitation of the capital's road network, the completion of extensions started before the conflict and the extension of the coastal highway system north to Tripoli and south to Sidon, which were completed in 1996.

The extension and redevelopment of Beirut's international airport, with targeted passenger movement of 6 million persons per annum, amounted to U.S. $526 million. Two major contracts totaling U.S. $446 million have been awarded under a multi-year project approved by Parliament. Financing of U.S. $179 million has been secured from the European Investment Bank, the Kuwait Fund for Arab Economic Development and the French Government, and a number of the airport's facilities (for example, the car park) have been financed through BOT contracts reducing the portion of the costs to be funded by public expenditure. A new passenger terminal was put in service at the beginning of 1998 and the project was completed in 2000. The principal contractor initiated arbitration proceedings for alleged non-payment of cost overruns and other matters.

A project for the rehabilitation of the Port of Beirut, estimated to cost U.S. $150 million, is intended to restore port capacity to pre-conflict levels. Contracts relating to the first sections of the civil works component of this project were awarded in October 1996 for an amount of U.S. $102.8 million, subsequently reduced to U.S. $90 million. Partial financing for this project amounting to the equivalent of U.S. $54 million has been secured from the European Investment Bank.

SOLIDERE

Following the end of the period of conflict in 1990, the Government was confronted with the issue of how to redevelop areas in Lebanon that had suffered damage during the hostilities. Redevelopment was particularly critical for the Beirut Central District (the "BCD"), which had been the historical center of government and commercial activity and which had also been the subject of extensive damage during the hostilities. The BCD is considered the heart of Beirut. The area contains many important government buildings and the Lebanese Parliament. It has traditionally been considered the center of banking and commerce in Lebanon. The hotel district, internationally renowned before the hostilities, lies at the western edge of the BCD.

In 1992, the Government created a legal framework that would allow for the establishment of private real estate companies to carry out the redevelopment of damaged areas in accordance with a master plan approved by the Government. Such companies would be capitalized partly by cash subscriptions by investors and partly by issuance of shares in exchange for the compulsory contribution of property rights by the original owners and lessees (subject to an option in favor of such owners to regain ownership of certain properties). Parliament established the foundation for this legal framework with the enactment in 1991 of Law 117 (" Law 117").

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A master plan for the development of the BCD, supplemented by a detailed plan, defines the geographical limits of the BCD and contains the body of guidelines and rules governing the rehabilitation and redevelopment of the BCD, including certain guiding principles aiming to preserve and promote the historic heritage of the BCD and to ensure the harmonious integration of traditional and modern architecture.

SOLIDERE was the first real estate development and reconstruction company created pursuant to Law 117, in July 1992, and the only such company with responsibility for the development and reconstruction of the BCD (the "Project"). The entire area is approximately 1.8 million square meters, consisting of the traditional BCD and the reclaimed land. The traditional BCD constitutes the area of the BCD which existed prior to the hostilities in Lebanon and covers a surface area of approximately 1.2 million square meters. Under the master plan for the Project, the aggregate permitted built-up floor space in the entire BCD (including certain exempted lots which do not belong to SOLIDERE) and the lands reclaimed from the Mediterranean sea is limited to 4.69 million square meters.

SOLIDERE intends to focus on the new waterfront district with a view toward the re-launching of Beirut as an international regional center. This entails completing the waterfront district infrastructure, developing the eastern marina and launching high-rise developments.

SOLIDERE's capital is composed of real estate of the original owners and the lessees in the BCD, who received 65 per cent. of SOLIDERE's shares in compensation for their properties and rights, and cash contributions from Lebanese and Arab investors, who subscribed to the flotation of shares in SOLIDERE, which closed on January 10, 1994. On September 30, 1996, the shares of SOLIDERE, previously listed on the Beirut Secondary Market, were listed and began trading on the Beirut Stock Exchange.

On December 3, 1996, 6,700,000 Global Depositary Receipts representing fractional economic interests in SOLIDERE shares were issued and currently are trading on the London Stock Exchange. In September 1997, SOLIDERE amended its by-laws and, in October, 1997, it obtained the necessary governmental approval to permit foreign investors to own shares in SOLIDERE.

Commercial activity in the BCD is developing rapidly with banks and other institutions relocating there.

HUMAN RESOURCES

Lebanon's human resources have traditionally been the backbone of its economy. The Republic's human resources had been developed to levels comparable to, or higher than, those of lower middle- income countries. Prior to the conflict, Lebanon was endowed with a well-trained population and labor force with adequate health facilities. The conflict resulted in setbacks for the human resources of the Republic. A significant emigration of skilled labor took place with large numbers of professionals, traders, industrial workers and construction workers leaving the country. The educational system also suffered (See "Educational System," below).

However, a significant reversal of emigration has been observed since the end of the conflict and the installation of the Hariri government in October 1992. A large number of families living abroad have now returned, as well as young persons, who have been educated and have worked abroad, and who have either entered, or are looking to enter, the workforce. They are expected to contribute positively to the economic development of the country.

EDUCATIONAL SYSTEM

The variety of Lebanese educational institutions (schools as well as universities) is a reflection of the openness of the Republic to the international community. Private schools have a long and strong tradition in Lebanon. Aside from private schools established by western clerics (French, Anglo-Saxons, Germans, Italians), there are many and diverse local and foreign religious and secular schools. The Educational Center for Research and Development has recently revised and updated the national curriculum for schools.

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The table below shows the percentage of the population attending schools or universities as of 1997:

Male Female Total Age (per cent.) 5 — 9 years...... 95.3 95.6 95.4 10— 14 years...... 93.2 94.8 93.9 15 — 19 years...... 61.2 67.6 64.3 20 — 24 years...... 25.6 28.1 26.8 25 years and over...... 2.0 1.2 1.6

______Source: CAS Survey.

According to the CAS Survey, the literacy rate was 88.4 per cent. in 1997, as compared to 68.2 per cent. in 1970.

The Republic traditionally had an advanced educational structure, and well-trained technicians and engineers. Prior to the conflict, Beirut served as an educational center for the region. However, a substantial part of this human capital was reduced during the conflict, and the educational system suffered damage and lack of investment. In spite of the turmoil, however, the educational system has survived and still retains high standards.

The following table gives a summary of the school system during the academic years 1998-1999, 1999- 2000 and 2000-2001:

School System

1998-99 1999-00 2000-01 Total number of schools 2,719 2,861 2,671 Public schools (as a percentage of total)...... 45.71% 46.30% 50.00% Private commercial schools (as a Percentage of total)...... 36.23% 33.50% 14.10% Private non-commercial schools (as a Percentage of total) .... 10.07% 20.20% 35.90% Total student enrolment in schools...... 871,580 877,120 891,520

______Source: Ministry of Finance.

The Lebanese Baccalaureate (originally based on the equivalent French school diploma) is the qualification obtained by most high school graduates. A few other foreign qualifications (French, British and American) are also prepared for and awarded in the Republic. The Government has recently introduced vocational training for students in order to encourage growth of technical expertise within the Republic.

Lebanon's universities had a total of 119,487 students during the academic year 2000-2001. 11.75 per cent. of university students were foreign compared with 75.3 per cent. in 1974-1975. Lebanon's universities had a total of 84,446 students during the academic year 1995-1996 and 87,957 students during the academic year 1996-1997. In 1998-1999, the total number of students enrolled at university was 101,400.

The principal universities in Lebanon consist of the Lebanese University, with five branches (71,050 enrolments in 2000-2001), the Arab University (sponsored by the Egyptian University of Alexandria) (8,866 enrolments in 2000-2001), Université Saint Joseph (USJ) (founded and run by French Jesuits) (7,696 enrolments in 2000-2001), American University of Beirut (AUB) (5,511 enrolments in 2000- 2001), Lebanese American University (4,360 enrolments in 2000-2001), Notre Dame University (3,563 enrolments in 2000-2001), Kaslik University (4,230 enrolments in 2000-2001), the recently established Balamand University (Hybrid System) (2,033 enrolments in 2000-2001) and Haigazian University (367 enrolments in 2000-2001). Each of the Lebanese University, the USJ and the AUB has a medical school.

At the initiative of the Lebanese and French governments, and with the support of the Paris Chamber of Commerce and Industry, the Central Bank of Lebanon and various private sponsors, the "Ecole

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Supérieure des Affaires" (" ESA") was established in Beirut in April 1996. The ESA offers a full- and part-time MBA program and, through its Monetary and Financial Institute, aims to attract bank and finance executives who wish to develop their knowledge of modern financial products and financing techniques.

A wide-ranging program of physical rehabilitation of schools was launched in October 1993. From 1993 to December 1997, 1,280 public schools have been rehabilitated and a large number of these schools have been provided with modern equipment. The CDR, acting on behalf of the Ministry of National Education, Youth and Sport (" MNEYS"), entered into contracts for the design of 25 new public schools.

The Government's emphasis on education is evidenced by the existence of three active ministries with responsibilities relating to educational matters. They are the MNEYS, the Ministry of Vocational and Technical Education and the Ministry of Culture and Higher Education.

EXTERNAL SECTOR

Balance of Payments and Foreign Trade

Lebanon is a predominantly importing country and is characterized by large trade deficits; however, net foreign income earnings, remittances and earnings from tourism, banking, insurance and other services help offset the trade deficits. Nevertheless, trade deficits have risen over the past five years as imports of materials for reconstruction have also risen. The trade balance recorded deficits of approximately U.S. $5,985 million in 2001 and U.S. $5,083 million in 2000. Substantial capital inflows and continuing remittances from the Lebanese diaspora financed these deficits. Even during the conflict, the balance of payments was generally in surplus. It showed minor deficits in 1979, 1983, 1984 and 1986, but larger deficits occurred in 1989 and 1990. In all other years in the period 1975-1997, there were surpluses in the balance of payments.

In 1991, the first full year of peace, large capital inflows together with a partial recovery of exports resulted in an overall balance of payments surplus of over U.S. $1,074 million. In 1992, the balance of payments registered a surplus of U.S. $54 million, although imports rose steeply during that period. In 1993, the current account deficit increased but was more than offset by large capital account inflows, leading to a balance of payments surplus of U.S. $1,170 million. The trend continued in the following two years, with the overall balance recording a surplus of U.S. $1,131 million in 1994 and U.S. $256 million in 1995. The balance of payments recorded a surplus of U.S. $786 million in 1996 and U.S. $420 million in 1997. However, the balance of payments registered a deficit of U.S. $488 million in 1998. Following the appointment of the previous Government and a reduction in the amount of foreign borrowings, the balance of payments recorded a surplus of U.S. $261 million in 1999. In 2000, the balance of payments recorded a deficit of U.S. $289 million due principally to increased capital outflows resulting from losses incurred by investors in international equity markets, increased fuel prices, a decline in new external borrowings of approximately 41 per cent. and the near doubling of amortization on external public debt.

In 2001, the balance of payments registered a deficit of U.S. $1,170 million due primarily to an increase in the trade balance deficit and the effect of regional developments.

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The following table sets out information relating to the Republic's foreign trade from 1997 to 2001 and for the three months ended March 31, 2002.

Balance of Payments Summary(1)

March 1997 1998 1999 2000 2001 31, 2002 (in millions of U.S. Dollars) Current account ...... (5,786) (6,143) (5,319) (5,015) (5,985) (1,179) Trade balance ...... (6,274) (5,913) (5,086) (5,081) (5,919) (1,259) Exports. f.o.b.(2)...... 649 668 695 712 880 213 Imports. f.o.b.(2)...... (6,923) (6,581) (5,780) (5,793) (6,800) (1,473) Services...... (131) (322) (6) 365 (207) (123) Factor...... 319 162 214 337 (22) (78) Interest ...... 153 (23) 32 198 (79) (60) Bank of Lebanon (net) ...... 372 317 278 532 228 (21) Interest on external public debt...... (219) (340) (246) (335) (307) (38) Investment income...... 165 186 182 140 57 (18) Commercial banks (net)...... 39 65 63 (36) (38) (42) Earnings ...... 269 370 421 331 342 8 Payments...... (230) (305) (358) (367) (379) (50) Non banks(3) ...... 126 121 119 176 95 24 Earnings ...... 295 263 272 339 188 47 Payments...... (169) (141) (152) (163) (94) (23) Nonfactor ...... (449) (484) (220) (28) (185) (45) Insurance and freight...... (575) (610) (499) (489) (569) (124) Travel and transportation ...... 228 223 247 521 434 66 Communication services(4) ...... 90 35 125 78 35 14 Medical services(4) ...... 0 0 0 0 0 0 Financial services(4)...... (2) (1) (1) (3) (15) 0 Other(5) ...... (190) (131) (91) (79) (72) 0 Unrequited transfers...... 619 91 (227) (300) 141 204 Public sector grants...... 48 70 111 53 492 65 Private transfers ...... 597 27 (334) (345) (346) 139 Others(6)...... (27) (6) (4) (9) (5) 0 Capital account 6,206 5,656 5,579 4,726 4,816 492 Direct investment...... 1,793 1,097 740 856 1,450 331 Real estate investment...... 1,757 947 768 930 1,451 331 Other ...... 37 150 (28) (74) (1) 0 Portfolio investment...... (81) (416) 129 (67) (479) (73) External public disbursements .... 1,009 326 699 1,027 1,349 935 Contracted loans...... 369 267 320 190 171 21 Eurobond...... 640 59 379 837 1,178 914 Amortization on external public debt ...... (344) (80) (131) (218) (183) 0 Non-bank short-term capital(3). 488 (114) (361) (281) (636) (159) Claims on foreign banks (increase)...... 310 188 (125) (98) (474) (119) Liabilities to foreign banks ...... 178 (302) (186) (183) (162) (41) Other capital(7)...... 3,340 4,843 4,082 3,410 3,315 (543) Overall balance...... 420(8) (488)(9) 261(9) (289)(9) (1,169) (687)

______Source: Higher Council of Customs/Banque du Liban

Notes: (1) Certain line items differ from previously published data due to revisions agreed with the IMF. (2) Customs data. Exports data were adjusted downward to reflect changes in the valuation of banknotes transfers abroad as follows: U.S. $61.5 million in 1994, U.S. $169.5 million in 1995, U.S. $283.2 million in 1996. (3) Data on the flow of international bank lending to non-bank residents of Lebanon and on the flow of deposits by residents of Lebanon with international banks are obtained from BIS stocks. For 1996, based on QI data. Estimates of interest payments and receipts are derived by applying the average 3-month eurodollar rate to the average stock. (4) Available as of 1995. (5) Includes public sector services in computer and information, construction, and financial and business services. Data available as of 1996. (6) Includes governmental transfers. Data available as of 1996.

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(7) Includes valuation adjustments and errors and omissions (mainly unrecorded flows of both current and capital items). The increase in errors and omissions in 1998 and 1999 is due, in part, to the new compilation of the balance of payments during such period. (8) Includes a U.S. $500 million deposit from Saudi National Commercial Bank made in December 1997. (9) Includes a U.S. $500 million deposit from Saudi National Commercial Bank made in December 1997, a U.S. $100 million deposit from the Kuwaiti Investment Authority made in February 1998 and a U.S. $100 million deposit from the National Bank of Abu Dhabi made in May 1998.

The following table indicates the principal destinations of exports for the years 1997 to 2001 and for the six months ended June 30, 2002.

Destination of Exports(1)

June 30, 1997 1998 1999 2000 2001 2002 (per cent.) Industrial Countries ...... 32.9 37.0 40.4 35.4 36.2 38.3 Italy...... 3.3 2.6 2.8 2.5 2.9 2.1 United States...... 6.0 6.6 6.2 6.5 6.8 5.3 Switzerland ...... 2.4 3.4 6.6 7.1 7.1 17.5 France ...... 7.2 8.7 7.7 5.2 4.3 1.9 Germany ...... 2.2 3.2 3.6 2.5 1.9 1.2 United Kingdom ...... 3.1 3.0 3.6 1.6 1.7 3.0 Other ...... 8.7 9.4 9.9 10.0 11.4 7.3 Developing Countries...... 67.0 63.0 59.6 64.6 63.8 61.7 Middle East...... 54.0 43.4 43.2 45.2 44.6 44.3 Saudi Arabia ...... 15.1 12.1 10.5 10.9 9.6 9.3 Syria...... 5.9 6.5 4.8 3.6 4.0 6.7 Jordan...... 3.9 3.6 4.0 4.4 3.5 3.1 Kuwait...... 4.5 4.2 4.5 3.7 3.1 2.7 U.A.E...... 9.0 9.9 8.0 10.5 8.2 8.7 Egypt...... 2.5 2.4 2.3 3.3 2.7 2.7 Other ...... 13.2 4.6 9.3 8.9 13.6 11.0 Africa...... 4.8 5.0 5.5 5.6 5.0 5.2 Other Europe...... 1.2 6.0 4.2 5.1 4.6 4.1 Other ...... 7.0 8.6 6.7 8.6 9.6 8.2 Total ...... 100.0 100.0 100.0 100.0 100.0 100.0

______Source: Higher Council of Customs/Banque du Liban.

Notes: (1) Discrepancies in the figures appearing in this table are due to rounding.

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The following table shows the composition of exports for the years 1997 to 2001 and for the six months ended June 30, 2002.

Composition of Industrial Exports

June 30, 1997 1998 1999 2000 2001 2002 (per cent.) Food and Beverage ...... 20 20 20 19 24.1 15.1 Textiles ...... 12 10 8 6 11.3 5.0 Leather, Plastics, Rubber ...... 1 1 1 2 4.3 1.2 Wood and Products...... 0 0 1 1 1.4 1.0 Chemicals and Pharmaceuticals...... 11 12 13 12 12.9 10.2 Paper and Products...... 8 7 8 7 8.8 6.2 Stone, Clay and Glass ...... 3 3 2 3 3.3 2.5 Metal and Products ...... 11 10 14 13 4.7 12.6 Machinery and Appliances...... 15 16 13 13 19.4 13.7 Jewellery...... 10 11 14 18 0.0 25.6 Other ...... 8 9 6 6 9.7 7.1 Total ...... 100 100 100 100 100.0 100.0

______Source: Higher Council of Customs/Banque du Liban.

The following table sets out the major sources of imports for the years 1997 to 2001 and for the six months ended June 30, 2002.

Sources of Imports(1)

June 30, 1997 1998 1999 2000 2001 2002 (per cent.) Industrial Countries ...... 68.2 66.8 66.4 62.3 57.4 59.0 Italy...... 13.2 11.5 10.9 10.9 9.7 11.1 France ...... 9.5 9.7 9.6 8.5 8.4 7.9 Germany ...... 8.7 8.7 8.9 8.3 8.5 9.1 United States...... 9.2 9.3 8.1 7.3 7.1 7.9 Japan ...... 4.1 4.2 4.2 3.4 3.2 3.6 United Kingdom ...... 4.4 4.5 4.4 5.2 4.6 4.7 Switzerland ...... 6.6 6.3 7.1 6.9 4.6 3.5 Belgium-Luxembourg...... 1.9 1.9 1.9 1.7 1.9 2.3 Other ...... 10.6 10.7 11.3 10.0 9.3 8.9 Developing Countries...... 31.8 33.1 33.2 37.7 42.6 41.0 Middle East...... 9.4 8.7 9.4 12.5 13.2 12.0 Saudi Arabia ...... 1.7 1.7 1.7 2.6 3.6 2.5 Syria...... 4.4 3.7 3.6 4.5 4.5 3.6 Bahrain...... 0.1 0.1 0.4 0.8 0.8 0.9 Kuwait...... 0.1 0.1 0.2 0.3 0.2 0.2 Other ...... 3.2 3.1 3.6 4.2 4.1 4.7 Africa...... 0.8 0.5 0.7 0.6 0.5 0.6 Europe...... 5.3 5.5 5.3 4.8 5.6 6.1 Romania...... 0.6 0.5 0.6 0.7 0.5 0.6 Turkey...... 2.1 2.5 2.6 2.2 3.3 3.4 Cyprus...... 0.5 0.2 0.2 0.2 0.2 0.2 Other 2.1 2.2 1.9 1.7 1.6 1.9 Others...... 16.3 18.4 18.2 19.8 23.3 22.3 Total ...... 100.0 100.0 100.0 100.0 100.0 100.0

______Source: Higher Council of Customs/Banque du Liban.

Notes: (1) Minor discrepancies in the figures appearing in this table are due to rounding.

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Foreign Direct Investment

Prior to 1975, foreign direct investment was substantial. It was concentrated in property, services, banking and tourism. Predictably, foreign direct investment was weak during the period of conflict.

The onset of peace marked a reversal of this trend. Since 1990, considerable amounts of private Arab capital have been invested in real estate. Two principal sources for foreign direct investment have been the substantial funds held by Lebanese abroad and the large pool of private Arab wealth.

The Government continues to favor a strong role for the private sector in a liberal policy environment and welcomes foreign direct investment in the economy. The legal framework is sound and conducive to foreign investment. There are no special financial provisions for, or constraints on, foreign investors in the Republic, except that certain restrictions exist on foreign ownership of companies involved in media activity, land ownership (both directly and when holding shares in companies owning real property) and the employment of foreign labor. A government agency, the Investment Development Authority of Lebanon, which has been established in 1994, assists foreign investors in setting up their businesses in Lebanon.

Lebanon's membership in the Multilateral Investment Guarantee Agency was ratified by Parliament as a means of reinforcing the confidence of foreign investors wishing to invest in Lebanon. In addition, the National Institute for the Guarantee of Investment makes insurance coverage available to investors, in the form of compensation, for losses resulting from non-commercial risks.

Foreign Borrowings and Grants

As at the end of January 1999, the Republic had obtained foreign financing facilities (excluding the proceeds of outstanding eurobonds) totaling approximately U.S. $5.2 billion, of which approximately U.S. $4.08 billion had been drawn down and approximately U.S. $1.12 billion had not been utilized, as well as approximately U.S. $0.55 billion in the form of grants. These facilities and grants have been provided principally by the following countries and institutions: the Abu-Dhabi Fund for Development, the Arab Fund for Economic and Social Development, Belgium, the European Investment Bank, the European Union, France, Germany, the International Fund for Agricultural Development, the Islamic Development Bank, Italy, Japan, Kuwait, Qatar, Oman, OPEC Fund for International Development, Saudi Arabia, the United Nations and the World Bank.

The Government's strategy has been to maximize the use of external financing, preferably concessional financing (in the form of grants or soft loans). Other sources of external financing include commercial loans with export credit guarantees and the issuance by the Government of eurobonds and other international debt securities.

Upon taking office, the Government sought the assistance of friendly countries, such as France, the United States and Japan and multinational agencies, to address the issues it was facing. To this end, in February 2001, a meeting was convened in Paris by the President of France and was attended by the President of the World Bank, the President of the European Commission, the Vice Chairman of the European Investment Bank and members of the French government. The purpose of the meeting was to discuss the Government's economic program and consider proposals to support this program; these proposals included the issuance of partial guarantees of some of the Republic's external debt issues.

On November 23, 2002 a second conference, known as "Paris II", was convened by the President of France. The meeting was attended by representatives of a number of countries, including the president of Malaysia, the prime ministers of Belgium, Canada, Germany, Italy and Spain and senior representatives of Bahrain, Denmark, Japan, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates and the United Kingdom. Also in attendance were senior representatives of the European Commission, the World Bank, the IMF, the European Investment Bank and various Arab multilateral agencies. The participants at the conference expressed support for the economic reform measures of the Government and pledged to contribute approximately U.S. $3.1 billion in long-term, low interest financing to the treasury of the Government and approximately U.S. $1. 3 billion in long-term, low interest financing for projects. The Government is currently seeking to collect the amounts pledged. Under applicable law, the proceeds of the financing to the treasury must be utilized exclusively for the refinancing of existing debt in Lebanese pounds or foreign currency. As a result of the Paris II

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conference, yields on treasury bills denominated in Lebanese pounds declined to under 10 per cent. for two year bills (yields were approximately 16 per cent. in October 2002). Deposit and lending rates in Lebanese pounds and U.S. Dollars also declined.

PUBLIC DEBT

General

As at December 31, 2001, Net Public Debt of the Republic was LBP 40,847 billion (consisting of LBP 26,321 billion of net domestic debt and LBP 14,526 billion (U.S. $9.63 billion) of public external debt).

The table below shows the Republic's net public sector debt as at the end of each of the years 1997 to 2001 and as at August 31, 2002.

August 31, 1997 1998 1999 2000 2001 2002 (in billions of Lebanese Pounds) Net Domestic Debt(1) ...... 18,381 19,544 21,377 24,530 26,321 25,720 Public External Debt(2)(3)...... 3,673 6,282 8,351 10,597 14,526 18,602 Net Public Debt...... 22,054 25,826 29,728 35,127 40,847 44,322 ______Source: Ministry of Finance/the Central Bank.

Notes: (1) Net domestic debt represents gross domestic debt less public sector deposits with central bank and commercial banks. (2) Amounts translated into Lebanese Pounds at end of period rates; includes accrued interest. (3) Public external debt figures in this Offering Circular differ from previously published figures due to continuing implementation of the Debt Management System.

Net public debt as a percentage of estimated GDP increased from 46 per cent. in 1992 to 96 per cent. in 1997, 105 per cent. in 1998, 120 per cent. in 1999, 142 per cent in 2000 and 162 per cent. in 2001.

Internal Debt

The Government has elected to finance the budget deficit principally through the issuance of LL denominated Treasury Bills (with maturities of three months, six months and twelve months), and Treasury bonds (with maturities of 24 months). The weighted average yields on Treasury bills and Treasury bonds increased significantly during 1995, but have been slowly declining since October 1995. As at December 31, 2001, approximately 91.83 per cent. of subscriptions to Treasury bills and Treasury bonds have maturities of one year and more. Beginning in January 2000, the Central Bank has been using Lebanese Pound denominated certificates of deposit of shorter and more diversified maturities to absorb excess liquidity and as an additional tool to implement monetary policy.

External Debt

The outstanding public external debt as at the end of 1992 and 1993 was approximately U.S. $362 million and U.S. $429 million, respectively. Commencing in 1994, the Republic became a frequent issuer on the international capital markets as it sought to finance its budget deficit and to convert its high interest domestic debt into lower interest external debt.

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The following table shows the Republic's outstanding eurobond issuances by year of issue, maturity date, principal amount and coupon as at the date of this Offering Circular :

Outstanding Eurobond Issuances

Year of Issue Maturity Principal Amount Coupon 1997...... 2007 USD 100 million 7.50% 1997...... 2007 USD 400 million 8.625% 1998...... 2003 USD 500 million 8.625% 1998...... 2005 USD 350 million 8.750% 1998...... 2005 USD 100 million 8.750% 1999...... 2004 USD 200 million 8.50% 1999(1)...... 2004 USD 300 million 7.25% 1999...... 2006 USD 300 million 8.875% 1999...... 2009 USD 400 million 10.25% 2000...... 2005 USD 500 million 9.375% 2000...... 2009 USD 250 million 10.25% 2000...... 2003 USD 225 million 8.75%(2) 2000...... 2003 USD 225 million 9.125% 2000(2)...... 2004 USD 250 million 7.25% 2000(1) ...... 2004 USD 400 million 9.50% 2001(1) ...... 2004 USD 200 million 9.50% 2001...... 2006 USD 1,150 million 9.875% 2001...... 2016 USD 400 million 11.625% 2001...... 2008 USD 750 million 10.125% 2001(1) ...... 2006 USD 350 million 9.375% 2001(1) ...... 2004 USD 250 million 9.50% 2002(3) ...... 2005 USD 1,000 million 10.25% 2002(3) ...... 2006 USD 350 million 10.50% 2002(3) ...... 2006 USD 500 million 10.50% 2002(4) ...... 2006 USD 750 million 10.50% 2002(3) ...... 2007 USD 500 million 10.50% ______Notes: (1) Fungible issues. (2) This issue consists of floating rate notes and the coupon represents the applicable coupon at issue. (3) Eurobonds issued and initially transferred to the Central Bank in consideration for the cancellation of an equivalent amount of Treasury bills and bonds held by the Central Bank. (4) Eurobonds issued and initially delivered to holders of U.S. Dollar-denominated notes maturing on August 2, 2002 to refinance such notes. See “Public Debt – Issuance of Dollar-denominated Notes in Satisfaction of Certain Claims”.

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The following table shows the Republic's public external debt by type of creditor at the end of the periods indicated.

Public Sector External Debt By Type of Creditor(1)(2)

1997 1998 1999 2000 2001 (in U.S. Dollars) Bilateral...... 416,337,308 453,497,232 472,318,524 458,815,979 439,140,405 Government of Belgium...... 1,962,536 2,059,189 1,782,846 1,642,958 1,477,511 US Department of Agriculture...... 494,211 99,976 (1) (1) Abu Dhabi Fund for Development ...... 20,705,191 25,000,000 23,751,940 21,251,157 18,750,000 Kuwaiti Fund for Arab Economic Development ...... 106,011,169 107,737,838 135,674,993 145,293,776 138,439,597 Instituto Centrale per il Credito a Medio Termine-ente Di Diritto Pubblico ...... 16,199,242 16,462,332 16,462,332 17,282,296 17,017,599 Osterreichische Landerbank Aktiengesellschaft...... 44,862,832 44,795,433 38,792,236 32,050,568 28,083,931 Sezione Speciale per l’Assicrazione del Creditoall’Esportazione ...... 38,091,364 36,308,991 30,628,338 25,073,034 22,763,992 Natexis Banque ...... 61,467,563 75,080,957 75,291,499 70,733,634 70,038,767 The Saudi Fund for Development...... 75,057,992 94,138,900 102,925,597 107,643,501 106,024,211 Kreditanstalt Fur Wiederaufbau...... 51,485,207 51,813,617 47,008,744 37,845,057 31,676,302 Japan Bank For International Corporation...... 4,868,495 Multilateral ...... 510,829,227 657,625,424 756,674,779 868,530,975 915,159,861 International Bank for Reconstruction and Development ...... 167,413,784 204,602,587 244,988,299 281,327,703 273,971,779 European Investment Bank ...... 141,367,412 214,717,150 242,220,622 282,194,771 264,450,949 International Fund for Agricultural Development ...... 3,674,474 4,494,557 4,700,084 4,825,791 6,543,833 Communaute Economique Europeenne..... 1,203,800 1,232,238 1,029,492 915,879 837,958 Arab Fund for Economic and Social Development ...... 175,067,822 206,031,847 228,711,938 263,201,860 300,938,429 Islamic Development Bank...... 19,410,775 21,534,772 29,614,578 29,200,918 62,352,128 The OPEC Fund for International Development ...... 2,691,159 5,012,272 5,409,765 6,864,053 6,064,785 Commercial Banks(3) ...... 434,749,916 459,721,232 517,405,499 484,669,157 418,602,383 Eurobonds(4) ...... 1,039,547,865 2,498,995,769 3,684,657,980 5,059,598,083 7,612,724,852 TOTAL...... 2,401,464,315 4,069,839,657 5,431,056,781 6,871,614,194 9,385,627,501

______Source: Ministry of Finance/the Central Bank.

Notes: (1) Certain figures in this table differ from previously published figures due to continuing implementation of a new debt management system; excluding accrued interest. (2) Amounts translated into U.S. Dollars at end of period rates. (3) Due to the reclassification of some items that were previously classified as bilateral and which are now included under commercial banks, subtotals for bilateral and commercial banks differ from previously published figures. (4) Consisting of the following issues of securities: U.S. $400 million 10.125 per cent. Notes due October 14, 1997 (these notes were paid at maturity); U.S. $400 million 9.125 per cent. Bonds due 2000 issued as to U.S. $300 million on July 28, 1995 and as to U.S. $100 million on May 31, 1996 (these notes were exchanged at maturity); DEM250 million 6.50 per cent. Bonds due 2002 issued on June 17, 1997; U.S. $500 million 8.125 per cent. Notes due 2001 issued on April 23, 1998; and The issues listed on the Table of Outstanding Eurobond Issuances on page 36, of which 1-5 of the last 16 issues listed therein have been issued under the Republic’s Global Medium Term Note Program; the U.S. $400 million 11.625 per cent. Notes due 2016 was a standalone issuance.

The following issuances of Notes took place during 2002: U.S. $1,000 million 10.25 per cent. Notes due 2005 were issued on March 5, 2002, U.S. $350 million 10.5 per cent. Notes due 2006 were issued on May 15, 2002, U.S. $500 million 10.5 per cent. Notes due 2006 were issued on June 27, 2002, U.S. $750 million 10.5 per cent. Notes due 2006 were issued on August 2, 2002 and U.S. $500 million 10.5 per cent. Notes due 2007 were issued on October 11, 2002.

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The following table shows the Republic's public external debt by currency at the end of the periods indicated.

Public Sector External Debt by Type of Currency(1)

1997 % 1998 % 1999 % 2000 % 2001 % (in U.S. Dollars))(2) Austrian Schillings(3)...... 44,862,832 1.87 44,795,433 1.10 38,792,236 0.71 32,050,568 0.47 Belgian Francs(3) ...... 1,962,536 0.08 2,059,189 0.05 1,782,846 0.03 1,642,958 0.02 French Francs...... 145,355,453 6.05 165,803,534 4.07 166,790,868 3.07 152,720,663 2.22 Deutschmark(3) ...... 203,753,222 8.48 214,190,934 5.26 187,039,324 3.44 166,756,233 2.43 Italian Lire(3)...... 30,561,650 1.27 29,428,681 0.72 24,206,536 0.45 18,785,037 0.27 Dutch Guilders(3) ...... - 0.00 - 0.00 - 0.00 - 0.00 Swiss Francs...... 1,346,121 0.06 15,835,344 0.39 12,990,041 0.24 12,609,612 0.18 10,815,011 0.12 Pounds Sterling...... 1,207,561 0.05 1,208,965 0.03 1,118,043 0.02 964,695 0.01 882,144 0.01 U.S. Dollars...... 1,508,970,486 62.84 3,066,684,031 75.35 3,796,995,122 69.91 5,023,315,318 73.10 7,558,783,026 80.54 Kuwaiti Dinars...... 281,078,991 11.70 313,769,685 7.71 364,386,931 6.71 408,495,636 5.94 439,378,025 4.68 Saudi Arabian Riyals ...... 75,057,992 3.13 94,138,900 2.31 102,925,597 1.90 107,643,501 1.57 106,024,211 1.13 Arab Emirates Dirhams...... 20,705,191 0.86 25,000,000 0.61 23,751,940 0.44 21,251,157 0.31 18,750,000 0.20 Japanese Yen...... 18,100,023 0.75 20,743,685 0.51 21,830,206 0.40 18,545,789 0.27 19,845,935 0.21 Euros(4) ...... 47,935,405 2.00 52,975,348 1.30 664,523,540 12.24 884,269,729 12.87 1,182,875,256 12.60 Special Drawing Rights ..... 3,674,475 0.15 4,494,556 0.11 4,700,085 0.09 4,825,791 0.07 6,543,834 0.07 Islamic Dinars...... 16,892,377 0.70 18,711,372 0.46 19,223,466 0.35 17,737,507 0.26 41,730,058 0.44 Total...... 2,401,464,315 100 4,069,839,657 100 5,431,056,781 100 6,871,614,194 100.00 9,385,627,501 100.00 ______Source: Ministry of Finance

Notes: (1) Certain figures in this table differ from previously published figures due to continuing implementation of a new debt management system; excluding accrued interest. (2) Amounts translated into U.S. Dollars at end of period rates. (3) These currencies were replaced by the Euro on January 1, 2001. (4) This category includes external debt incurred in ECUs prior to the introduction of the euro on January 1, 1999 at the start of the third stage of European Economic and Monetary Union.

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The following table shows the Republic's public external debt projections and estimated future disbursements of contracted amounts for the years indicated.

Public Sector External Debt Projections and Estimated Future Disbursements as of September 30, 2002

2003 2004 2005 2006 2007 (in thousands of U.S. Dollars)(1) Estimated Disbursements(2) ...... 484,766 136,155 123,952 22,492 18,072 Principal Payments...... 1,149,529 1,826,091 2,560,644 3,346,124 1,239,973 Principal Repayment - Loans ...... 199,529 234,219 260,644 300,557 239,973 Principal Repayment - Eurobonds..... 950,000 1,591,872 2,300,000 3,045,567 1,000,000 Eurobond (USD) 2003 ...... 500,000 - - - - Eurobond (USD) 2003 FRN...... 225,000 - - - - Eurobond (USD) 2003 ...... 225,000 - - - - Eurobond (USD) 2004 ...... - 200,000 - - - Eurobond (Euro) 2004...... - 541,872 - - - Eurobond (USD) 2004 ...... - 850,000 - - - Eurobond (USD) 2005 ...... - - 450,000 - - Eurobond (USD) 2005 ...... - - 850,000 - - Eurobond (USD) 2005 ...... - - 1,000,000 - - Eurobond (Euro) 2006...... - - - 295,567 - Eurobond (USD) 2006 ...... - - - 1,150,000 - Eurobond (USD) 2006 ...... - - - 350,000 - Eurobond (USD) 2006 ...... - - - 500,000 - Eurobond (USD) 2006 ...... - - - 750,000 - Eurobond (USD) 2007 ...... - - - - 100,000 Eurobond (USD) 2007 ...... - - - 400,000 Eurobond (USD) 2007 ...... - - - - 500,000 Eurobond (USD) 2008 ...... Eurobond (USD) 2009 ...... - - - - - Eurobond (USD) 2016 ...... - - - - -

Interest & Commissions(3)...... 1,129,235 1,071,721 831,465 604,795 368,185 Loans...... 105,356 121,764 109,994 96,469 84,622 Coupon Payments ...... 1,023,879 949,957 721,471 508,326 283,563 Eurobond (USD) 2003 ...... 43,125 - - - - Eurobond (USD) 2003 FRN(4)...... 10,266 - - - - Eurobond (USD) 2003 ...... 20,531 - - - - Eurobond (USD) 2004 ...... 17,000 17,000 - - - Eurobond (Euro) 2004...... 39,286 39,286 - - Eurobond (USD) 2004 ...... 80,750 80,750 - - -- Eurobond (USD) 2005 ...... 39,375 39,375 39,375 - - Eurobond (USD) 2005 ...... 79,688 79,688 39,488 - - Eurobond (USD) 2005 ...... 102,500 102,500 51,250 - - Eurobond (Euro) 2006...... 26,232 26,232 26,232 26,232 - Eurobond (USD) 2006 ...... 113,563 113,563 113,563 56,781 - Eurobond (USD) 2006 ...... 36,750 36,750 36,750 36,750 - Eurobond (USD) 2006 ...... 52,500 52,500 52,500 26,250 - Eurobond (USD) 2006 ...... 78,750 78,750 78,750 78,750 Eurobond (Euro) 2007...... 7,500 7,500 7,500 7,500 7,500 Eurobond (USD) 2007 ...... 34,500 34,500 34,500 34,500 34,500 Eurobond (USD) 2007 ...... 52,500 52,500 52,500 52,500 52,500 Eurobond (USD) 2008 ...... 75,938 75,938 75,938 75,938 75,938 Eurobond (USD) 2009 ...... 66,625 66,625 66,625 66,625 66,625 Eurobond (Euro) 2016...... 46,500 46,500 46,500 46,500 46,500

Total External Debt Service...... 2,278,764 2,897,812 3,392,109 3,950,919 1,608,158

______Source: Ministry of Finance

Notes: (1) Amounts translated into U.S. Dollars at the rate prevailing on August 31, 2002. (2) Estimated disbursements in respect of financing arrangements entered into by the Republic or its agencies and in effect on September 30, 2002. Estimated disbursements exclude further issuances of Eurobonds and similar securities. External debt incurred by the Republic during the projected period may differ significantly from the amounts shown in the table. (3) Interest on floating rate debt based on latest actual interest rates. (4) Rate of Interest is 6 months U.S. Dollar Libor plus 2 per cent determined two business days prior to the commencement of each interest period.

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Issuance of Dollar- denominated Notes in Satisfaction of Certain Claims

Following its appointment, the previous Government resolved to settle outstanding amounts due from the Republic and its agencies and resulting from hospital claims, contractors claims and expropriation of property claims on account of 1998 and preceding years. Such amounts lacked appropriate allocation in previous budgets. In June 1999, Parliament adopted Law No 95, which authorized the Government to issue foreign currency-denominated notes in an aggregate principal amount not exceeding LL 1,242 billion (U.S. $824 million) in satisfaction of amounts due for the year 1998 and preceding years. The notes were deemed issued as at August 6, 1999 (regardless of their actual issue date or date of delivery) and had a maturity of three years. The notes carried interest at a rate of 5.63 per cent. per annum, payable annually. Principal was payable in full at maturity. With the exception of claims for expropriation of property, which have been the subject of judicial decisions, claimants must submit proofs of claims to specialized commissions for confirmation of the amounts due from the Republic to be exchanged for notes. On August 2, 2002, pursuant to Law No 450 and the 2002 Budget Law, the Republic issued U.S. $750 million in aggregate principal amount of notes to the holders of these notes for refinancing of the notes issued on August 6, 1999. These refinancing notes mature on August 2, 2006 and carry interest at a rate of 10.5 per cent.

Debt Record

The Republic had little public external debt prior to 1975 and, with one minor exception, has been current on its debt service, including during the 1975-1990 period of conflict. The only instance of arrears was in respect of a debt to the United States Commodity Credit Corporation, which financed a sale on concessional terms in 1970. The loan fell into arrears in April 1986 as the Ministry of Finance, which coordinates external debt service, was then unaware of its existence due to loss of records during the conflict period. The loan was not accelerated. The Ministry of Finance assumed responsibility for the debt and the arrears (amounting to U.S. $5.5 million in principal and accrued interest and U.S. $713,000 in late interest) were cleared in 1995.

The Republic has never conducted a Paris Club or London Club rescheduling of its external debt.

MONETARY SYSTEM

Role of Banque du Liban

The Central Bank is the sole custodian of public funds, supervises and regulates the banking system and is vested by law with the exclusive authority of issuing the national currency. The Central Bank's primary role is to safeguard the currency and promote monetary stability, thereby creating a favorable environment for economic and social progress. The Central Bank also advises the Government on various economic and financial matters. In conducting its monetary management function, the Central Bank utilizes a wide range of instruments, including reserve requirements on Lebanese Pound deposits with commercial banks, liquidity requirements on U.S. Dollar deposits in commercial banks, Treasury Bill repurchase and swap agreements with commercial banks, as well as Lebanese Pound denominated certificates of deposits issued by Banque du Liban.

As a result of high inflation prior to 1992, the Lebanese economy became substantially dollarized. Since October 1992, monetary policy has been targeted at stabilizing the Lebanese Pound exchange rate and controlling the inflation rate and money growth. The return of confidence in monetary stability and the high returns on investment in LL-denominated financial securities led to a significant decline of the dollarization of deposits in the economy and to a build up in foreign exchange reserves until the end of 1996. Thus, the proportion of foreign currency deposits decreased from 73.6 per cent. in December 1990 to 56.3 per cent. in June 1997 before increasing to 63.9 per cent. at the end of 1997 and 65.5 per cent. at the end of 1998 due in part to the turmoil generally affecting emerging markets following the Asian crisis. In 1999, the proportion of foreign currency deposits declined gradually to reach 61.6 per cent. at year end, with a further decline to 61.0 per cent. at end-March 2000. From March 2000, the proportion of foreign currency deposits increased to 72.53 per cent. at December 31, 2001 due to regional tensions and a higher than expected budget deficit. This ratio continued to increase until May 2002, reaching 74.24 per cent., when it again started to decline, reaching 72.23 per cent. by the end of September 2002.

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The following table sets out the balance sheet of Banque du Liban as at December 31 for the years 1997- 2001 and as at June 30, 2002.

June 30, 1997 1998 1999 2000 2001 2002 (in billions of Lebanese Pounds) Assets Gold ...... 4,078 3,998 4,037 3,806 3,861 4,440 Foreign currencies...... 9,058 90,656 11,451 8,665 6,574 4,582 Other foreign assets ...... 17 17 17 17 0 0 Claims on private sector...... 122 220 216 245 201 199 Loans to banks and financial companies...... 97 346 406 735 781 1,418 Claims on public sector...... 101 104 112 114 117 116 Securities portfolio...... 760 622 729 2,683 7,328 8,942 Fixed assets...... 159 169 178 216 221 222 Unclassified assets (1) ...... 354 559 95 696 255 882 Total assets ...... 14,745 15,690 17,241 17,177 19,388 20,801

Liabilities Currency in circulation outside...... 1,325 1,353 1,516 1,622 1,527 1,396 Deposits of banks...... 7,045 6,540 6,817 7,202 10,625 10,327 Deposits of specialist banks ...... 30 41 101 154 203 228 Private sector deposits...... 23 31 50 76 91 43 Public sector accounts...... 1,189 1,796 3,304 1,910 1,402 1,278 Valuation adjustment ...... 3,616 3,046 2,918 2,522 2,742 3,249 Foreign liabilities ...... 112 263 237 210 230 838 Special long-term liabilities ...... 0 1,068 1,068 1,068 1,386 1,422 Capital accounts...... 328 797 883 912 1,049 1,054 Unclassified liabilities(2)...... 1,076 756 346 1,502 81 966 Total liabilities...... 14,745 15,690 17,241 17,177 19,338 20,801

______Source: Banque du Liban

Notes: (1) Unclassified assets include the following items: other debtor accounts, counterpart securities, accounts receivable, a regularization account, inventory and fixed assets. (2) Unclassified liabilities include the following items: notes payable, other creditor accounts and a regularization account.

Banking Sector

As at December 31, 2001, there were 60 active commercial banks, 780 branches in Lebanon, 28 financial institutions and eight specialized medium and long-term credit banks in Lebanon. Foreign banks are well represented in Lebanon and maintain branches in the Republic or equity stakes in several local banks.

Unlike the banking sector in some other emerging market countries, the banking sector in Lebanon is generally acknowledged to be stable and financially strong, and plays a critical role in the economy as a whole.

The banking sector currently offers services related to short-term and, increasingly, medium-term financing. As medium-term funds become available to Lebanese banks (by way of loans from international organizations, such as IFC, the European Bank for Reconstruction and Development and the European Investment Bank, or the issuance of debt securities on the international capital markets), commercial banks have begun to offer a variety of medium-term loans, such as residential mortgage loans, other consumer loans and several types of loans to corporate investors. The return of foreign banks to the Republic is seen as a key step to diversifying the financial sector and strengthening competitive forces. Foreign banks are gradually re-establishing themselves in Lebanon, with ING and Citibank having each received a banking license in 1996 and Banque Nationale du Canada in 1998 and Cairo Amman Bank in 1999 and other foreign banks acquiring participations in the capital of Lebanese banks.

From March 1995, commercial banks were required to meet a minimum capital adequacy ratio of 8 per cent. in line with the Basle Accord. In September 1999, the Central Bank required banks to raise their

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capital adequacy ratios to 10 per cent. by the end of 2000 and 12 per cent. by the end of 2001. A law facilitating bank mergers by (among other things) making banks eligible for soft loans from the Central Bank, was passed in 1993 and renewed in 1998 until 2003. During the past three years, banks' capital has increased substantially and, at December 31, 2001, the average capital adequacy ratio of commercial banks was approximately 16.18 per cent.

In addition, Parliament passed legislation to revitalize specialized banks (for housing, agriculture and industry). State participation in the shareholding of these banks has been reduced to a minority stake. In addition, Parliament passed laws relating to the listing of bank shares on stock exchanges and several banks currently list their eligible shares on the Beirut Stock Exchange.

The following table sets out the combined balance sheet of the commercial banks as at December 31, 1997- 2001 and June 30, 2002.

Balance Sheet of Commercial Banks in Lebanon

June 30, 1997 1998 1999 2000 2001 2002 (in billions of Lebanese Pounds) Assets Reserves...... 6,225 6,513 6,827 7,331 10,656 10,384 Currency...... 115 111 146 198 146 162 Deposits with Banque du Liban...... 6,110 6,402 6,681 7,132 10,510 10,222 Claims on private sector...... 15,451 18,682 20,994 22,243 22,192 22,592 Lebanese Pounds ...... 1,987 2,074 2,474 2,889 3,207 3,692 Foreign currency...... 13,464 16,608 18,521 19,354 18,985 18,901 Claims on public sector...... 13,234 17,942 21,841 23,271 23,067 22,873 Treasury Bills ...... 13,125 17,796 21,499 22,503 22,151 21,958 Other...... 109 146 341 768 916 915 Foreign assets...... 9,184 9,984 8,910 12,300 12,988 13,922 Fixed assets...... 1,272 1,638 2,034 2,195 2,568 2,625 Unclassified assets ...... 267 272 365 548 384 407 Total assets ...... 45,633 55,031 60,971 67,888 71,855 72,803

Liabilities Private sector deposits...... 33,307 38,826 43,304 47,582 51,234 51,413 Lebanese Pounds...... 13,277 15,250 18,794 17,938 15,793 15,031 Sight...... 686 758 846 862 890 933 Term...... 12,592 14,492 17,949 17,076 14,903 14,098 Foreign currency...... 20,030 23,576 24,510 29,644 35,441 33,256 Sight...... 2,376 2,605 2,645 2,831 3,197 3,339 Term...... 17,654 20,971 21,865 26,813 32,244 29,917 Public sector deposits 217 346 702 721 526 469 Liabilities to non-resident banks...... 1,135 1,622 1,781 1,692 1,796 1,924 Notes...... 328 371 168 60 8 12 Deposits of non-residents...... 5,262 7,288 7,856 9,148 9,280 8,518 o/w: in Lebanese Pounds...... 658 647 846 850 833 775 Capital accounts...... 2,990 3,620 4,019 4,376 4,463 4,605 Unclassified liabilities...... 2,394 2,959 3,142 4,310 4,548 5,862 Total liabilities...... 45,633 55,031 60,971 67,888 71,855 72,803

______Source: Ministry of Finance/Banque du Liban.

Interest Rates

Prior to 1993, interest rates on Treasury bills were fixed by the Ministry of Finance in consultation with Banque du Liban. In May 1993, the Central Bank began selling 3-month Treasury Bills in a multiple price auction. The authorities subsequently extended this system to 6- and 12-month Treasury Bills in June and September 1993, respectively. In October 1994, the auction system was extended to 24- Month Treasury notes. Interest rates declined significantly in 1993 and 1994 in response to increased domestic and external demand for Lebanese Pound assets. The first three quarters of 1995 witnessed an increase in interest rates, reflecting a number of factors, including the policy objective of maintaining stability in the foreign exchange market in the face of political uncertainties associated with the end of

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the President's term of office. Interest rates experienced a steady decline from the fourth quarter of 1995 to the end of October 1999, and have remained stable since 1999. The Central Bank also affects interest rates through its treasury bill discount and repurchase operations on the secondary market.

The gradual decline in interest rates on Treasury Bills has been accompanied by a decrease in the spread between U.S. Dollar and Lebanese Pound lending and deposit rates. The spread between deposit rates in Lebanese Pounds and in U.S. Dollars narrowed from 11.7 per cent. in December 1995 to 6.94 per cent. in December 1998, further declining to 5.67 per cent. in December 1999 and 4.41 per cent. in December 2000 only to increase to 5.94 per cent. in December 2001 following sharp cuts in U.S. interest rates. The spread between lending rates in Lebanese Pounds and in U.S. Dollars narrowed from 16.8 per cent. in December 1995 to 8.74 per cent. in December 1998, 7.51 per cent. in December 1999, 6.97 per cent. in December 2000 and 6.61 per cent. in December 2001.

The following table sets forth the Treasury Bill yields at primary auction at the end of each quarter in the years 1993-2001.

Treasury Bill Yields

Calendar Quarters or Months 3-month 6-month Bill 12-month 24-month Bill (per cent.) 1997 I...... 13.75 14.49 15.20 16.73 1997 II ...... 13.40 14.21 15.20 16.73 1997 III...... 13.09 13.97 15.20 16.73 1997 IV...... 13.09 13.97 15.20 16.73 1998 I...... 13.09 13.97 15.20 16.73 1998 II ...... 12.82 13.97 15.20 16.73 1998 III...... 12.48 13.66 15.20 16.73 1998 IV...... 11.77 13.21 14.84 16.66 1999 I...... 11.73 13.00 14.84 16.66 1999 II ...... 11.73 13.00 14.84 16.36 1999 III...... 11.42 12.52 13.66 14.92 1999 IV...... 11.18 12.12 13.43 14.64 2000 I...... 11.18 12.12 13.43 14.64 2000 II ...... 11.18 12.12 13.43 14.64 2000 III...... 11.18 12.12 13.43 14.64 2000 IV...... 11.18 12.12 13.43 14.64 2001 I...... 11.18 12.12 13.43 14.64 2001 II ...... 11.18 12.12 13.43 14.64 2001 III...... 11.18 12.12 13.43 14.64 2001 IV...... 11.18 12.12 13.43 14.64 2002 I...... 11.18 12.12 13.43 14.64 2002 II ...... 11.18 12.12 13.43 14.64

______Source: Ministry of Finance/Banque du Liban.

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The following tables set forth commercial bank deposits and lending rates at the average Lebanese Pound and U.S. Dollar rates across the banking system for the stated type of account for the quarters shown. The stated quarterly rates are the average rate for the last month of the quarter. Time deposits range from one day to no stated maturity and savings accounts are current accounts without a check facility.

Lebanese Pound Deposit and Lending Rates of Commercial Banks

Debtor Creditor Current Savings Time Calendar Quarters or Months rate rate account deposit deposit (per cent.) 1997 I...... 20.47 12.87 3.17 9.96 13.56 1997 II ...... 19.86 12.41 2.94 9.17 13.08 1997 III...... 19.36 12.16 2.33 9.20 12.87 1997 IV...... 20.28 12.97 2.67 9.02 13.72 1998 I...... 20.51 13.20 2.85 9.45 13.83 1998 II ...... 20.26 13.11 3.31 8.99 13.79 1998 III...... 20.15 12.83 3.06 9.23 13.47 1998 IV...... 20.04 12.61 3.26 9.23 13.32 1999 I...... 19.76 12.19 2.81 9.45 12.81 1999 II ...... 19.49 11.87 2.78 9.63 12.47 1999 III...... 19.44 12.89 2.64 8.49 12.89 1999 IV...... 18.38 11.30 4.89 9.09 11.91 2000 I...... 18.26 10.90 3.08 8.84 11.35 2000 II ...... 18.02 10.67 2.87 8.72 11.14 2000 III...... 17.96 10.44 4.50 8.03 11.04 2000 IV...... 17.94 10.44 3.57 7.90 11.06 2001 I...... 17.46 10.33 3.38 7.95 10.93 2001 II ...... 17.16 10.16 3.51 7.56 10.84 2001 III...... 17.15 9.99 3.23 7.32 10.73 2001 IV...... 16.75 10.15 3.31 7.01 10.82 2002 I...... 16.77 10.16 3.84 7.07 10.79 2002 II ...... 16.89 10.22 2.27 6.46 11.20

______Source: Ministry of Finance/Banque du Liban.

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U.S. Dollar Deposit and Lending Rates of Commercial Banks

Debtor Creditor Current Savings Time Calendar Quarters or Months rate rate account deposit deposit (per cent.) 1997 I...... 11.80 5.48 2.27 3.44 5.97 1997 II...... 11.80 5.68 2.25 3.34 6.21 1997 III...... 11.77 5.77 2.13 3.33 6.30 1997 IV...... 11.69 5.90 2.48 3.22 6.40 1998 I...... 11.80 6.04 2.21 3.02 6.45 1998 II...... 11.63 5.93 2.30 3.20 6.37 1998 III...... 11.54 5.86 2.34 3.15 6.31 1998 IV...... 11.30 5.67 2.25 3.16 6.16 1999 I...... 11.19 5.64 2.14 2.95 6.11 1999 II...... 10.99 5.71 1.90 2.92 5.99 1999 III...... 11.04 5.54 1.95 2.78 5.99 1999 IV...... 10.87 5.63 2.05 3.02 6.11 2000 I...... 11.01 5.72 1.99 2.94 6.16 2000 II...... 11.43 5.99 2.06 3.05 6.44 2000 III...... 11.41 5.98 1.94 2.96 6.56 2000 IV...... 11.15 6.03 2.01 3.20 6.56 2001 I...... 11.01 5.67 1.92 2.99 6.12 2001 II...... 10.63 4.88 1.49 2.54 5.33 2001 III...... 10.56 4.57 1.43 2.36 5.01 2001 IV...... 10.14 4.21 1.01 1.91 4.63 2002 I...... 10.24 4.16 0.93 1.81 4.61 2002 II...... 10.06 4.19 0.93 1.73 4.70

______Source: Ministry of Finance/Banque du Liban. * Revised Figures

Foreign Exchange Rates and International Reserves

The currency of the Republic is the Lebanese Pound. The Lebanese Pound is convertible and its exchange rate is generally determined on the basis of demand and supply conditions in the exchange market. Bankers are allowed to engage in spot transactions in any currency. However, they are prohibited from engaging in forward transactions in Lebanese Pounds for speculative purposes. Banque du Liban intervenes when necessary in order to maintain orderly conditions in the foreign exchange market. There are no taxes or subsidies on purchases or sales of foreign exchange.

Foreign exchange rate stability is a primary policy objective of the Government and of Banque du Liban. Banque du Liban's exchange rate policy since October 1992 has been to anchor the Lebanese Pound nominal exchange rate to the U.S. Dollar. This appreciation was limited to 0.03 per cent. in 1999 and the Lebanese Pound exchange rate has remained unchanged since 2000. Although several external factors can influence the exchange rate, including general investor confidence in the economy, the authorities expect to continue to gear their monetary policy towards maintaining strength and stability in the exchange rate. Direct intervention in the currency markets supplements this policy when necessary to smooth excessive volatility of the exchange rate. The decline in foreign currency reserves since the beginning of 2000 is principally attributable to such intervention.

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The following table sets forth the net amount of foreign currency, gold and other reserves of Banque du Liban in millions of U.S. Dollars from 1990 to the second quarter of 2002.

Foreign Gold Currency (1) Reserves (millions of U.S. Dollars) 1990...... 3,554.0 632.2 0.0 1991...... 3,260.0 1,236.7 0.0 1992...... 3,066.4 1,488.0 0.0 1993...... 3,603.6 1,460.0 10.2 1994 I...... 3,591.0 2,196.4 10.3 1994 II ...... 3,556.1 2,300.0 10.4 1994 III...... 3,646.5 2,545.0 10.6 1994 IV...... 3,534.4 2,751.0 10.7 1995 I...... 3,562.1 2,419.0 10.7 1995 II ...... 3,576.0 1,653.0 10.7 1995 III...... 3,536.8 1,499.3 10.8 1995 IV...... 3,571.8 3,026.0 10.9 1996 I...... 3,645.6 3,219.1 11.0 1996 II ...... 3,508.6 3,257.6 11.1 1996 III...... 3,499.4 3,588.5 11.2 1996 IV...... 3,410.0 3,934.8 11.2 1997 I...... 3,226.0 4,394.6 11.2 1997 II ...... 3,084.9 4,994.0 11.2 1997 III...... 3.035.5 4,251.0 11.2 1997 IV...... 2,670.3 2,959.0 11.4 1998 I...... 2,775.0 2,413.0 11.5 1998 II ...... 2,730.3 3,178.1 11.5 1998 III...... 2,720.6 3,188.2 11.5 1998 IV...... 2,651.0 3,319.3 11.6 1999 I...... 2,582.7 3,328.6 11.6 1999 II ...... 2,407.0 3,319.3 11.6 1999 III...... 2,771.3 4,066.6 11.6 1999 IV...... 2,678.0 4,968.4 11.6 2000 I...... 2,544.4 4,730.1 11.6 2000 II ...... 2,644.3 4,000.1 11.6 2000 III...... 2,529.2 3,498.2 11.6 2000 IV...... 2,524.6 2,678.8 11.6 2001 I...... 2,428.7 2,045.0 0.0 2001 II ...... 2,490.0 2,171.8 0.0 2001 III...... 2,687.2 1,548.5 0.0 2001 IV...... 2,561.0 1,912.4 0.0 2002 I...... 2,802.5 2,084.1 0.0 2002 II ...... 2,945.2 1,395.5 0.0

______Source: Banque du Liban Note: (1) Not including foreign currency deposits held at Banque du Liban by banks and other financial institutions.

Foreign currency reserves are generally placed by Banque du Liban outside the Republic with other central banks or with highly rated international banks. They include a limited amount of highly rated foreign debt securities. Although not legally obligated to do so, Banque du Liban has been pursuing a policy of setting aside, and segregating from its foreign exchange reserves, certain foreign currency amounts corresponding to the maturing external public debt obligations of the Republic. These foreign currency amounts are being made available to the Republic for payment of its external public debt obligations, against payment to Banque du Liban of equivalent amounts in Lebanese Pounds. See "Monetary System—Role of Banque du Liban."

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The following table sets forth the Lebanese Pound/ U.S. Dollar closing exchange rate at the end of each quarter for the years 1991 to the second quarter of 2002:

Lebanese Pound Exchange Rate

% Change in Dollar Exchange Rate over End of Period (in LL per U.S. $) Previous Period (1) 1991: March...... 938.0 (11.4) June...... 904.5 3.6 September...... 891.5 1.4 December ...... 879.0 1.4 1992: March...... 1,280.0 (45.6) June...... 1,705.0 (33.2) September ...... 2,420.0 (41.9) December ...... 1,838.0 24.0 1993: March...... 1,742.0 5.2 June...... 1,731.0 0.6 September...... 1,732.5 0.4 December ...... 1,711.0 0.7 1994: March...... 1,694.5 1.0 June...... 1,680.0 0.9 September...... 1,666.0 0.8 December ...... 1,647.0 1.1 1995: March...... 1,634.5 0.8 June...... 1,620.5 0.9 September...... 1,610.5 0.6 December ...... 1,596.0 0.9 1996: March...... 1,583.5 0.8 June...... 1,571.0 0.8 September...... 1,558.5 0.8 December ...... 1,552.0 0.4 1997: March...... 1,545.8 0.4 June...... 1,539.8 0.4 September ...... 1,533.3 0.4 December ...... 1,527.0 0.4 1998: March...... 1,521.3 0.4 June...... 1,516.3 0.3 September ...... 1,509.7 0.4 December ...... 1,508.0 0.1 1999: March...... 1,508.0 0.0 June...... 1,508.0 0.0 September ...... 1,507.5 0.3 December ...... 1,507.5 0.0 2000: March...... 1,507.5 0.0 June...... 1,507.5 0.0 September ...... 1,507.5 0.0 December ...... 1,507.5 0.0 2001: March...... 1,507.5 0.0 June...... 1,507.5 0.0 September ...... 1,507.5 0.0 December ...... 1,507.5 0.0 2002: March...... 1,507.5 0.0 June...... 1,507.5 0.0 September ...... 1,507.5 0.0

______Source: Ministry of Finance/Banque du Liban. Note: (1) Negative percentage change signifies depreciation of Lebanese Pound in U.S. Dollar terms.

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Securities Markets

The Beirut Stock Exchange was created in 1920 by the French mandate authorities in order to privatize public utilities, railways, telecommunications and the post office. Companies from the industrial, banking and tourism sectors were gradually added. The Beirut Stock Exchange flourished from 1954 to 1975. It ceased trading in 1983.

In August 1994, the Government set up the Beirut Stock Exchange Committee to supervise and manage the reopening of the Beirut Stock Exchange. Trading on the Stock Exchange commenced on January 22, 1996 when the shares of three previously listed Lebanese companies were re-admitted to trading. On September 30, 1996, the shares of SOLIDERE, previously listed on the Beirut Secondary Market, were listed and began trading on the Beirut Stock Exchange.

Market capitalization of companies listed on the Beirut Stock Exchange rose from approximately U.S. $386 million in January 1996 to approximately U.S. $1,248 million in December, 2001, due in large part to the listing of SOLIDERE shares. However, the aggregate market capitalization at December 31, 2001 of the companies listed on the Beirut Stock Exchange was significantly below the market capitalization of U.S. $3,193 million at December 31, 1999, due to the decline in the price of listed shares. The number of authorized brokers rose from five to fifteen and the number of listed companies rose from three to thirteen over the same period.

The Government regards the re-establishment and development of organized capital markets, including markets for the issue and secondary trading of equity and debt securities, as being of significant importance for the financing of Lebanon's reconstruction and economic expansion.

In addition, since 1996, several Lebanese companies have raised funds (both equity and debt) in the international capital markets.

PUBLIC FINANCE

The Budget Process

The budget preparation and adoption process is governed by relevant provisions of the Constitution and the Law on Public Accounting, implemented by Decree No. 14969 dated December 30, 1963, as amended.

The laws governing the budget preparation provide that the proposed budget for each year is prepared by the Ministry of Finance (after review of the estimates prepared by the various Ministries) and submitted to the Council of Ministers by September 1 of the preceding year. The proposed budget, after review by the Council of Ministers, must then be forwarded to Parliament by October 15 for review and approval.

The budget is then approved by Parliament, through specific voting for each article in the budget, after review and debate during a general session to be held between October 15 and December 31.

If Parliament fails to approve a budget, the President of the Republic, with the approval of the Prime Minister, must convene a special session of Parliament to be held no later than January 31 of the relevant year. If no budget is approved during the special session, the President of the Republic has the power, after approval of the Council of Ministers, to adopt the budget submitted to Parliament by the Council of Ministers (Articles 86 of the Lebanese Constitution and 120 of Parliament's internal regulations).

Once the budget law is enacted, the Ministry of Finance becomes responsible for its execution.

Operations of the Central Government

Prior to the conflict, Lebanon seldom ran budget deficits. The conflict, especially from the early 1980s, led to widespread tax evasion and non-payment of public utility bills. Revenues dropped to very low levels and at one time were not sufficient to cover interest payments on the Republic's internal debt.

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The Republic resorted to increasing its borrowings from Banque du Liban, leading to monetary expansion.

Analysis of central Government finances must take account of the following:

• The CDR is a public institution which is distinct from any ministry within the central Government. Its financial situation is not wholly consolidated in the public accounts. CDR expenditures on reconstruction programs are financed partly by grants and borrowings from international development agencies and other overseas entities and partly by appropriations from the budget. These appropriations are included as capital expenditures in the public accounts, but expenditures financed by borrowings as described above are not included in the public accounts (but are included in foreign debt figures). However, interest, but not principal, in respect of these borrowings is included in the national budget for the year in which it is scheduled to be repaid. The borrowings are obligations of the Republic. Foreign indebtedness incurred by the CDR is approved by the Government and by Parliament.

• The budget consists of the general budget and of three annex budgets, relating to Post and Telecommunications, National Lottery and the Grain & Sugar Beet Office. Information included in this Offering Circular relates only to the general budget. Projected deficits or surpluses in the annex budgets are accounted for in the general budget. Actual results for each year also reflect the deficit or surplus of each annex budget.

• Beginning with the 1997 budget, a new classification, which is substantially in accordance with the guidelines and definitions set forth in the IMF's publication "Governmental Finance Statistics" ("GDL"), was adopted. The Government believes that this classification makes it easier to conduct a proper analysis of the policy, administration and monitoring phases of the budget. The classification used for prior years did not provide a sufficient basis for proper revenue and expenditure management and did not appropriately identify line item expenditures. Therefore, a detailed breakdown of revenues and expenditures is not provided for those years.

• Beginning with the 1998 Budget, presentation of fiscal data distinguishes between budget and treasury operations. Treasury revenues consist primarily of tax and other revenues collected by the Central Government for the account of municipalities and security and other guarantee-type deposits with the Ministry of Finance. Treasury expenditures consist primarily of transfers to municipalities, payments on account of previous years' budgets and financial support to EDL. The 1999 Budget and subsequent Budgets also provide for a different breakdown of current and capital expenditures to permit line-by-line comparison of actual results to budget and estimated treasury operations.

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The following table shows a summary of central Government operations for the period from 1997 to 2001 and under the 2002 Budget.

2002 Budget (excluding treasury Revenues 1997 1998 1999 2000 2001 expenditure) (in billions of Lebanese Pounds) I. Tax revenues ...... 2,894 3,097 3,350 2,936 2,961 4,036 II. Non-tax revenues ...... 616 882 1,116 1,252 1,302 1,464 III. Treasury revernues (I+II)...... 3,510 3,979 4,466 4,188 4,263 5,500 IV. Treasury revenues ...... 243 470 407 561 386 350 V. Total revenues (III+IV)...... 3,753 4,449 4,873 4,749 4,649 5,850 Expenditures I. Current expenditures...... 7,695 6,502 7,093 7,968 7,930 8,551 Personnel cost (1)...... 2,466 2,352 2,760 2,908 2,992 3,155 Debt service...... 3,378 3,352 3,624 4,197 4,312 4,500 Other current ...... 1,851 798 709 863 626 895 II. Capital expenditure (2)...... 1,467 1,061 1,097 900 325 4,051 III. Other treasury expenditure...... 343 265 1,754 624 IV. Total expenditures (3) (4)...... 9,162 7,906 8,454 10,622 8,879 9,375 Total Deficit ...... 5,409 3,457 3,582 5,873 4,230 3,525

Budget balance...... (2,661) (2,734) (4,199) (3,459) Budgetary revenues...... 3,979 4,466 4,188 4,289 Budgetary expenditures ...... 6,640 7,200 (8,387) (7,748) Net treasury operations ...... (797) (849) (1,673) (771) Treasury receipts ...... 470 407 561 359 Treasury outlays...... 1,267 1,254 (2,234) (1,130)

% of GDP Total deficit(5)...... 23.64% 14.03% 14.36% 23.76% 16.84% Total revenues (5)...... 16.40% 18.06% 19.53% 19.21% 18.51% Total expenditures (5) ...... 40.04% 32.09% 33.89% 42.97% 35.35% Nominal GDP (in billions of 22,880 24,639 24,945 24,721 25,115 Lebanese Pounds) (6) ...... ______Source: Ministry of Finance/Banque du Liban.

Notes: (1) Including wage and salary related payments, e.g. pensions to civil servants and end of service indemnities to government employees (2) Expenditure does not include capital expenditures of CDR financed externally. This expenditure was LL 500 billion in 1997, LL 479 billion in 1998, LL 456 billion in 1999, LL 310 billion in 2000 and LL 292 billion in 2001. (3) On May 27, 1999, Parliament ratified a law regarding the settlement of arrears. This law allows the Government to issue debt (in local and/or foreign currency up to a ceiling of LL 1,242 billion in principal amount to settle arrears incurred during previous years. These arrears are not included in this table which reflects expenditures on a cash basis. (4) The breakdown of expenditures is based on estimates derived from the reconciliation of payment order data and cash payment data. Certain treasury expenditures are classified as current or capital expenditures and the balance of treasury expenditures appear under other treasury expenditures. (5) When CDR actual capital expenditures financed externally (referred to in note (2) above) are included in total expenditures the ratios are as follows:

1997 1998 1999 2000 2001 (% of GDP) Total deficit ...... 25.83% 15.97% 16.18% 24.01% 18.01% Total revenues ...... 16.40% 18.06% 19.53% 19.21% 18.51% Total expenditures...... 42.23% 34.03% 35.91% 44.22% 36.52%

(6) Estimates.

The main sources of budget revenues are income taxes, capital gains taxes, taxes on property, indirect taxes on goods and services, taxes on international trade and transactions and other tax revenues, including, from February 2002, VAT revenues. Non-tax revenues consist principally of entrepreneurial and property income, administrative fees and charges, fines and confiscated assets and other non-tax revenues, surplus transfers from the Post and Telecommunications and other annex budgets and distributions and remittances, on account of profits or otherwise, from Banque du Liban and in respect of the Republic's ownership of various assets. They are accounted for under the "Entrepreneurial and property income" line item in the budget.

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Total revenues (including revenues from treasury operations) increased steadily between 1997 and 1999, from LL 3,753 billion in 1997 to LL 4,873 billion in 1999 but declined to LL 4,749 billion in 2000 and again in 2001 to LL 4,649 billion. As a percentage of GDP, total revenues increased from 16.40 per cent. in 1997 to 19.53 per cent. in 1999, declined to 19.21 per cent. in 2000 and 18.51 per cent. in 2001.

Budget expenditures are divided into current expenditures and capital expenditures. Current expenditures consist primarily of debt service in respect of public debt and personnel costs, including salaries, wages and end of service indemnities and other retirement benefits.

Total expenditures (including revenues from treasury operations but excluding foreign financed CDR expenditures) increased from LL 9,162 billion in 1997 to LL 8,879 billion in 2001. Debt servicing expenditures have risen significantly between 1997 and 2001, increasing from LL 3,378 billion in 1997 to LL 4,312 billion in 2001. Personnel costs have risen, although more moderately, over the period, from LL 2,466 billion in 1997 to LL 2,992 billion in 2001.

The Fiscal Deficit

The table below shows the fiscal deficit (including the budget deficit and the results of treasury operations) and the ratios of deficit to GDP and net public debt to GDP for the years 1997 to 2001.

1997 1998 1999 2000 2001 GDP (at current market prices in billions of Lebanese Pounds)...... 22,880 24,639 24,945 24,721 25,115 Total Deficit(1) ...... 5,409 3,457 3,582 5,873 4,230 Deficit/GDP(1) ...... 23.64% 14.03% 14.36% 23.76% 16.84% Net Public Debt/GDP ...... 96.39% 104.82% 119.79% 142.09% 162.46%

______Source: Ministry of Finance Notes: (1) Excluding foreign financed CDR expenditure.

Since 1992, the focus of the Government has been on regaining public confidence in the economic future of Lebanon through macroeconomic stability and a significant reduction of inflation, while embarking on a major rehabilitation and reconstruction program. However, the Government has had to contend with the effects of the prolonged period of conflict on the Government's expenditures and ability to collect revenues. Public debt began to accumulate in the mid 1970s, as a result of the decline in the Government's control over revenue sources and the expansion of the public deficit. The growth in the public debt resulted from the Government's inability to cover its expenditures from ordinary revenues (the primary budget balance) and growing debt service obligations. As a result, the Government has been running budget deficits financed mainly through domestic borrowing.

The 2002 Budget Law

The main objective of the 2002 Budget Law was a reduction in the country's fiscal imbalances in line with the fiscal consolidation promoted by the Government in its policy statement and in the 2001 Budget Law. Accordingly, the 2002 Budget Law projected both a decrease in expenditures from LL 9,900 billion or 39 per cent. of GDP in the 2001 Budget Law to LL 9,375 billion or 35 per cent. of GDP in the 2002 Budget Law and an increase in revenues from 17 per cent. of GDP to approximately 20 per cent. of GDP through the introduction of new revenue-raising measures, increases in certain existing tax and fee rates, the widening of the tax base and improvements in collection procedures. As a result of these measures, the budget deficit is projected to decline from approximately 20 per cent. of GDP in the 2001 Budget Law to approximately 15 per cent. of GDP in the 2002 Budget Law. Moreover, the primary budget balance is projected to shift from a deficit of approximately 2.8 per cent. of GDP in the 2001 Budget Law to a surplus of 2.3 per cent. in the 2002 Budget Law, representing an improvement of 5.1 percentage points.

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The table below compares the 2002 Budget Law to the 2001 Budget Law:

Budget Budget Law 2001 Law 2002 Budget revenues ...... 4,900 5,500 Tax revenues...... 3,447 4,036 Non-tax revenues...... 1,453 1,464 Budget expenditure...... 9,900 9,375 Current expenditures ...... 8,712 8,551 Debt service bill...... 4,300 4,500 Other current expenditures ...... 1,241 4,051 Capital expenditures ...... 1,188 824 Budget deficit ...... (5,000) (3,875) Primary deficit/surplus ...... (700) 625

2002 Budget revenues are expected to amount to LL 5,500 billion, representing an increase of 3.18 percentage points of GDP or 28 per cent., as compared to 2001 actual revenues. This increase is primarily derived as a result of the factors described below.

Tax revenues

The 2002 Budget Law contemplates increased tax revenues as follows:

• tax revenues on income, profits and capital gains are expected to increase by LL 23 billion or approximately 3.7 per cent. and revenues from tax regularization measures (which were ratified by Parliament in December 2001) are projected to be yield LL 100 billion in 2002;

• tax revenues on property are anticipated to increase by LL 59 billion or 22 per cent. mainly due to a 24 per cent. increase in revenues from non-recurrent real estate registration fees brought about by the enactment of new legislation governing property ownership by non-Lebanese, which increases the legal limits on foreign ownership of property and lowers real estate registration fees to 5 per cent. for Lebanese and foreign investors, as well as from an anticipated higher rate of growth;

• revenues from domestic taxes on goods and services are projected to increase by LL 926 billion mainly due to the introduction of the VAT, which is projected to yield revenues of LL 800 billion (equivalent to approximately 3 per cent. of GDP), and to consecutive rises in the excise tax on gasoline, which are expected to result in LL 300 billion in additional revenues;

• tax revenues from international trade and transactions are anticipated to increase by LL 23 billion; and

• other tax revenues are projected to increase by LL 45 billion mainly due to the introduction of the professional tax, which is expected to raise revenues of LL 40 billion, and the increase in stamp duties on "aggregate quarries" by 25 per cent.

Non- tax revenues

In addition, the 2002 Budget Law projected higher non-tax revenues as set forth below:

• income from public enterprises is estimated to increase by LL 98 billion mainly due to an 8 per cent. increase in the revenues of the National Lottery Directorate, an increase in Central Bank transfers from LL 21 billion to LL 135 billion due to the increase in the size of the Central Bank's portfolio of Treasury Bills and a 3 per cent. increase in revenues from telecommunications; and

• administrative fees and charges are expected to grow by LL 58 billion or 15 per cent. mainly due to significant increases in fees for (among other things) license plate registrations, driving licenses, passports, residence permits and foreigner work permits.

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Total expenditures under the 2002 Budget Law are projected to be LL 9,375 billion, representing a decrease of 5.3 per cent. as compared to the 2001 Budget Law. Current expenditures are budgeted to decrease by LL 361 billion (excluding debt service) as a result of efforts to implement fiscal consolidation. This reduction is mainly due to the following factors:

• a 22 per cent. decrease in expenditures for materials;

• a 13 per cent. decrease in expenditures for external services;

• a 1 per cent. decrease in the wage bill, resulting from a decrease in allowances and benefits for public servants, including military personnel;

• an 11 per cent. decrease in "subsidiaries and transfers" resulting from the elimination or reduction of a number of subsidies and transfers;

• a 10 per cent. decrease in "other current expenditures" largely resulting from a reduction in the allocation for hospitalization expenses in the private sector; and

• a 31 per cent. decrease in capital expenditures resulting from a 45.4 per cent. decline in capital spending, including for maintenance and equipment.

The foregoing decreases are expected to be offset only slightly by an increase in interest payments, which is projected to be limited to 5 per cent. due to the expected distribution of 2002 financings between foreign and domestic debt and the anticipated realization of privatization proceeds during 2002.

Treasury revenues are projected at LL 350 billion in the 2002 Budget Law, as compared to actual treasury revenues (including municipalities'revenues) of LL 359 billion realized in 2001. Treasury expenditures are projected to be LL 750 billion in the 2002 Budget Law, as compared to actual treasury expenditures of LL 1,130 billion in 2001.

The 2003 Budget

The 2003 budget proposal reflects the Government's commitment to decrease the budget deficit, as a percentage of GDP, by seven percentage points and to increase the primary budget surplus by four percentage points. The Council of Ministers approved the 2003 budget proposal on September 5, 2002 and submitted it to Parliament for debate and ratification. The 2003 budget remains subject to change prior to its ratification.

Budget revenues are projected to increase from LL 5,448 billion in 2002 to LL 6,450 billion in 2003 (or by 17 per cent.), reflecting an increase from approximately 20 per cent. of GDP 2002 to approximately 22 per cent. of GDP in 2003. It is expected that the projected increase in revenues will be accomplished through the introduction of new revenue measures, such as the imposition of higher fees for local fixed line phone calls and higher monthly subscription fees, the application of a progressive income tax on wages and salaries, including retirement wages (the existing income tax law on wages and salaries exempts retirement wages and end of service indemnities), the introduction of a flat tax on end of service indemnities, an increase in road usage fees and a decrease in the current VAT threshold. In addition, in 2003, VAT will be collected for the full-year, as compared to 2002 when VAT collections commenced in February.

Budget expenditures are projected to decrease from LL 9,375 billion in the 2002 Budget Law to LL 8,520 billion in 2003 (or by 9 per cent.). In the 2003 budget proposal, expenditures (excluding debt service) are projected at LL 4,520 billion, while debt service expenditures are projected at LL 4,000 billion, as compared to LL 4,875 billion and LL 4,500 billion, respectively, in the 2002 Budget Law. As a percentage of GDP, expenditures are projected to decrease from a level of 34.5 per cent. of GDP in the 2002 Budget Law to 30 per cent. of GDP in the 2003 budget proposal, primarily as a result of limits on recurrent and capital spending and lower debt service.

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The budget deficit is projected to decrease from LL 3,875 billion in the 2002 Budget Law to LL 2,070 billion in the 2003 budget proposal or from approximately 14 per cent. of GDP to 7.3 per cent. of GDP. The primary budget surplus is, therefore, expected to increase, for the second consecutive year, from LL 625 billion (or 2.4 per cent. of GDP) in the 2002 Budget Law to LL 1,930 billion (or 6.8 per cent. of GDP) in the 2003 budget proposal.

Treasury revenues are projected to be LL 400 million, as compared to LL 350 billion in expected treasury revenues in 2002, representing an increase of approximately 13 per cent. Treasury expenditures are projected to be LL 800 million, as compared to LL 750 billion in expected treasury expenditures in 2002, representing an increase of approximately 6 per cent.

Actual Results for 2002

The following table sets forth summaries of the actual results for the ten month periods ended October 31, 2001 and October 31, 2002.

January-October January-October 2001 (Actual) 2002 (Actual)(2) (in billions of Lebanese pounds)

Total Revenues...... 3,786 4,930 Budget Revenues...... 3,483 4,544 Treasury Revenues ...... 303 386 Total Expenditures(1) ...... 7,282 8,401 Budget Expenditures(1) ...... 6,448 7,071 Treasury Expenditures...... 834 1,330 Budget Deficit ...... 45.99% 35.74% Total Deficit to Expenditures Ratio(1) ...... 48.01% 41.32%

______Notes: (1) Excluding foreign financed CDR capital expenditures (2) The results for the ten month period ended October 31, 2002 are not necessarily indicative of the actual results for the full year,

Actual revenues for the first ten months of 2002 were 30.22 percent higher than for the same period of 2001 mainly due to the collection of VAT revenues pursuant to the new VAT law, which became effective February 1, 2002. Revenues from other types of tax, such as taxes on income, profits and capital gains, taxes on property and taxes on international trade, also increased.

Actual expenditures for the first ten months of 2002 were approximately 15.37 percent higher than actual spending during the same period of 2001. The principal reasons for the rise in expenditures are higher debt service payments and the disbursement, in 2002, of expenses carried forward from the 2001 budget.

TAX REFORM

The tax system in the Republic has been subject to sweeping reforms. During the period of conflict, the record of revenue collection was extremely poor, with widespread tax evasion and weak administration. A new Income Tax Law was promulgated on December 30, 1993 (Law No. 282 published in the Official Gazette No. 1 dated January 6, 1994) and became effective as of the beginning of fiscal year 1994. This law amended the old income tax law and introduced new provisions aimed at reducing tax rates, improving tax implementation and receipts and stimulating private investment. This law was modified in certain respects in the 1999 Budget, which increased income tax rates and dividend tax rates. Currently, the maximum income tax rate for individuals is 21 per cent. (excluding certain categories of professionals) and for corporations is 15 per cent. The 2000 Budget reduced tax on dividends to 5 per cent. (from 10 per cent.) for companies listed on the Beirut Stock Exchange. Capital gains on disposal of shares for individuals and for marketable securities are currently generally exempt from tax.

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In December 2001, Parliament adopted the VAT law, which became effective on February 1, 2002. VAT is levied at a single rate of 10 per cent. on all goods and services, subject to certain exceptions, such as medical and educational services. In addition to its direct impact on revenues, implementation of the VAT is expected to result in enhanced collection of income tax.

SOCIAL POLICIES

The process of reconstruction does not neglect the social repercussions and problems resulting from the conflict. One of the basic social crises which the Government had to face is related to forced internal migration and displacement. A Ministry for Displaced Persons was created and started sponsoring the return of displaced families to their homes. The Ministry and the Fund for Displaced Persons have been contributing to the costs of rebuilding or refurbishing damaged houses.

The Government funded the construction of two regional public hospitals in the northern part of the Republic, one in the south and a major public hospital in the southern suburbs of Beirut. In addition, the uncompleted works at Baabdah Hospital will be resumed and this hospital will be put at the Lebanese University's disposal. All of these health facilities will offer free treatment. The Government has also accomplished major steps in the health sector. Low-income persons are now able to undergo open heart surgical operations and dialysis at the Government's expense. Cancer treatment is free for needy persons. The private sector and religious authorities have also established complimentary non- profit centers for disabled persons, the elderly, orphans and specialized centers for fatal diseases such as thalassemia. The Government has activated the National Social Security Fund, which provides private-sector employees with end-of-service indemnity, family allowances and medical insurance and aims at implementing the already existing legal provisions to the pension plan for the elderly.

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TERMS AND CONDITIONS OF THE NOTES

The following are the Terms and Conditions of the Notes to be issued by the Republic which will be incorporated by reference into each global Note and each definitive Note, in the case of definitive Notes only if permitted by the rules of the relevant stock exchange (if any) and agreed by the Republic and the relevant Dealer at the time of issue. If not so permitted and agreed, such Terms and Conditions will be endorsed on or attached to such definitive Note. The applicable Pricing Supplement in relation to any Tranche of Notes may specify other terms and conditions, which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Notes. The applicable Pricing Supplement (or the relevant provisions thereof) will be endorsed upon, or attached to, each Temporary Global Note, Permanent Global Note, Regulation S Global Note, Restricted Global Note and definitive Note (each as defined in "Forms of the Notes" below). Terms used in this Offering Circular and not otherwise defined herein have the meanings ascribed thereto in the applicable Pricing Supplement. References to a specific "Condition" shall be deemed to refer to the relevant Condition set forth in the Terms and Conditions of the Notes.

This Note is one of a Series (as defined below) of Notes issued by the Lebanese Republic (the "Republic") pursuant to a Fiscal Agency Agreement (such Fiscal Agency Agreement as modified and/or supplemented and/or restated from time to time, the "Fiscal Agency Agreement") dated March 8, 1999 and made between the Republic, Deutsche Bank Trust Company Americas (formerly Bankers Trust Company, acting through its principal corporate office in New York), as fiscal agent (the "Fiscal Agent," which expression shall include any successor fiscal agent), as registrar (the "Registrar," which expression shall include any successor registrar) and as exchange agent (the "Exchange Agent," which expression shall include any successor exchange agent) and Deutsche Bank AG London and Deutsche Bank Luxembourg S.A., as paying agents and transfer agents (respectively, the "Paying Agents" and "Transfer Agents," which expressions shall, unless the context otherwise requires, include any successors in their capacity as such and any substitute or any additional paying agents or transfer agents, respectively, which are appointed in accordance with the Fiscal Agency Agreement). References herein to the "Notes" shall be references to the Notes of this Series and shall mean (i) in relation to any Notes represented by a global Note, units of the lowest Specified Denomination (as indicated in the applicable Pricing Supplement) in the Specified Currency (as indicated in the applicable Pricing Supplement), (ii) definitive Bearer Notes issued in exchange (or part exchange) for a global Note, (iii) any global Note and (iv) in relation to any Notes represented by definitive Registered Notes, units of the lowest Specified Denomination in the Specified Currency.

Interest bearing definitive Bearer Notes (unless otherwise indicated in the applicable Pricing Supplement) have interest coupons (" Coupons") and, if indicated in the applicable Pricing Supplement, talons for further Coupons (" Talons") attached on issue. Any reference herein to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons. Definitive Bearer Notes repayable in installments have receipts (" Receipts") for the payment of the installments of principal (other than the final installment) attached on issue. Definitive Registered Notes do not have Receipts, Coupons or Talons attached on issue.

The Pricing Supplement for this Note (or the relevant provisions thereof) is attached to or endorsed on this Note and supplements these Terms and Conditions and may specify other terms and conditions, which shall, to the extent so specified or to the extent inconsistent with these Terms and Conditions, replace or modify these Terms and Conditions for the purposes of this Note. References to the "applicable Pricing Supplement" are to the Pricing Supplement (or the relevant provisions thereof) attached to or endorsed on this Note.

As used herein, "Tranche" means Notes which are identical in all respects (including as to listing) except that a Tranche of Notes may comprise Notes of more than one Specified Denomination. As used herein, "Series" means a Tranche of Notes together with any further Tranche or Tranches of Notes which are expressed to be consolidated and form a single series and are identical in all respects (including as to listing) except that a Series of Notes may comprise Notes of more than one Specified Denomination and the Issue Price, Issue Date, Interest Commencement Date (if any) and/or the amount of the first payment of interest (if any) may be different in respect of different Tranches.

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Copies of the Fiscal Agency Agreement and the Pricing Supplement applicable to this Note are available during normal business hours at the specified office of each of the Paying Agents, the Registrar, the Transfer Agents and the Fiscal Agent save that the applicable Pricing Supplement in relation to an unlisted Note will only be available for inspection by a Holder holding one or more Notes of that Series and such Holder must produce evidence satisfactory to the Fiscal Agent, the Registrar or the relevant Paying Agent or Transfer Agent, as the case may be, as to its holding of Notes and as to its identity. The Holders of Notes, Receipts and Coupons are deemed to have notice of, and are entitled to the benefit of, all the provisions of these Terms and Conditions and the applicable Pricing Supplement which are applicable to them.

Words and expressions defined in the Fiscal Agency Agreement or used in the applicable Pricing Supplement shall have the same meanings where used in these Terms and Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between these Terms and Conditions and the applicable Pricing Supplement, the applicable Pricing Supplement will prevail.

1. Form, Denomination and Title

The Notes may be Bearer Notes and/or Registered Notes. Definitive Notes will be numbered serially in the Specified Currency and the Specified Denomination(s). Save as provided in Condition 2, Notes of one Specified Denomination may not be exchanged for Notes of another Specified Denomination.

Notes in registered form sold pursuant to Rule 144A shall be issued in denominations of U.S. $100,000 (or its equivalent in any other currency) and higher integral multiples of U.S. $1,000 (or its equivalent as aforesaid) or the higher denomination or denominations specified in the applicable Pricing Supplement. Definitive Registered Notes sold in the United States to Institutional Accredited Investors pursuant to Section 4(2) of the Securities Act or in a transaction otherwise exempt from registration under the Securities Act shall be issued in minimum denominations of U.S. $250,000 (or its equivalent in any other currency) and higher integral multiples of U.S. $1,000 (or its equivalent as aforesaid) or the higher denomination or denominations specified in the applicable Pricing Supplement.

Subject as set forth below, title to Bearer Notes, Receipts and Coupons will pass by delivery and references herein to "Holders" of Bearer Notes, Receipts and Coupons are to the bearers of such Bearer Notes, Receipts and Coupons, subject as provided below. Title to Registered Notes will pass upon registration of transfers in the books of the Registrar in London. References herein to the "Holders" of Registered Notes are to the persons in whose names such Registered Notes are so registered in such books, subject as provided below. The Republic, the Fiscal Agent, any Paying Agent, the Registrar and any Transfer Agent may deem and treat the bearer of any Bearer Note, Receipt or Coupon and any person in whose name a Registered Note is registered as the absolute owner thereof (whether or not overdue and notwithstanding any notice of ownership or writing thereon or notice of any previous loss or theft thereof) for all purposes but, in the case of any global Note, without prejudice to the provisions set forth in the next succeeding paragraph.

For so long as any of the Bearer Notes are represented by a bearer global Note held by a common depositary on behalf of Euroclear and/or Clearstream, Luxembourg or for so long as DTC or its nominee is the registered holder of a Registered Global Note, each person (other than Euroclear, Clearstream, Luxembourg or, as the case may be, DTC) who is for the time being shown in the records of Euroclear, Clearstream, Luxembourg or, as the case may be, DTC, as the holder of a particular principal amount of such Notes (in which regard any certificate or other document issued by Euroclear, Clearstream, Luxembourg or, as the case may be, DTC, as to the principal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Republic, the Fiscal Agent, any Paying Agent, the Registrar and any Transfer Agent as the Holder of such principal amount of such Notes for all purposes other than with respect to the payment of principal or interest on the Notes, for which purpose the bearer or registered owner of the relevant global Note shall be treated by the Republic, the Fiscal Agent, any Paying Agent, the Registrar and any Transfer Agent as the holder of such Notes in accordance with and subject to the terms of the relevant global Note (and the expression "Holder" and related expressions shall be construed accordingly). Notes which are represented by a global Note will be transferable only in accordance with the rules and procedures, for the time being of Euroclear, Clearstream, Luxembourg and DTC, as the case may be.

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References to Euroclear, Clearstream, Luxembourg and/or DTC shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system approved by the Republic, the relevant Dealer and the Fiscal Agent and specified in the applicable Pricing Supplement.

2. Exchange and Transfers of Registered Notes and Exchange of Bearer Notes

(a) Exchange of interests in Registered Global Notes for Definitive Registered Notes

Interests in any Registered Global Note will be exchangeable for Definitive Registered Notes, if (i) Euroclear and/or Clearstream, Luxembourg or DTC, as the case may be, notifies the Republic that it is unwilling or unable to continue as depositary for such Registered Global Note, (ii) if applicable, DTC ceases to be a "Clearing Agency" registered under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), or either Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or announces its intention permanently to cease business, and a successor depositary or alternative clearing system satisfactory to the Republic and the Fiscal Agent is not available, (iii) an Event of Default (as defined in Condition 10) has occurred and is continuing with respect to such Notes, (iv) the holder of a beneficial interest in the Registered Global Note notifies the Registrar in writing that it is transferring such beneficial interest to an Institutional Accredited Investor who is required to hold its beneficial interest in the Definitive Registered Notes or (v) unless otherwise provided in the applicable Pricing Supplement, a written request for one or more Definitive Registered Notes is made by a holder of a beneficial interest in a Registered Global Note; provided that in the case of (v) such written notice or request, as the case may be, is submitted to the Registrar by the beneficial owner not less than thirty days (or such other period as may be indicated in the applicable Pricing Supplement) prior to the requested date of such exchange. Upon the occurrence of any of the events described in the preceding sentence, the Republic will cause the appropriate Definitive Registered Notes to be delivered, provided that, notwithstanding the above, no Definitive Registered Notes will be issued until expiry of the applicable Distribution Compliance Period (as defined in "Forms of the Notes" below).

(b) Transfers of Registered Global Notes

Transfers of any Registered Global Note shall be limited to transfers of such Registered Global Note, in whole but not in part, to a nominee of DTC or to a successor of DTC or such successor's nominee.

(c) Transfers of interests in Regulation S Global Notes

Prior to expiry of the applicable Distribution Compliance Period, transfers by the Holder of, or of a beneficial interest in, a Regulation S Global Note to a transferee in the United States who takes delivery of such interest through a Restricted Global Note will only be made:

(i) upon receipt by the Registrar of a written certification substantially in the form set forth in the Fiscal Agency Agreement, amended as appropriate (a "Transfer Certificate"), copies of which are available from the specified office of the Registrar or any Transfer Agent, from the transferor of the Note or beneficial interest therein to the effect that such transfer is being made to a person whom the transferor reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A; or

(ii) otherwise pursuant to the Securities Act or an exemption therefrom, subject to receipt by the Republic of such satisfactory evidence as the Republic may reasonably require, which may include an opinion of U.S. counsel, that such transfer is in compliance with any applicable securities laws of any state of the United States,

and, in each case, in accordance with any applicable securities laws of any state of the United States or any other jurisdiction.

In the case of (i) above, such transferee may take delivery through a Legended Note (as defined below) in global or definitive form and, in the case of (ii) above, such transferee may take delivery only through a Legended Note in definitive form. After expiry of the applicable Distribution Compliance Period, (A) beneficial interests in Regulation S Global Notes may be held through DTC directly by a

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participant in DTC or indirectly through a participant in DTC and (B) such certification requirements will no longer apply to such transfers.

(d) Transfers of interests in Legended Notes

Transfers of Notes that have a legend regarding restrictions on transferability ("Legended Notes") or beneficial interests therein may be made:

(i) to a transferee who takes delivery of such interest through a Regulation S Global Note, upon receipt by the Registrar of a duly completed Transfer Certificate from the transferor to the effect that such transfer is being made in accordance with Regulation S and that, if such transfer is being made prior to expiry of the applicable Distribution Compliance Period, the interests in the Notes being transferred will be held immediately thereafter through Euroclear and/or Clearstream, Luxembourg; or

(ii) to a transferee who takes delivery of such interest through a Legended Note:

(A) where the transferee is a person whom the transferor reasonably believes is a QIB, in a transaction meeting the requirements of Rule 144A, without certification; or

(B) where the transferee is an Institutional Accredited Investor, subject to delivery to the Registrar of a Transfer Certificate from the transferor to the effect that such transfer is being made to an Institutional Accredited Investor, together with a duly executed investment letter from the relevant transferee substantially in the form set forth in the Fiscal Agency Agreement (an "IAI Investment Letter"); or

(iii) otherwise pursuant to the Securities Act or an exemption therefrom, subject to receipt by the Republic of such satisfactory evidence as the Republic may reasonably require, which may include an opinion of U.S. counsel, that such transfer is in compliance with any applicable securities laws of any state of the United States,

and in each case, in accordance with any applicable securities laws of any state of the United States or any other jurisdiction.

Notes transferred by Institutional Accredited Investors to QIBs pursuant to Rule 144A or outside the United States pursuant to Regulation S will be eligible to be held by such QIBs or non-U.S. investors through DTC and the Registrar will arrange for any Notes which are the subject of such a transfer to be represented by the appropriate Registered Global Note, where applicable.

(e) Exchanges and transfers of Registered Notes generally

Registered Notes may not be exchanged for Bearer Notes and vice versa.

Holders of Definitive Registered Notes, other than Institutional Accredited Investors, may exchange such Definitive Registered Notes for interests in a Registered Global Note of the same type at any time.

Transfers of beneficial interests in Registered Global Notes will be effected by DTC, Euroclear or Clearstream, Luxembourg, as the case may be, and, in turn, by participants and, if appropriate, indirect participants in such clearing systems acting on behalf of beneficial transferors and transferees of such interests. A beneficial interest in a Registered Global Note will be transferable and exchangeable for Notes in definitive form or for a beneficial interest in another Registered Global Note only in accordance with the rules and operating procedures for the time being of DTC, Euroclear or Clearstream, Luxembourg, as the case may be (the "Applicable Procedures").

Upon the terms and subject to the conditions set forth in the Fiscal Agency Agreement, a Definitive Registered Note may be transferred in whole or in part (in the Specified Denominations set forth in the applicable Pricing Supplement) by the Holder or Holders surrendering the Definitive Registered Note for registration of the transfer of the Definitive Registered Note (or the relevant part of the Definitive

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Registered Note) at the specified office of the Registrar or any Transfer Agent, with the form of transfer thereon duly executed by the Holder or Holders thereof or his or their attorney or attorneys duly authorized in writing and upon the Registrar or, as the case may be, the relevant Transfer Agent, after due and careful enquiry, being satisfied with the documents of title and the identity of the person making the request and subject to such reasonable regulations as the Republic and the Registrar, or, as the case may be, the relevant Transfer Agent may, with the prior approval of the Fiscal Agent, prescribe, including any restrictions imposed by the Republic on transfers of Definitive Registered Notes originally sold to a U.S. person. Subject as provided above, the Registrar or, as the case may be, the relevant Transfer Agent will, within five business days (being for this purpose a day on which banks are open for business in the city where the specified office of the Registrar or, as the case may be, the relevant Transfer Agent is located) of the request (or such longer period as may be required to comply with any applicable fiscal or other laws or regulations) authenticate and deliver, or procure the authentication and delivery of, at its specified office to the transferee or (at the risk of the transferee) send by mail to such address as the transferee may request, a new Definitive Registered Note of a like aggregate principal amount to the Definitive Registered Note (or the relevant part of the Definitive Registered Note) transferred. In the case of the transfer of part only of a Definitive Registered Note, a new Definitive Registered Note in respect of the balance of the Definitive Registered Note not transferred will be so authenticated and delivered or (at the risk of the transferor) sent to the transferor.

Exchanges or transfers by a Holder of a Definitive Registered Note for an interest in, or to a person who takes delivery of such Note through, a Registered Global Note will be made no later than 40 days after the receipt by the Registrar or, as the case may be, the relevant Transfer Agent of the Definitive Registered Note to be so exchanged or transferred and, if applicable, upon receipt by the Registrar of a written certification from the transferor.

(f) Exchanges of Bearer Notes

Bearer Notes may not be exchanged for Registered Notes and vice versa.

Holders of interests in a Bearer Global Note may exchange such interests in whole but not in part free of charge for Bearer Definitive Notes, if (i) Euroclear or Clearstream, Luxembourg or any other relevant clearing system is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces its intention permanently to cease business or in fact does so; (ii) an Event of Default (as defined in Condition 10) has occurred and is continuing with respect to any Note of the relevant Series; or (iii) if so specified in the applicable Pricing Supplement.

(g) Closed Periods

No Noteholder may require the transfer of a Registered Note to be registered during the period of 15 days ending on (and including) the due date for any payment of principal or interest or any other amount on that Note.

(h) Costs of exchange or registration

Registration of transfers will be effected without charge by or on behalf of the Republic, the Registrar or the relevant Transfer Agent, but upon payment (or the giving of such indemnity as the Registrar or the relevant Transfer Agent may reasonably require) in respect of any tax or other governmental charges which may be imposed in relation to it.

3. Status of the Notes

The Notes constitute direct, general, unconditional, unsubordinated and (subject to Condition 4) unsecured obligations of the Republic which rank pari passu in priority of payment, without any preference among themselves and at least pari passu with all other present and future unsecured (subject to Condition 4) Indebtedness (as defined below) of the Republic, other than any Indebtedness preferred by Lebanese law. The full faith and credit of the Republic will be pledged for the due and punctual payment of the Notes and for all obligations of the Republic in respect thereof.

"Indebtedness" means all indebtedness of the Republic in respect of monies borrowed by the Republic and guarantees given by the Republic of monies borrowed by others.

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4. Negative Pledge

The Republic undertakes that, so long as any Note remains outstanding (as defined in the Fiscal Agency Agreement), the Republic will not create or permit to subsist on any of its present or future assets or revenues any mortgage, pledge or other encumbrance (" Lien") to secure any Public External Indebtedness of the Republic or any guarantees given by the Republic after July 2, 1997 of Public External Indebtedness of any third party unless either (i) at the same time or prior thereto, the Republic's obligations under the Notes are secured by the Lien equally and ratably with such Public External Indebtedness or guarantee so secured at the cost of the Republic, and the instrument or the enactment creating such Lien shall expressly so provide, or (ii) such Lien shall have been approved by an Extraordinary Resolution (as defined in the Fiscal Agency Agreement) of the Holders of Notes.

For the purpose of these Conditions, "Public External Indebtedness" means any notes, debentures, bonds, or other similar securities with a stated maturity of more than one year from their date of issue ("securities") which:

(i) by their terms are payable, or confer a right to receive payment, in any currency other than the lawful currency of the Republic (" Lebanese Currency") or, if such securities are denominated in Lebanese Currency, more than fifty percent (50 per cent.) of the aggregate principal amount thereof is initially distributed outside the Republic by or with the authorization of the Republic; and

(ii) are for the time being or are intended to be quoted, listed or ordinarily dealt in or traded on any stock exchange, over-the-counter or other notes market outside the Republic.

5. Interest

(a) Interest on Fixed Rate Notes

Each Fixed Rate Note bears interest on its principal amount from (and including) the Interest Commencement Date specified in the applicable Pricing Supplement at the rate(s) per annum equal to the Fixed Rate(s) of Interest, where accrued interest shall be payable in arrears on the Fixed Interest Date(s) in each year and on the Maturity Date so specified if that does not fall on a Fixed Interest Date. The first payment of interest will be made on the Fixed Interest Date next following the Interest Commencement Date and, if the first anniversary of the Interest Commencement Date is not a Fixed Interest Date, will amount to the Initial Broken Amount specified in the applicable Pricing Supplement. If the Maturity Date is not a Fixed Interest Date, interest from (and including) the preceding Fixed Interest Date (or the Interest Commencement Date, as the case may be) to (but excluding) the Maturity Date will amount to the Final Broken Amount specified in the applicable Pricing Supplement.

If interest is required to be calculated for a period ending other than on a Fixed Interest Date, such interest shall be calculated by applying the Fixed Rate of Interest to each Specified Denomination, multiplying such sum by the applicable Fixed Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention.

In these Conditions, unless otherwise specified in the applicable Pricing Supplement:

(i) "Fixed Day Count Fraction" means:

(A) If "Actual/Actual" is specified in the applicable Pricing Supplement, the actual number of days in the relevant period from and including the most recent Fixed Interest Date (or, if none, the Interest Commencement Date) to but excluding the relevant payment date divided by the product of the actual number of days in the period from and including the most recent Fixed Interest Date (or, if none, the Interest Commencement Date) to but excluding the next scheduled Fixed Interest Date and the number of Fixed Interest Dates that would occur in one year assuming interest was to be payable in respect of the whole of that year; and

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(B) if "30/360" is specified in the applicable Pricing Supplement, the number of days in the period from and including the most recent Fixed Interest Date (or, if none, the Interest Commencement Date) to but excluding the relevant payment date (such number of days being calculated on the basis of 12 30- day months) divided by 360; and

(ii) "sub-unit" means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, means one cent.

(b) Interest on Floating Rate Notes

(i) Interest Payment Dates

Each Floating Rate Note bears interest on its principal amount from (and including) the Interest Commencement Date and such interest will be payable in arrears on either:

(A) the Interest Payment Date(s) in each year specified in the applicable Pricing Supplement; or

(B) if no express Interest Payment Date(s) is/are specified in the applicable Pricing Supplement, each date (each an "Interest Payment Date") which corresponds to the date which falls the number of months or other period specified as the Specified Period in the applicable Pricing Supplement after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date.

Such interest will be payable in respect of each Interest Period (which expression shall in these Conditions mean the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date, each an "Interest Period").

If a business day convention is specified in the applicable Pricing Supplement and (x) if there is no numerically corresponding day in the calendar month in which an Interest Payment Date should occur or (y) if any Interest Payment Date would otherwise fall on a day which is not a Business Day (as defined below) then, if the business day convention specified is:

(1) the Floating Rate Convention, such Interest Payment Date (i) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (B) below in this subparagraph (1) shall apply mutatis mutandis or (ii) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event (A) such Interest Payment Date shall be brought forward to the immediately preceding Business Day and (B) each subsequent Interest Payment Date shall be the last Business Day in the relevant Specified Period after the preceding applicable Interest Payment Date occurred, in any case where Specified Periods are specified in accordance with Condition 5(b)(i)(B) above; or

(2) the Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day; or

(3) the Modified Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Interest Payment Date shall be brought forward to the immediately preceding Business Day; or

(4) the Preceding Business Day Convention, such Interest Payment Date shall be brought forward to the immediately preceding Business Day.

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In addition, if (i) the Floating Rate Convention is specified in the applicable Pricing Supplement, (ii) Specified Periods are specified in accordance with Condition 5(b)(i)(B) above and (iii) any Interest Payment Date falls on the last Business Day in any month, then each subsequent Interest Payment Date shall be the last Business Day in the relevant Specified Period after the preceding applicable Interest Payment Date occurred.

In this Condition, "Business Day" means a day which is both:

(A) a day on which commercial banks and foreign exchange markets settle payments in London and any Additional Business Center specified in the applicable Pricing Supplement; and

(B) either (1) in relation to interest payable in a Specified Currency other than euro, a day (other than Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in the principal financial center of the country of the relevant Specified Currency (if other than London and any Additional Business Center) or (2) in relation to interest payable in euro, a day on which the TARGET system is open.

In these Conditions "TARGET system" means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System.

(ii) Rate of Interest

The Rate of Interest payable from time to time in respect of Floating Rate Notes will be determined in the manner specified in the applicable Pricing Supplement.

(A) ISDA Determination for Floating Rate Notes

Where ISDA Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will be the relevant ISDA Rate plus or minus (as indicated in the applicable Pricing Supplement) the Margin (if any). For the purposes of this sub-paragraph (A), "ISDA Rate" for an Interest Period means a rate equal to the Floating Rate that would be determined by the Fiscal Agent under an interest rate swap transaction if the Fiscal Agent were acting as Calculation Agent for that swap transaction under the terms of an agreement incorporating the ISDA Definitions and under which:

(1) the Floating Rate Option is as specified in the applicable Pricing Supplement;

(2) the Designated Maturity is a period specified in the applicable Pricing Supplement; and

(3) the relevant Reset Date is either (i) if the applicable Floating Rate Option is based on the London inter-bank offered rate ("LIBOR") or on the Euro-zone inter-bank offered rate ("EURIBOR"), the first day of that Interest Period or (ii) in any other case, as specified in the applicable Pricing Supplement.

For the purposes of this sub-paragraph (A), "Floating Rate," "Calculation Agent," "Floating Rate Option," "Designated Maturity" and "Reset Date" have the meanings given to those terms in the ISDA Definitions; "ISDA Definitions" means the 2000 ISDA as amended and updated as at the Issue Date of the first Tranche of the Notes of the relevant Series, as published by the International Swaps and Derivatives Association, Inc.

In these Conditions, "Euro-zone" means the region comprised of Member States of the European Union that adopt the single currency in accordance with the Treaty establishing the European communities, as amended by the Treaty on European Union.

(B) Screen Rate Determination for Floating Rate Notes

(1) Where Screen Rate Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined,

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the Rate of Interest for each Interest Period will, subject as provided below, be either:

(A) the offered quotation; or

(B) the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the offered quotations,

(expressed as a percentage rate per annum) for the Reference Rate which appears or appear, as the case may be, on the Relevant Screen Page as at 11:00 a.m. (London time) in the case of LIBOR or 11.00 a.m. (Brussels time) in the case of EURIBOR on the Interest Determination Date in question plus or minus (as indicated in the applicable Pricing Supplement) the Margin (if any), all as determined by the Fiscal Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Fiscal Agent for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations.

(2) If the Relevant Screen Page is not available or, if in the case of (A) above, no such offered quotation appears or, in the case of (B) above, fewer than three such offered quotations appear, in each case as at the time specified in the preceding paragraph the Rate of Interest for the relevant Interest Period shall be determined as provided in the preceding paragraph by reference to such other page (the "Alternative Screen Page") on such other information vendor service as is then displaying in the case of (A) above, information comparable to that appearing on the Relevant Screen Page when such quotation last appeared on the Relevant Screen Page and, in the case of (B) above, information comparable to that appearing on the Relevant Screen Page when no fewer than three such offered quotations appeared.

(3) If no Alternative Screen Page is available or, if in the case of (A) above, no such offered quotation appears or, in the case of (B) above, fewer than three such offered quotations appear, in each case at the time specified in the preceding paragraph the Fiscal Agent shall request if the Reference Rate is LIBOR, the principal London office of each of the Reference Banks (as defined below) or, if the Reference Rate is EURIBOR, the principal Euro- zone office of each of the Reference Banks to provide the Fiscal Agent with its offered quotation (expressed as a percentage rate per annum) for the Reference Rate at approximately 11:00 a.m. (London time) or approximately 11.00 a.m. (Brussels time), as the case may be, on the Interest Determination Date in question. If two or more of the Reference Banks provide the Fiscal Agent with such offered quotations, the Rate of Interest for such Interest Period shall be the arithmetic mean (rounded if necessary to the fifth decimal place with 0.000005 being rounded upwards) of such offered quotations plus or minus (as appropriate) the Margin (if any), all as determined by the Fiscal Agent.

(4) If on any Interest Determination Date one only or none of the Reference Banks provides the Fiscal Agent with such offered quotations as provided in the preceding paragraph, the Rate of Interest for the relevant Interest Period shall be the rate per annum which the Fiscal Agent determines as being the arithmetic mean (rounded if necessary to the fifth decimal place, with 0.000005 being rounded upwards) of the rates, as communicated to (and at the request of) the Fiscal Agent by the Reference Banks or any two or more of them, at which such banks were offered, at approximately 11:00 a.m. (London time) in the case of LIBOR or 11.00 a.m. (Brussels time) in the case of EURIBOR on the relevant Interest Determination Date, for deposits

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in the Specified Currency for a period equal to that which would have been used for the Reference Rate by leading banks in the London inter-bank market or, if the Reference Rate is EURIBOR, to leading banks in the Eurozone inter-bank market as at 11.00 a.m. (Brussels time), plus or minus (as appropriate) the Margin (if any) or, if fewer than two of the Reference Banks provide the Fiscal Agent with such offered rates, the offered rate for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, or the arithmetic mean (rounded as provided above) of the offered rates for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, at which, at approximately 11:00 a.m. (London time) in the case of LIBOR or 11.00 a.m. (Brussels time) in the case of EURIBOR on the relevant Interest Determination Date, any one or more banks (which bank or banks is or are in the opinion of the Republic suitable for such purpose) informs the Fiscal Agent it is quoting to leading banks in, if the Reference Rate is LIBOR, the London interbank market as at 11.00 a.m. (London time) or, if the Reference Rate is EURIBOR to leading banks in the Euro-zone inter-bank market as at 11.00 a.m. (Brussels time), plus or minus (as appropriate) the Margin (if any), provided that, if the Rate of Interest cannot be determined in accordance with the foregoing provisions of this paragraph, the Rate of Interest shall be determined as at the last preceding Interest Determination Date (though substituting, where a different Margin is to be applied to the relevant Interest Period from that which applied to the last preceding Interest Period, the Margin relating to the relevant Interest Period in place of the Margin relating to that last preceding Interest Period).

(5) In this paragraph (B), "Reference Banks" means, in the case of (A) above, those banks whose offered rates were used to determine such quotation when such quotation last appeared on the Relevant Screen Page and, in the case of (B) above, those banks whose offered quotations last appeared on the Relevant Screen Page when no fewer than three such offered quotations appeared.

(6) If the Reference Rate from time to time in respect of Floating Rate Notes is specified in the applicable Pricing Supplement as being other than LIBOR or EURIBOR, the Rate of Interest in respect of such Notes will be determined as provided in the applicable Pricing Supplement.

(iii) Minimum and/or Maximum Interest Rate

If the applicable Pricing Supplement specifies a Minimum Interest Rate for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (ii) above is less than such Minimum Interest Rate, the Rate of Interest for such Interest Period shall be such Minimum Interest Rate. If the applicable Pricing Supplement specifies a Maximum Interest Rate for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (ii) above is greater than such Maximum Interest Rate, the Rate of Interest for such Interest Period shall be such Maximum Interest Rate.

(iv) Determination of Rate of Interest and Calculation of Interest Amounts

The Fiscal Agent, in the case of Floating Rate Notes, or the Calculation Agent, if such an agent is appointed, will, at or as soon as practicable after each time at which the Rate of Interest is to be determined, determine the Rate of Interest for the relevant Interest Period.

The Fiscal Agent will calculate the amount of interest (the "Interest Amount") payable on the Floating Rate Notes in respect of each Specified Denomination for the relevant Interest Period. Each Interest Amount shall be calculated by applying the Rate of Interest to each Specified Denomination, multiplying such sum by the applicable Day Count Fraction and rounding the resultant figure to the

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nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention.

"Day Count Fraction" means, in respect of the calculation of an amount of interest for any Interest Period:

(1) if "Actual/365" or "Actual/Actual" is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365 (or, if any portion of that Interest Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Interest Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Interest Period falling in a non-leap year divided by 365);

(2) if "Actual/365 (Fixed)" is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365;

(3) if "Actual/360" is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 360;

(4) if "30/360," "360/360" or "Bond Basis" is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 months of 30 days (unless (a) the last day of the Interest Period is the 31st day of a month but the first day of the Interest Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened or lengthened to a 30-day month, or (b) the last day of the Interest Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)); and

(5) if "30E/360" or "Eurobond Basis" is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 months of 30 days, without regard to the date of the first day or last day of the Interest Period unless, in the case of an Interest Period ending on the Maturity Date, the Maturity Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month).

(v) Notification of Rate of Interest and Interest Amounts

The Fiscal Agent will cause the Rate of Interest and each Interest Amount for each Interest Period and the relevant Interest Payment Date to be notified to the Republic and any stock exchange on which the relevant Floating Rate Notes are for the time being listed and notice thereof to be published in accordance with Condition 14 as soon as possible after their determination but in no event later than the fourth Luxembourg Business Day (as defined herein) thereafter. Each Interest Amount and Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without prior notice in the event of an extension or shortening of the Interest Period. Any such amendment will be promptly notified to the Republic, each stock exchange on which the relevant Floating Rate Notes are for the time being listed and to the Noteholders in accordance with Condition 14.

"Luxembourg Business Day" means a day (other than a Saturday or a Sunday) or which banks and foreign exchange markets settle payments in Luxembourg.

(vi) Certificates to be Final

All certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 5(b), whether by the Fiscal Agent or, if applicable, the Calculation Agent, shall (in the absence of willful default, bad faith or manifest error) be binding on the Republic, the Fiscal Agent, the Registrar, the Calculation Agent (if applicable), the Paying Agents and all Holders of Notes, Receipts and Coupons and (in the

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absence as aforesaid) no liability to the Republic, any Holder of Notes, the Receipts, or Coupons shall attach to the Fiscal Agent or the Calculation Agent (if applicable) in connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant to such provisions.

(c) Accrual of Interest

Each Note (or in the case of the redemption of part only of a Note, that part only of such Note) will cease to bear interest (if any) from the date fixed for its redemption unless, upon due presentation thereof, payment of principal is improperly withheld or refused. In such event, interest will continue to accrue as provided in the Fiscal Agency Agreement.

6. Payments

(a) Method of Payment

Subject as provided below:

(i) payments in a Specified Currency other than euro will be made by transfer to an account in the relevant Specified Currency maintained by the payee with, or by a cheque in such Specified Currency drawn on, a bank in the principal financial center of the country of such Specified Currency;

(ii) payments in euro will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee in a city in which banks have access to the TARGET system or, at the option of the payee, by a euro cheque.

Payments will be subject in all cases to any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 8. References to "Specified Currency" will include any successor currency under applicable law.

(b) Presentation of Notes, Receipts and Coupons

Payments of principal in respect of Definitive Bearer Notes will (subject as provided below) be made in the manner provided in paragraph (a) above only against surrender of Definitive Bearer Notes and payments of interest in respect of Definitive Bearer Notes will (subject as provided below) be made as aforesaid only against surrender of Coupons, in each case, at the specified office of any Paying Agent outside the United States (which expression, as used herein, means the United States of America (including the States and the District of Columbia, its territories, its possessions and other areas subject to its jurisdiction)).

Notwithstanding the foregoing, if any amount of principal and/or interest in respect of any Bearer Notes is payable in U.S. Dollars, such U.S. Dollar payments of principal and/or interest in respect of the Bearer Notes will be made at the specified office of a Paying Agent in the United States if:

(i) the Republic has appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment in U.S. Dollars at such specified offices outside the United States of the full amount of principal and interest on the Bearer Notes in the manner provided above when due;

(ii) payment of the full amount of such principal and interest at all such specified offices outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions on the full payment or receipt of principal and interest in U.S. Dollars; and

(iii such payment is then permitted under United States law without involving, in the opinion of the Republic, adverse tax consequences to the Republic.

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In respect of Definitive Bearer Notes, payments of installments of principal (if any), other than the final installment, will (subject as provided below) be made in the manner provided in paragraph (a) above against surrender of the relevant Receipt. Payment of the final installment will be made in the manner provided in paragraph (a) above only against surrender of the relevant Definitive Bearer Note. Each Receipt must be presented for payment of the relevant installment together with the Definitive Bearer Note to which it appertains. Receipts presented without the definitive Bearer Note to which they appertain do not constitute valid obligations of the Republic. Upon the date on which any definitive Bearer Note becomes due and repayable, unmatured Receipts (if any) relating thereto (whether or not attached) shall become void and no payment shall be made in respect thereof.

Fixed Rate Notes in definitive bearer form should be presented for payment together with all unmatured Coupons appertaining thereto (which expression shall for this purpose include Coupons failing to be issued on exchange of matured Talons), failing which the amount of any missing unmatured Coupon (or, in the case of payment not being made in full, the same proportion of the amount of such missing unmatured Coupon as the sum so paid bears to the sum due) will be deducted from the sum due for payment. Each amount of principal so deducted will be paid in the manner mentioned above against surrender of the relevant missing Coupon at any time before the expiry of 10 years after the Relevant Date (as defined in Condition 8) in respect of such principal (whether or not such Coupon would otherwise have become void under Condition 9) or, if later, five years from the date on which such Coupon would otherwise have become due, but in no event thereafter. Upon any Fixed Rate Note becoming due and repayable prior to its Maturity Date, all unmatured Talons (if any) appertaining thereto will become void and no further Coupons will be issued in respect thereof.

Upon the date on which any Floating Rate Note in definitive bearer form becomes due and repayable, unmatured Coupons and Talons (if any) relating thereto (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons shall be made in respect thereof.

If the due date for redemption of any definitive Bearer Note is not a Fixed Interest Date or an Interest Payment Date, interest (if any) accrued in respect of such Note from (and including) the preceding Fixed Interest Date or Interest Payment Date or, as the case may be, the Interest Commencement Date shall be payable only against surrender of the relevant definitive Bearer Note.

Payments of principal and interest (if any) in respect of Bearer Notes represented by any bearer global Note will (subject as provided below) be made in the manner provided in paragraph (a) above and otherwise in the manner specified in the relevant bearer global Note against presentation or surrender, as the case may be, of such bearer global Note at the specified office of any Paying Agent. A record of each payment made against presentation or surrender of such bearer global Note, distinguishing between any payment of principal and any payment of interest, will be made on such bearer global Note by such Paying Agent and such record shall be prima facie evidence that the payment in question has been made.

Payments of principal (other than installments of principal (if any) prior to the final installment) in respect of Registered Notes (whether in definitive or global form) will be made in the manner specified in paragraph (a) to the persons in whose name such Registered Notes are registered at the close of business on the business day (being for this purpose a day on which banks are open for business in the city where the Registrar is located) immediately prior to the relevant payment date against presentation and surrender (or, in the case of part payment only of any sum due, endorsement) of such Registered Notes at the specified office of the Registrar, or the Paying Agents.

Payments of interest due on a Registered Note (whether in definitive or global form) and payments of installments of principal (if any) due on a Registered Note (other than the final installment) will be made in the manner specified in paragraph (a) to the person in whose name such Note is registered at the close of business on the fifteenth day (whether or not such fifteenth day is a business day (being for this purpose a day on which banks are open for business in the city where the Registrar is located) (the "Record Date")) prior to such due date. In the case of payments by cheque, cheques will be mailed to the Holder (or the first named of joint Holders) at such Holder's registered address on the business day (as described above) immediately preceding the due date.

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If payment in respect of any Registered Notes is required by credit or transfer as referred to in paragraph (a) above, application for such payment must be made by the Holder to the Registrar not later than the relevant Record Date.

All amounts payable to DTC or its nominee as registered holder of a Registered Global Note in respect of Notes denominated in a Specified Currency other than U.S. Dollars shall be paid by transfer by the Registrar to an account in the relevant Specified Currency of the Exchange Agent on behalf of DTC or its nominee for payment in such Specified Currency or conversion into U.S. Dollars in accordance with the provisions of the Fiscal Agency Agreement.

The Holder of a global Note (or, as provided in the Fiscal Agency Agreement, the Fiscal Agent) shall be the only person entitled to receive payments in respect of Notes represented by such global Note and the Republic will be discharged by payment to, or to the order of, the Holder of such global Note (or the Fiscal Agent, as the case may be) in respect of each amount so paid. Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the beneficial holder of a particular principal amount of Notes represented by such global Note must look solely to Euroclear, Clearstream, Luxembourg or DTC, as the case may be, for its share of each payment so made by the Republic to, or to the order of, the Holder of such global Note (or, as provided in the Fiscal Agency Agreement, the Fiscal Agent). No person other than the Holder of such global Note (or the Fiscal Agent, as the case may be) shall have any claim against the Republic in respect of any payments due on that global Note.

(c) Payment Day

If the date for payment of any amount in respect of any Note, Receipt or Coupon is not a Payment Day, the holder thereof shall not be entitled to payment until the next following Payment Day in the relevant place and shall not be entitled to further interest or other payment in respect of such delay. For these purposes, "Payment Day" means any day which is:

(i) a day on which commercial banks and foreign exchange markets settle payments in the relevant place of presentation;

(ii) a Business Day (as defined in Condition 5(b)(i));

(iii) in relation to Notes denominated or payable in euro, a day on which the TARGET system is open; and

(iv) in the case of any payment in respect of a Restricted Global Note denominated in a Specified Currency other than U.S. Dollars and registered in the name of DTC or its nominee and, in respect of which an accountholder of DTC (with an interest in such Restricted Global Note) has elected to receive any part of such payment in U.S. Dollars, not a day on which banking institutions are authorized or required by law or regulation to be closed in New York City.

(d) Interpretation of Principal and Interest

Any reference in these Conditions to principal in respect of Notes shall be deemed to include, as applicable:

(i) any Additional Amounts which may be payable with respect to principal of such Notes under Condition 8;

(ii) the Amortization Amounts of such Notes;

(iii) the Final Redemption Amount of such Notes;

(iv) the Early Redemption Amount of such Notes;

(v) the Optional Redemption Amount(s) (if any) of such Notes; and

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(vi) any premium and any other amounts which may be payable by the Republic under or in respect of such Notes.

Any reference in these Conditions to interest in respect of Notes shall be deemed to include, as applicable, any Additional Amounts which may be payable with respect to interest under Condition 8.

7. Amortization, Redemption and Purchase

(a) Amortization

If specified in the applicable Pricing Supplement, the Notes will be redeemed in the amounts (" Amortization Amounts") and on the dates (" Amortization Dates") set forth in the applicable Pricing Supplement. In the case of early redemption, the Early Redemption Amount will be determined pursuant to paragraph (e) below.

(b) At Maturity

Unless previously redeemed or purchased and cancelled as specified below, each Note will be redeemed by the Republic at its Final Redemption Amount specified in, or determined in the manner specified in, the applicable Pricing Supplement in the relevant Specified Currency on the Maturity Date.

(c) Redemption at the Option of the Republic

If the Republic is specified in the applicable Pricing Supplement as having an option to redeem, the Republic may, having given:

(i) not less than 30 nor more than 60 days' irrevocable notice to the Holders in accordance with Condition 14; and

(ii) not less than 15 days before the giving of the notice referred to in (i), notice to the Fiscal Agent;

(which notices shall be irrevocable) redeem all or part of the Notes then outstanding on any Optional Redemption Date and at the Optional Redemption Amount(s) specified in, or determined in the manner specified in, the applicable Pricing Supplement together, if appropriate, with interest accrued to (but excluding) the relevant Optional Redemption Date.

Any such redemption must be of a principal amount equal to the Minimum Redemption Amount or a Higher Redemption Amount. In the case of a partial redemption of Notes (or, as the case may be, parts of Registered Notes), the Notes to be redeemed (" Redeemed Notes") will be selected individually by lot, in the case of Redeemed Notes represented by definitive Notes, and in accordance with the rules of Euroclear and/or Clearstream, Luxembourg and/or, as the case may be, DTC, in the case of Redeemed Notes represented by a global Note, not more than 30 days prior to the date fixed for redemption (such date of selection being hereinafter called the "Selection Date"). In the case of Redeemed Notes represented by definitive Notes, a list of the serial numbers of such Redeemed Notes will be published in accordance with Condition 14 not less than 15 days prior to the date fixed for redemption. The aggregate principal amount of Redeemed Notes represented by definitive Notes shall bear the same proportion to the aggregate principal amount of all Redeemed Notes as the aggregate principal amount of definitive Notes outstanding bears to the aggregate principal amount of all Notes outstanding, in each case on the Selection Date, provided that such first mentioned principal amount shall, if necessary, be rounded downwards to the nearest integral multiple of the Specified Denomination, and the aggregate principal amount of Redeemed Notes represented by a global Note shall be equal to the balance of the Redeemed Notes. No exchange of the relevant global Note will be permitted during the period from and including the Selection Date to and including the date fixed for redemption pursuant to this sub-paragraph (c) and notice to that effect shall be given by the Republic to the Holders in accordance with Condition 14 at least five days prior to the Selection Date.

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(d) Redemption at the Option of the Holders

If the Holders of Notes are specified in the applicable Pricing Supplement as having an option to redeem, upon the Holder of any Note giving to the Republic, in accordance with Condition 14, not less than 30 nor more than 60 days' irrevocable notice or such other period of notice as is specified in the applicable Pricing Supplement, the Republic will, upon the expiry of such notice, redeem, subject to, and in accordance with, the terms specified in the applicable Pricing Supplement, in whole (but not in part), such Note on the Optional Redemption Date and at the Optional Redemption Amount specified in, or determined in the manner specified in, the applicable Pricing Supplement together, if appropriate, with interest accrued to (but excluding) the Optional Redemption Date. If the Holders of Notes are not specified in the applicable Pricing Supplement as having an option to redeem then such Holders of Notes shall not have any option to redeem such Notes as described in this subparagraph (d).

To exercise the right to require redemption of a Note, the Holder of such Note must deliver a duly signed and completed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent, Transfer Agent or the Registrar (a "Put Notice") accompanied by, if the Note is in definitive form, the definitive Note, to the specified office of any Paying Agent, in the case of Bearer Notes, or of any Transfer Agent or the Registrar, in the case of Registered Notes, at any time within the notice period during normal business hours of such Paying Agent, Transfer Agent or the Registrar. In the Put Notice, the holder must specify a bank account (or, if payment is by cheque, an address) to which payment is to be made under this Condition.

(e) Early Redemption Amounts

For the purpose of Condition 10, the Notes will be redeemed at the Early Redemption Amount calculated as follows:

(i) in the case of Notes with a Final Redemption Amount equal to the Issue Price, at the Final Redemption Amount thereof; or

(ii) in the case of Notes with a Final Redemption Amount which is or may be less or greater than the Issue Price or which is payable in a Specified Currency other than that in which the Notes are denominated, at the amount specified in, or determined in the manner specified in, the applicable Pricing Supplement or, if no such amount or manner is so specified in the Pricing Supplement, at their principal amount.

(f) Purchases

(i) Purchase of Notes by the Republic The Republic may at any time purchase Notes in any manner and at any price (provided that, in the case of Bearer Notes in definitive form, these are purchased together with all unmatured Receipts and Coupons appertaining thereto), subject to all applicable laws. If purchases are made by tender, tenders must be available to all Holders alike.

(ii) Treatment of Notes purchased by or for the Republic All Notes which are purchased by or on behalf of the Republic may, if the Republic so elects, be cancelled. Any Notes so cancelled may not be reissued or resold. The Notes so purchased, while held by or for the account of the Republic, shall not entitle their Holder to vote at any meeting of the Holders of Notes of any Series and shall not be deemed outstanding for the purpose of calculating the quorum at a meeting of the Holders of Notes of any Series or for the purposes of Conditions 10 and 15.

(g) Cancellation

All Notes which are redeemed will forthwith be cancelled (together with all unmatured Receipts and Coupons attached thereto or surrendered therewith at the time of redemption). All Notes so cancelled and the Notes purchased and cancelled pursuant to paragraph (f) above (together with all unmatured Receipts and Coupons cancelled therewith) shall be forwarded to the Fiscal Agent (which shall notify the Registrar of such cancelled Notes in the case of Registered Notes) and cannot be reissued or resold.

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(h) Obligation to Redeem

Upon the expiry of any notice as is referred to in paragraph (b) or (c) above, the Republic shall be bound to redeem the Notes to which the notice referred at the relevant redemption price applicable at the date of such redemption together with, if appropriate, interest accrued to (but excluding) the relevant redemption date.

8. Taxation

All payments of principal and interest in respect of the Notes, Receipts and Coupons by the Republic shall be made without withholding or deduction for, or on account of, any present or future taxes, duties assessments or governmental charges of whatsoever nature imposed or levied by or on behalf of the Republic, or any political subdivision of, or any authority therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments of other governmental charges is required by law. In such event, the Republic will pay such additional amounts (" Additional Amounts") as may be necessary in order that the net amounts received by the Holders of the Notes, Receipts or Coupons after such withholding or deduction shall equal the respective amounts of principal and interest which would otherwise have been receivable in respect of the Notes, Receipts or Coupons, as the case may be, in the absence of such withholding or deduction, except that no such Additional Amounts shall be payable with respect to any Note, Receipt or Coupon presented for payment:

(i) by, or to a third party on behalf of, a Holder of a Note, Receipt or Coupon who is liable for such taxes or duties in respect of such Note, Receipt or Coupon by reason of his having some connection with the Republic other than the mere holding of such Note, Receipt or Coupon; or

(ii) more than 30 days after the Relevant Date except to the extent that the Holder of a Note, Receipt or Coupon would have been entitled to such Additional Amounts on duly presenting the same for payment on such thirtieth day; or

(iii) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26-27 November 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive; or

(iv) presented for payment by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by presenting the relevant Note, Receipt or Coupon to another Paying Agent in a Member State of the European Union.

As used herein, the "Relevant Date" means the date on which such payment first becomes due, except that, if the full amount payable has not been duly received by the Fiscal Agent or, as the case may be, the Registrar, on or prior to such due date, it means the date on which notice is given to the Holders, in accordance with Condition 14 that the full amount has been received.

9. Prescription

The Notes, Receipts and Coupons will become void unless presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) after the Relevant Date (as defined in Condition 8) therefor.

There shall not be included in any Coupon sheet issued on exchange of a Talon any Coupon the claim for payment in respect of which would be void pursuant to this Condition or Condition 6(b) or any Talon which would be void pursuant to Condition 6(b).

10. Events of Default

If any of the following events shall have occurred and be continuing (an "Event of Default"), the Holder of any Note then outstanding may, by written notice given to the Republic at the specified office of the

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Fiscal Agent, declare such Note to be due and payable and such Note shall accordingly become immediately repayable, together with accrued interest:

(i) the Republic defaults in the payment of any principal due and payable on or in respect of the Notes in the relevant Series for more than seven days; or

(ii) the Republic defaults in the payment of any interest due and payable on or in respect of the Notes in the relevant Series for more than 30 days; or

(iii) the Republic defaults in the due performance and observance of any other provision contained in the Notes in the relevant Series and such default (if capable of remedy) is not remedied for 30 days after written notice thereof shall have been given to the Republic at the specified office of the Fiscal Agent; or

(iv) there occurs any default by the Republic in the due and punctual payment of the principal of, or premium or prepayment charge, if any, or interest on, any Public External Indebtedness of or assumed or guaranteed by the Republic having an aggregate principal amount in excess of U.S. $20,000,000 (or its equivalent in any other currency or currencies) when and as the same shall become due and payable, and such default shall continue for more than the original period of grace, if any, applicable thereto, unless such payment is being contested in good faith by the Republic (the term "original period of grace" as used herein meaning that grace period fixed by the terms of the agreement or instrument under which such indebtedness was created, but specifically not including any extension in the time permitted for such payment or any waiver or delay in the requirement for such payment which has been separately agreed to between the obligor and obligee); or

(v) there occurs any default giving the creditor the right to demand repayment (other than a default in payment) in respect of any Public External Indebtedness of or assumed or guaranteed by the Republic having an aggregate principal amount in excess of U.S. $20,000,000 (or its equivalent in any other currency or currencies) and repayment is demanded, provided that such default continues for more than the original period of grace, if any, applicable thereto and that such repayment is not being contested in good faith by the Republic; or

(vi) the Republic enters into any arrangement with its creditors generally for the rescheduling or postponement of its debts or declares or imposes a moratorium on the payment of Indebtedness of or assumed or guaranteed by it.

No delay or omission of any Holder or any party to the Fiscal Agency Agreement to exercise any right or remedy accruing upon any Event of Default or otherwise shall impair any such right or remedy or constitute a waiver of any such Event of Default or any other breach of obligations under the Fiscal Agency Agreement or any acquiescence therein.

11. Replacement of Notes, Receipts and Coupons

Should any Note, Receipt or Coupon be lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Fiscal Agent or the Paying Agent in Luxembourg (in the case of Bearer Notes, Receipts and Coupons) or of the Registrar (in the case of Registered Notes), subject to all applicable laws and stock exchange requirements, upon payment by the claimant of such costs, expenses, taxes and duties as may be incurred in connection therewith and on such terms as to evidence, indemnity and security as the Republic may reasonably require. Mutilated or defaced Notes, Receipts or Coupons must be surrendered before replacements will be issued.

12. Fiscal Agent, Registrar, Exchange Agent, Paying and Transfer Agents

The names of the initial Fiscal Agent, the initial Paying Agents, the initial Exchange Agent, the initial Registrar and the other initial Transfer Agents and their initial specified offices are set forth in the Fiscal Agency Agreement. The Republic is, upon prior notice to the Fiscal Agent, entitled to vary or terminate the appointment of any Paying Agent, the Exchange Agent, Registrar or Transfer Agent

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and/or appoint additional or other Paying Agents, Exchange Agents, Registrars or Transfer Agents and/or approve any change in the specified office through which any Paying Agent, Exchange Agent, Registrar or Transfer Agent acts, provided that:

(i) so long as the Notes are listed on any stock exchange, there will at all times be a Paying Agent and, if appropriate, a Registrar and Transfer Agent with a specified office in such place as may be required by the rules and regulations of the relevant stock exchange;

(ii) there will at all times be a Paying Agent and a Transfer Agent with a specified office in a city in continental Europe (which shall be Luxembourg, so long as the Notes are listed on the Luxembourg Stock Exchange);

(iii) there will at all times be a Registrar and a Transfer Agent with a specified office in New York City;

(iv) so long as any of the Registered Global Notes payable in a Specified Currency other than U.S. Dollars are held through DTC or its nominee, there will at all times be an Exchange Agent with a specified office in New York City; and

(v) there will at all times be a Fiscal Agent.

The Republic shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in the second paragraph of Condition 6(b). In addition, in the event of any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26-27 November, 2000 being adopted, the Republic will appoint and maintain a Paying Agent in a Member State of the European Union that will not be obligated to withhold or deduct tax pursuant to such Directive. Any variation, termination, appointment or change shall only take effect (other than in the case of insolvency, when it shall be of immediate effect) after not less than 30 nor more than 45 days' prior notice thereof shall have been given to the Holders in accordance with Condition 14.

In acting under the Fiscal Agency Agreement, the Fiscal Agent, the Exchange Agent, the Registrar, the Paying Agents and the Transfer Agents act solely as agents of the Republic and, in certain limited circumstances, of the Fiscal Agent and do not assume any obligation or trust for or with any Holders.

13. Exchange of Talons

On and after the Fixed Interest Date or the Interest Payment Date, as appropriate, on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of the Fiscal Agent or any Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to (and including) the final date for the payment of interest due in respect of the Bearer Note to which it appertains) a further Talon, subject to the provisions of Condition 9. Each Talon shall, for the purposes of these Terms and Conditions, be deemed to mature on the Fixed Interest Date or the Interest Payment Date (as the case may be) on which the final Coupon comprised in the relative Coupon sheet matures.

14. Notices

(a) Publication of Notices

All notices shall be published in the Financial Times in London and, in the case of Notes listed on the Luxembourg Stock Exchange and the rules of such stock exchange so require, the Luxemburger Wort in Luxembourg. The Republic shall also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange on which the Notes are for the time being listed. Any such notice will be deemed to have been given on the date of the first publication in one or both such newspapers (as applicable).

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(b) Notices through Clearing Agents

Except in the case of Notes listed on the Luxembourg Stock Exchange (in which instance notice shall be given as provided in Condition 14(a)), until such time as any Notes in definitive form are issued (provided that, in the case of Notes listed on a stock exchange, the rules of the stock exchange allow) and so long as the Note(s) in global form is or are held in its/their entirety on behalf of DTC, Euroclear or Clearstream, Luxembourg, there may be substituted for such publication in such newspaper(s) the delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg for communication by them to the Holders in each case on the business day immediately before the preceding interest payment date.

(c) Notices to Holders of Registered Notes and Registered Definitive Notes

Notices to Holders of Definitive Notes in registered form will be deemed to be validly given if sent by first class mail (or the equivalent) or (if posted to an overseas address) by airmail to the Holders of those Notes at their respective addresses as recorded in the Register for those Notes, and will be deemed to have been validly given on the fourth day after the date of mailing as provided above or, if posted from a country other than that of the addressee, on the fifth day after the date of such mailing.

Holders of Receipts and Coupons will be deemed for all purposes to have notice of the contents of any notice given to Holders of Definitive Notes in registered form in accordance with this Condition.

Notices to Holders of Registered Notes, whether in global or definitive form, will also be deemed to be validly given if delivered to the registered owner thereof.

Notwithstanding the foregoing, notices to Holders of Registered Notes, whether in global or definitive form, shall also be given by publication in accordance with the provisions of Condition 14(a).

(d) Effect of Certain Notices

Neither the failure to give notice nor any defect in any notice given to any particular Holder of a Note shall affect the sufficiency of any notice with reference to other Holders.

(e) Notices to the Republic and Any Agent

Except as otherwise expressly provided herein, any request, demand, authorization, direction, notice, consent, election, waiver or other act of Holders of Notes or any delivery of other documents provided or permitted by the Fiscal Agency Agreement to be made upon, given or furnished to, or filed by any Holder of Notes with,

(i) the Fiscal Agent shall be sufficient for every purpose hereunder and under the Fiscal Agency Agreement if made, given, furnished or filed in writing to the Fiscal Agent at its office specified herein or pursuant to the Fiscal Agency Agreement to the attention of the Corporate Trust Agency Group, or

(ii) the Republic shall be sufficient for every purpose hereunder and under the Fiscal Agency Agreement (unless otherwise herein or therein expressly provided) if made, given, furnished or filed in writing to or with the Republic at the address specified on the signature pages of the Fiscal Agency Agreement, or at any other address previously furnished in writing to the Fiscal Agent by the Republic.

Any such notice by a Holder of Notes may be furnished or filed by any standard form of telecommunications, including telecopier, telex or telegram so long as such notice is confirmed in writing by the Holder of Notes or its agent and delivered promptly by airmail to the Fiscal Agent or the Republic, as the case may be or, so long as the Notes are represented by Global Notes, through the relevant Clearing Agent's internal communication system utilized for communication with its respective member organizations to the Principal Paying Agent via DTC, Euroclear or Clearstream, Luxembourg, in such manner as the Principal Paying Agent and DTC, Euroclear or Clearstream, Luxembourg, as the case may be, may approve for this purpose. The Republic or the Fiscal Agent, as

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the case may be, may require any Holder of Notes giving notice to furnish proof of its holding of Notes.

15. Meetings of Holders, Modification and Waiver

(a) The Fiscal Agency Agreement contains provisions for convening meetings of Holders of Notes of any Series to consider any matter affecting their interests, including the modification of these Conditions or the provisions of the Fiscal Agency Agreement, provided that no modification of the Conditions or the Fiscal Agency Agreement may be made without the consent or affirmative vote (by person or by proxy) of persons holding or representing no less than 75 per cent. in aggregate principal amount of Notes then represented at the relevant meeting of Holders of Notes of such Series which would (i) change the due date for any amount payable by the Republic under the Notes of such Series; (ii) reduce or cancel any portion of the principal amount of the Notes or the amount of interest or any other amount payable under the Notes or modify the rate of interest on the Notes of such Series; (iii) modify the currency of payment under the Notes of such Series; (iv) change the identity of any person obligated under the Notes of such Series or the release, in whole or in part, of any such person; or (v) modify the provisions of the Conditions or the Fiscal Agency Agreement relating to the quorum required at any meeting of Holders of Notes of such Series or the percentage of Holders of Notes of such Series required to pass any resolution or otherwise modify the provisions summarized in this paragraph. A resolution duly passed in accordance with the provisions of the Fiscal Agency Agreement at any meeting of Holders of Notes of such Series will be binding on all Holders of Notes of such Series, whether or not they are present at the meeting and whether or note they vote in favor.

(b) The Republic, without the consent of the Holders of Notes of any Series, may make any modification to any of these Conditions or any of the provisions of the Fiscal Agency Agreement which in its opinion is for any of the following purposes:

(i) to add to the covenants of the Republic for the benefit of the Holders of the Notes of such Series or surrender any right or power conferred upon the Republic in the Fiscal Agency Agreement; or

(ii) to add any additional Events of Default; or

(iii) to evidence and provide for the acceptance of appointment under the Fiscal Agency Agreement by a successor Fiscal Agent or other Agent and to add to or change any of the provisions of the Fiscal Agency Agreement as shall be necessary to provide for or facilitate the administration of the Fiscal Agency Agreement; or

(iv) to cure any ambiguity or to correct or supplement any provision herein or in the Fiscal Agency Agreement that may be inconsistent with any other provision herein or therein or that is otherwise defective or to make any other provision with respect to matters or questions arising under the Fiscal Agency Agreement as the Republic may deem necessary or desirable, provided that such action pursuant to this clause (iv) shall not adversely affect the interest of the Holder of Notes of such Series in any material respect; or

(v) to make any other change that does not adversely affect the rights of any Holder of such Series.

(c) Any such modification shall be binding on the Holders of Notes of such Series and shall be notified to the Holders of Notes of such Series by the Republic in accordance with Condition 14 as soon as practicable.

(d) The Fiscal Agency Agreement also provides that certain modifications to the Fiscal Agency Agreement may not be made without the consent of the Agents.

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16. Further Issues

The Republic shall be at liberty from time to time without the consent of the Holders of Notes, Receipts or Coupons to create and issue further notes having terms and conditions the same as the Notes or the same in all respects save for the issue date, issue price and the amount and date of the first payment of interest thereon and so that the same shall be consolidated and form a single Series with the outstanding Notes.

17. Enforcement

So long as the Notes in a Series are represented by one or more Registered Global Notes, if an Event of Default shall have occurred and be continuing, each Holder of an interest in a Registered Global Note (as evidenced by the records of accounts with Euroclear or Clearstream, Luxembourg or, if applicable, DTC) may, after notice to the registered owner of the relevant Registered Global Note, but without the consent of that registered owner, and without joining that registered owner, file any claim, take any action or institute any proceedings to enforce directly against the Republic, or otherwise in respect of the Republic's obligations in respect of the Notes relating to that Holder's interest in the relevant Registered Global Note, as it appears on the date the proceedings are commenced in the book-entry settlement system of the relevant Clearing System, without need to produce such Registered Global Note, provided that the registered owner thereof has not theretofore filed a claim, taken action or instituted proceedings to enforce those obligations. Subject to the foregoing, if any Event of Default occurs and is continuing in respect of any Notes owned by a particular Holder (irrespective of the form thereof), such Holder may in its own name institute judicial proceedings for the collection of the sums due to such Holder and unpaid in respect of the Notes owned by it, may prosecute such proceedings to judgment or final decree and may enforce the same against the Republic or any other obligor upon such Notes and collect the property adjudged or decreed to be payable in the manner provided by law. In any event, the aggregate principal amount of a Global Note shall be reduced by the principal amount of each Note represented thereby in respect of which the Republic's obligations have been discharged as a result of any such claim, action or proceedings brought by the Holder of such an interest, or final settlement in respect thereof, and any Definitive Note so discharged shall be cancelled.

18. Indemnification of the Fiscal Agent and Other Agents

The Fiscal Agency Agreement contains provisions for the indemnification of the Fiscal Agent and the other Agents and for their relief from responsibility, including provisions relieving them from taking action unless indemnified to their satisfaction. The Fiscal Agent and each other Agent is entitled to enter into business transactions with the Republic without accounting for any profit. The Fiscal Agent and the other Agents are agents of the Republic and none of them is a trustee or fiduciary for any of the Holders of the Notes.

19. Governing Law and Submission to Jurisdiction

The Fiscal Agency Agreement and the Notes shall be construed and interpreted in accordance with the law of the State of New York, which shall govern them and any controversy or claim arising out of or relating to any of them, without reference to conflicts of laws principles. The Republic irrevocably agrees for the benefit of each Holder of Notes that the courts of the State of New York and of the United States sitting in The City of New York, Borough of Manhattan, shall have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Fiscal Agency Agreement or the Notes and that, accordingly, any suit, action or proceedings arising out of or in connection therewith (together referred to as "Proceedings") may be brought in any such courts. Proceedings may also be brought in the courts of the Republic. The Republic irrevocably submits to the jurisdiction of the courts referred to in this Condition for purposes of any Proceedings.

To the extent that the Republic may in any jurisdiction claim or acquire for itself or its assets immunity (sovereign or otherwise) from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process (whether through service or notice or otherwise), the Republic irrevocably agrees for the benefit of the Holders of Notes not to claim, and irrevocably waives, such immunity, to the fullest extent permitted by the laws of such jurisdiction. The waiver of immunity in this paragraph shall have the fullest scope permitted under the Foreign Sovereign Immunities Act of 1976 of the United States and is intended to be irrevocable for purposes of such Act but shall otherwise

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constitute a limited and specific waiver for the purpose of the Fiscal Agency Agreement and the Notes and under no circumstances shall it be interpreted as a general waiver by the Republic or a waiver of immunity in respect of property that is used solely or principally for official purposes (such as ambassadorial and consular real property and buildings and the contents thereof, or any bank accounts of embassies or consulates to the extent of monies maintained therein for ambassadorial, consular or other official purposes, but not commercial purposes, in each case necessary for the proper official, ambassadorial or consular functioning of the Republic).

The Republic irrevocably appoints the person who from time to time is the Consul of the Republic in The City of New York as it agent in the United States to receive service of process in any Proceedings in The City of New York based on or in connection with the Fiscal Agency Agreement or any of the Notes.

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USE OF PROCEEDS

The Republic will use the net proceeds from the sale of Notes in a Tranche or Series offered pursuant to the Program in such manner and for such purposes, in accordance with Lebanese law, as specified in the applicable Pricing Supplement for such Tranche or Series.

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FORMS OF THE NOTES

The Notes of each Series will be in bearer or in registered form.

Unless otherwise provided with respect to a particular Series of Registered Notes, Registered Notes of each Tranche of such Series sold outside the United States in reliance on Regulation S will be represented by a permanent global note in registered form, without interest coupons (a "Regulation S Global Note"), deposited with a custodian for, and registered in the name of a nominee of DTC for the accounts of Euroclear and Clearstream, Luxembourg. With respect to all offers or sales by a Dealer of an unsold allotment or subscription and in any case prior to expiry of the period that ends 40 days after the later of the date of issue and completion of the distribution of each Tranche of Notes, as certified by the relevant Dealer, in the case of a non-syndicated issue, or the Lead Manager, in the case of a syndicated issue (the "Distribution Compliance Period"), beneficial interests in a Regulation S Global Note may not be offered or sold to, or for the account or benefit of, a U.S. person (save as otherwise provided in Condition 2) and may be held only through Euroclear and Clearstream, Luxembourg.

Registered Notes of each Tranche sold in private transactions to QIBs pursuant to Rule 144A will be represented by a restricted permanent global note in registered form, without interest coupons (a "Restricted Global Note" and, together with a Regulation S Global Note, "Registered Global Notes"), deposited with a custodian for, and registered in the name of a nominee of DTC.

Registered Notes of each Tranche sold to Institutional Accredited Investors will be in definitive form, registered in the name of the holder thereof. Definitive Registered Notes will, at the request of the holder (save to the extent otherwise indicated in the applicable Pricing Supplement), be issued in exchange for interests in a Registered Global Note upon compliance with the procedures for exchange as described in "Forms of the Notes" below.

Each Tranche of Bearer Notes will initially be represented either by a temporary global Note (a "Temporary Global Note") or a permanent global note (a "Permanent Global Note") which will be deposited on the issue date thereof with a common depositary on behalf of Euroclear and/or Clearstream, Luxembourg. Beneficial interests in a Temporary Global Note will be exchangeable for either beneficial interests in a Permanent Global Note or definitive Bearer Notes upon certification as to non-U.S. beneficial ownership as required by U.S. Treasury regulations as specified in the applicable Pricing Supplement. Each Permanent Global Note may be exchanged for definitive Bearer Notes (save to the extent otherwise indicated in the applicable Pricing Supplement) only in the limited circumstances described in the Permanent Global Note and herein, in each case in accordance with the procedure described in "Terms and Conditions of the Notes." For further details of clearing and settlement of the Notes issued under the Program see "Book-Entry Clearance Systems" below.

Unless otherwise provided with respect to a particular Series of Registered Notes, the Registered Notes of each Tranche of such Series offered and sold in reliance on Regulation S, which will be sold to non- U.S. persons outside the United States, will initially be represented by a registered Regulation S Global Note without interest coupons, which will be deposited with a custodian for, and registered in the name of a nominee of, DTC for the accounts of Euroclear and Clearstream, Luxembourg. With respect to all offers or sales by a Dealer of an unsold allotment or subscription and in any case prior to expiry of the Distribution Compliance Period applicable to each Tranche of Notes, beneficial interests in a Regulation S Global Note may not be offered or sold to, or for the account or benefit of, a U.S. person (save as otherwise provided in Condition 2) and may not be held otherwise than through Euroclear or Clearstream, Luxembourg and such Regulation S Global Note will bear a legend regarding such restrictions on transfer. Regulation S Global Notes will be exchangeable for Definitive Registered Notes only in the limited circumstances as more fully described herein.

Registered Notes of each Tranche may only be offered and sold in the United States or to U.S. persons in private transactions: (i) to QIBs or (ii) to Institutional Accredited Investors who agree to purchase the Notes for their own account and not with a view to the distribution thereof. The Registered Notes of each Tranche sold to QIBs will be represented by a Restricted Global Note which will be deposited with a custodian for, and registered in the name of a nominee of, DTC.

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Persons holding beneficial interests in Registered Global Notes will be entitled or required, as the case may be, under the circumstances described in Condition 2, to receive physical delivery of Definitive Registered Notes.

The Registered Notes of each Tranche sold to Institutional Accredited Investors will be in definitive form, registered in the name of the holder thereof. Such Definitive Registered Notes issued to Institutional Accredited Investors and any Restricted Global Notes will be subject to certain restrictions on transfer set forth therein and will bear a legend regarding such restrictions.

While any Bearer Note is represented by a Temporary Global Note, payments of principal and interest (if any) due prior to the expiry of the Distribution Compliance Period will be made against presentation of the Temporary Global Note only to the extent that certification (in a form to be provided) to the effect that the beneficial owner of such Note is not a U.S. person or a person who has purchased for resale to any U.S. person, as required by U.S. Treasury regulations, has been received by Euroclear and/or Clearstream, Luxembourg and/or any other such depositary, as applicable and such clearing agent or depositary, as the case may be, has given a like certification (based on the certifications it has received) to the Fiscal Agent.

On the expiry of the Distribution Compliance Period, interests in such Temporary Global Note will be exchangeable (free of charge) upon a request as described therein either for interests in a Permanent Global Note without receipts, interest coupons or talons or for definitive Bearer Notes with, where applicable, receipts or interest coupons attached (as indicated in the applicable Pricing Supplement and subject, in the case of definitive Bearer Notes, to such notice period as is specified in the applicable Pricing Supplement) in each case against certification of beneficial ownership as described in the immediately preceding paragraph unless such certification has already been given. The holder of a Temporary Global Note will not be entitled to collect any payment of interest or principal due on or after the Exchange Date.

Pursuant to the Fiscal Agency Agreement (as defined under "Terms and Conditions of the Notes" below) the Fiscal Agent shall arrange that, where a further Tranche of Notes is issued, the Notes of such Tranche shall be assigned (where applicable) a CUSIP number, and, in the case of Bearer Notes and Regulation S Global Notes, a CINS number, a common code and ISIN which are different from the CUSIP number, CINS number, common code and ISIN assigned to Notes of any other Tranche of the same Series until the end of the Distribution Compliance Period. At the end of the Distribution Compliance Period, the CUSIP number, CINS number, common code and ISIN, as the case may be, thereafter applicable to the Notes of the relevant Series will be notified by the Fiscal Agent to the relevant Dealer.

All Notes will be issued pursuant to the Fiscal Agency Agreement.

No beneficial owner of an interest in a Registered Global Note will be able to exchange or transfer that interest, except in accordance with the applicable procedures of DTC, Euroclear and Clearstream, Luxembourg, in each case, to the extent applicable.

The following legend will appear on all global Bearer Notes, definitive Bearer Notes, receipts, interest coupons and talons (or in the book or record where the Bearer Notes are held in book-entry form):

"Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code."

Sections 165(j) and 1287(a) of the U.S. Internal Revenue Code of 1986, as amended, provide that United States holders, with certain exceptions, will not be entitled to deduct any loss on Bearer Notes, receipts or interest coupons and will not be entitled to capital gains treatment of any gain on any sale, disposition, redemption or payment of principal in respect of Bearer Notes, receipts or interest coupons.

The Pricing Supplement applicable to each Tranche of Notes will contain such of the following information as is applicable in respect of such Notes set out in "Annex A—Form of the Pricing Supplement."

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BOOK-ENTRY CLEARANCE SYSTEMS

The information set- out below is subject to any change in or reinterpretation of the rules, regulations and procedures of DTC, Euroclear, Clearstream, Luxembourg and MIDCLEAR (together, the "Clearing Systems") currently in effect. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules, regulations and procedures of the relevant Clearing System. None of the Republic, the Fiscal Agent or any agent party to the Fiscal Agency Agreement will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Notes held through the facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

DTC

DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the United States Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities among its participants and to facilitate the clearance and settlement of securities transactions among participants in such securities through electronic book- entry changes in accounts of the participants, thereby eliminating the need for physical movement of security certificates. Participants include securities brokers and dealers, banks, trust companies and certain other organizations. DTC is owned by a number of its participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Indirect access to DTC is available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC participant either directly or indirectly.

DTC will take any action permitted to be taken by the holder of a beneficial interest in a Registered Global Note (including, without limitation, the presentation of a Registered Global Note for exchange as described above) only at the direction of one or more participants to whose account with DTC interests in such Registered Global Note are credited and only in respect of such portion of the aggregate principal amount of Notes in respect of which such participant or participants has or have given such direction. If an Event of Default under the Notes occurs, DTC will exchange the Registered Global Notes for Definitive Registered Notes, Legended as appropriate, which it will distribute to the relevant participants.

Euroclear and Clearstream, Luxembourg

Euroclear and Clearstream, Luxembourg have advised the Republic as follows:

Each of Euroclear and Clearstream, Luxembourg holds securities for their account holders and facilitates the clearance and settlement of securities transactions by electronic book-entry transfer between their respective account holders, thereby eliminating the need for physical movements of certificates and any risks from lack of simultaneous transfers of securities.

Euroclear and Clearstream, Luxembourg each provides various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg each also deals with domestic securities markets in several countries through established depository and custodial relationships. The respective systems of Euroclear and Clearstream, Luxembourg have established and electronic bridge between their two systems which enables their respective account holders to settle trades with each other.

Account holders in Euroclear and Clearstream, Luxembourg are world-wide financial institutions including underwriters, securities brokers, and dealers, banks, trust companies and clearing corporations. Indirect access to both Euroclear and Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship with an account holder of either system.

An account holder's overall contractual relations with either Euroclear or Clearstream, Luxembourg are governed by the respective rules and operating procedures of Euroclear or Clearstream, Luxembourg

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and any applicable laws. Both Euroclear and Clearstream, Luxembourg act under those rules and operating procedures only on behalf of their respective account holders, and have no record of or relationship with persons holding through their respective holders.

MIDCLEAR

MIDCLEAR has advised the Republic as follows:

MIDCLEAR is a joint stock company organized under the laws of Lebanon. MIDCLEAR is 99 per cent. owned by Banque du Liban. MIDCLEAR acts as the central depositary and clearing house in Lebanon. MIDCLEAR was created to hold securities for its participants ("MIDCLEAR Participants") and to facilitate clearance and settlement of securities transactions between MIDCLEAR Participants. The clearing bank for MIDCLEAR is Banque du Liban, which operates a multi-currency payment system.

MIDCLEAR Participants may trade Notes as follows:

Secondary market trading between MIDCLEAR Participants will be settled using MIDCLEAR's standard procedures.

MIDCLEAR Participants may effect secondary market purchases of Notes from participants in Euroclear or Clearstream, Luxembourg by using the Euroclear and Clearstream, Luxembourg procedures applicable to conventional eurobonds and specifying that the Notes being purchased must be credited, free of payment, or (provided the MIDCLEAR Participant has made sufficient funds available to MIDCLEAR prior to the relevant settlement date) against payment, to MIDCLEAR's Clearstream, Luxembourg account number 80285. Credit of the relevant Notes to the relevant MIDCLEAR Participants will take place no later than one Business Day in Lebanon and the place of each relevant Clearing System after confirmation to MIDCLEAR that its Clearstream, Luxembourg account has been credited with those Notes.

Book-Entry Ownership of Registered Global Notes

The Republic will make application to DTC for acceptance in its book-entry settlement system of each Tranche of Notes represented by a Regulation S Global Note and/or a Restricted Global Note, respectively.

The custodian with whom the Registered Global Notes are deposited (the "Custodian") and DTC will electronically record the principal amount of the Notes represented by the Regulation S Global Note and the Restricted Global Note, as the case may be, held within the DTC system. Prior to expiry of the Distribution Compliance Period applicable to each Tranche of Notes, investors may hold their interests in the Regulation S Global Note only through Clearstream, Luxembourg or Euroclear. Thereafter, investors may additionally hold such interests directly through DTC if they are participants in such system, or indirectly through organizations which are participants in DTC. Clearstream, Luxembourg and Euroclear will hold interests in the Regulation S Global Note on behalf of their account holders through customers' securities accounts in Clearstream, Luxembourg's or Euroclear's respective names on the books of their respective depositories, which in turn will hold such interests in the Regulation S Global Note in customers' securities accounts in the depositories' names on the books of DTC. Investors may hold their interests in the Restricted Global Note directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system.

Payments of principal and interest in respect of Registered Global Notes registered in the name of DTC's nominee, will be to or to the order of its nominee as the registered holder of such Registered Global Note. The Republic expects that the nominee will, upon receipt of any such payment, immediately credit DTC participants' accounts with any such payments denominated in U.S. Dollars in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Registered Global Note as shown on the records of DTC or its nominee. In the case of any such payments which are denominated otherwise than in U.S. Dollars payment of such amounts will be made to the Exchange Agent on behalf of the nominee who will make payment of all or part of the amount to the beneficial holders of interests in such Registered Global Note directly, in the currency in which such payment was made and/or cause all or part of such payment to be converted into U.S.

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Dollars and credited to the relevant participant's DTC account as aforesaid, in accordance with instructions received from DTC. The Republic also expects that payments by DTC participants to owners of beneficial interests in such Registered Global Note held through such DTC participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such DTC participants. Neither the Republic nor any agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in the Registered Global Notes or for maintaining, supervising or reviewing any records relating to such ownership interests.

Transfers of Notes represented by Registered Global Notes

Transfers of interests in Registered Global Notes within DTC, Euroclear and Clearstream, Luxembourg will be in accordance with the usual rules and operating procedures of the relevant system. The laws in some states in the United States require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer a beneficial interest in a Registered Global Note to such persons may require that such interests be exchanged for Notes in definitive form. Because DTC can only act on behalf of participants in DTC, who in turn act on behalf of indirect participants, the ability of a person having an interest in a Registered Global Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest may require that such interests be exchanged for Definitive Registered Notes. The ability of the holder of a beneficial interest in any Registered Note represented by the Registered Global Notes to resell, pledge or otherwise transfer such interest may also be impaired if the proposed transferee of such interest is not eligible to hold the same through a participant or indirect participant in DTC.

Bearer Notes

Bearer Notes held outside the United States may be held in book-entry form through Clearstream, Luxembourg or Euroclear. Clearstream, Luxembourg and Euroclear will operate with respect to the Notes in accordance with customary Euromarket practice.

Secondary Trading, Same-Day Settlement and Payment

All payments made by the Republic with respect to Registered Notes registered in the name of Cede & Co., as nominee for DTC, will be passed through to DTC in same-day funds. In relation to secondary market trading, since the purchaser determines the place of delivery, it is important to establish at the time of the trade where both the purchaser's and seller's accounts are located to ensure that settlement can be made on the desired value date.

Trading Within Same Clearing System

The following describes the transfer mechanisms between DTC, Euroclear and Clearstream, Luxembourg. Holders should note that transfers of beneficial interests in the Restricted Global Note, or the Unrestricted Global Note during the first 40 days, is subject to limitations as set forth in "Notice to Investors."

Trading within DTC. If neither the seller, nor the purchaser of Registered Notes represented by any Registered Global Note holds or will receive (as the case may be) such Notes through a participant in DTC acting on behalf of Euroclear or Clearstream, Luxembourg, the trade will settle in same-day funds and in accordance with DTC rules, regulations and procedures.

Trading within Euroclear or Clearstream, Luxembourg. Transfers between account holders in Euroclear and Clearstream, Luxembourg will be effected in the ordinary way in accordance with their respective rules and operating procedures.

Trading Between Clearing Systems

Trading between Euroclear or Clearstream, Luxembourg seller and DTC purchaser involving only Registered Global Notes. Due to time zone differences in their favor, Euroclear and Clearstream, Luxembourg account holders may employ their customary procedures for transactions in which

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interests in a Registered Global Note are to be transferred by Euroclear or Clearstream, Luxembourg (as the case may be) to a participant in DTC. The seller will send instructions to Euroclear or Clearstream, Luxembourg through a Euroclear or Clearstream, Luxembourg account holder (as the case may be) at least one business day prior to settlement. In these cases, Euroclear or Clearstream, Luxembourg will instruct its respective depositary to deliver the interests in the Registered Global Note to the participant's account against payment. Payment will include interest (if any) accrued on such interests in the Note from and including the immediately preceding date for the payment of interest to and excluding the settlement date. The payment will then be reflected in the account of the Euroclear or Clearstream, Luxembourg account holder the following day, and receipt of cash proceeds in the Euroclear or Clearstream, Luxembourg account holders' account would be back-valued to the value date (which would be the preceding day when settlement occurred in New York). Should the Euroclear or Clearstream, Luxembourg account holder have a line of credit in its respective Clearing System and elect to be in debit in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft charges incurred over that one-day period. If settlement is not completed on the intended value date (i.e. the trade fails), receipt of the cash proceeds in the Euroclear or Clearstream, Luxembourg account holder's account would be valued instead as of the actual settlement date.

Trading between DTC seller and Euroclear or Clearstream, Luxembourg purchaser involving only Registered Global Notes. When interests in a Registered Global Note are to be transferred from the account of a participant to the account of a Euroclear or Clearstream, Luxembourg account holder, the purchaser will send instructions to Euroclear or Clearstream, Luxembourg through a Euroclear or Clearstream, Luxembourg account holder, as the case may be, at least one business day prior to settlement. Euroclear or Clearstream, Luxembourg, as the case may be, will instruct its respective depositary to receive such interests against payment. Payment will include interest (if any) accrued on such interest in the Registered Global Note from and including the immediately preceding date for the payment of interest to and excluding the settlement date. Payment will then be made by the depositary to the participant's account against delivery of the interests in the Note. After settlement has been completed, the interests will be credited to the respective Clearing System, and by the Clearing System, in accordance with its usual procedures, to the Euroclear or Clearstream, Luxembourg account holder's account. The securities credit will appear the next day (European time) and the cash debit will be back- valued to, and any interest on the Note will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e. the trade fails), the Euroclear or Clearstream, Luxembourg cash debit will be valued instead as of the actual settlement date.

Day traders that use Euroclear or Clearstream, Luxembourg to purchase interests in a Regulation S Global Note from participants for delivery to Euroclear or Clearstream, Luxembourg account holders should note that these trades would automatically fail on the sale side unless affirmative action were taken. At least three techniques should be readily available to eliminate this potential problem:

(i) borrowing through Euroclear or Clearstream, Luxembourg for one day (until the purchase side of the day trade is reflected in their Euroclear or Clearstream, Luxembourg accounts) in accordance with the Clearing System's customary procedures;

(ii) borrowing the interests in the United States from a participant no later than one day prior to settlement, which would give the interests sufficient time to be reflected in their Euroclear or Clearstream, Luxembourg account in order to settle the sale side of the trade; or

(iii) staggering the value date for the buy and sell sides of the trade so that the value date for the purchase from the participant is at least one day prior to the value date for the sale to the Euroclear or Clearstream, Luxembourg account holder.

Euroclear or Clearstream, Luxembourg account holders will need to make available to the respective Clearing System the funds necessary to process same-day funds settlement. The most direct means of doing so is to pre-position funds for settlement, either from cash on-hand or existing lines of credit, as such participants would for any settlement occurring within Euroclear or Clearstream, Luxembourg.

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Under this approach, such participants may take on credit exposure to Euroclear or Clearstream, Luxembourg until the interests in the Note are credited to their accounts one day later.

Alternatively, if Euroclear or Clearstream, Luxembourg has extended a line of credit to a Euroclear or Clearstream, Luxembourg account holder, as the case may be, such account holder may elect not to preposition funds and allow that credit line to be drawn upon to finance settlement. Under this procedure, Euroclear or Clearstream, Luxembourg account holders purchasing interests in the Note held in DTC would incur overdraft charges for one day, assuming they cleared the overdraft when the interests in the Note were credited to their accounts. However, any interest on the Note would accrue from the value date. Therefore, in many cases the investment income on the interests in the Note held in DTC earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although this result will depend on each account holder's particular cost of funds.

Since the settlement is taking place during New York business hours, participants can employ their usual procedures for transferring interests in global Notes to the respective depositories of Euroclear or Clearstream, Luxembourg for the benefit of Euroclear or Clearstream, Luxembourg account holders. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the participants, a crossmarket transaction will settle no differently from a trade between participants.

Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearinghouse or next-day funds. In contrast, Registered Notes held through participants or indirect participants will trade in DTC's Same-Day Funds Settlement System until the earliest of maturity or redemption, and secondary market trading activity in such Registered Notes will therefore be required by DTC to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlements in immediately available funds on trading activity in such Registered Notes.

Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of beneficial interests in the Registered Global Notes among participants and account holders of DTC, Clearstream, Luxembourg and Euroclear, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of the Republic, any agent or any Dealer will have the responsibility for the performance by DTC, Clearstream, Luxembourg or Euroclear or their respective direct or indirect participants or account holders of their respective obligations under the rules and procedures governing their operations.

While a Registered Global Note is lodged with DTC or its custodian, Notes represented by individual Definitive Notes will not be eligible for clearing or settlement through DTC, Clearstream, Luxembourg or Euroclear.

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SUMMARY OF PROVISIONS RELATING TO DEFINITIVE REGISTERED NOTES

Registered Notes of a Series that are initially offered and sold in the United States Pursuant to Section 4(2) of the Securities Act in private placement transactions exempt from registration under the Securities Act to Institutional Accredited Investors who execute and deliver to the Registrar an IAI Investment Letter substantially in the form attached to the Fiscal Agency Agreement will be issued only as Definitive Registered Notes, registered in the name of the purchaser thereof or its nominee. Unless otherwise set forth in the applicable Pricing Supplement, such Definitive Registered Notes will be issued only in minimum denominations of U.S. $250,000 and integral multiples of U.S. $1,000 in excess thereof (or the approximate equivalents in the applicable Specified Currency). Such Definitive Registered Notes issued to Institutional Accredited Investors will be subject to the restrictions on transfer set forth therein and in the Fiscal Agency Agreement and will bear the applicable legend regarding such restrictions set forth under "Notice to Purchasers and Holders of Restricted Notes and Transfer Restrictions" below. Institutional Accredited Investors that hold Definitive Registered Notes may not elect to hold such Notes through DTC, but transferees acquiring such Notes in transactions exempt from registration under the Securities Act pursuant to Rule 144A, Regulation S or Rule 144 under the Securities Act (if available) may take delivery thereof in the form of an interest in a Restricted Global Note or a Regulation S Global Note, as the case may be, representing Notes of the same Series.

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NOTICE TO PURCHASERS AND HOLDERS OF RESTRICTED NOTES AND TRANSFER RESTRICTIONS

As a result of the following restrictions, purchasers of Notes in the United States are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of such Notes.

Each prospective purchaser of Legended Notes, by accepting delivery of this Offering Circular, will be deemed to have represented and agreed that this Offering Circular is personal to such offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire Notes. Distribution of this Offering Circular, or disclosure of any of its contents to any person other than such offeree and those persons, if any, retained to advise such offeree with respect thereto is unauthorized, and any disclosure of any of its contents, without the prior written consent of the Republic, is prohibited.

Each purchaser of an interest in a Restricted Note offered and sold in reliance on Rule 144A will be deemed to have represented and agreed as follows (terms used in this paragraph that are not defined herein will have the meaning given to them in Rule 144A or in Regulation S as the case may be):

(a) The purchaser (i) is a QIB, (ii) is aware that the sale to it is being made in reliance on Rule 144A and (iii) is acquiring Notes for its own account or for the account of a QIB;

(b) The purchaser understands that such Restricted Note is being offered only in a transaction not involving any public offering in the United States within the meaning of the Securities Act, such Restricted Note has not been and will not be registered under the Securities Act or any other applicable state securities laws and may not be offered, sold or otherwise transferred unless registered pursuant to or exempt from registration under the Securities Act and any other applicable state securities laws; and that (i) if in the future the purchaser decides to offer, resell, pledge or otherwise transfer such Restricted Note, such Restricted Note may be offered, sold, pledged or otherwise transferred only (A) to a person who the seller reasonably believes is a QIB in a transaction meeting the requirements of Rule 144A, (B) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (C) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available) and in each of such cases in accordance with any applicable securities laws of any state of the United States or any other jurisdiction and that (ii) the purchaser will, and each subsequent holder of the Restricted Notes is required to, notify any purchaser of such Restricted Note from it of the resale restrictions referred to in (i) above and that (iii) no representation can be made as to the availability of the exemption provided by Rule 144 under the Securities Act for resale of Notes;

(c) Each Restricted Note will bear a legend to the following effect, in addition to such other legends as may be necessary or appropriate, unless the Republic determines otherwise in compliance with applicable law:

"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER, AND WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT"), AND UNDER THE APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF REPRESENTS AND AGREES FOR THE BENEFIT OF THE REPUBLIC AND THE DEALERS THAT (A), THIS NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF SUCH RULE 144A, (2) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH

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REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) AND IN EACH OF SUCH CASES IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION, AND THAT (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE TRANSFER RESTRICTIONS REFERRED TO IN (A) ABOVE. NO REPRESENTATION CAN BE MADE AS THE TO AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALE OF THIS NOTE."

Each Definitive Registered Note that is offered and sold in the United States to an Institutional Accredited Investor pursuant to Section 4(2) of the Securities Act or in a transaction otherwise exempt from registration under the Securities Act will bear a legend to the following effect, in addition to such other legends as may be necessary or appropriate, unless the Republic determines otherwise in compliance with applicable law:

"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER, AND WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER, THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, (THE "SECURITIES ACT"), AND UNDER THE APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE ACKNOWLEDGES FOR THE BENEFIT OF THE REPUBLIC AND THE DEALERS THE RESTRICTIONS ON THE TRANSFER OF THIS NOTE SET FORTH BELOW AND AGREES THAT IT SHALL TRANSFER THIS NOTE ONLY AS PROVIDED IN THE FISCAL AGENCY AGREEMENT ENTERED INTO BY THE REPUBLIC ON MARCH 8, 1999. THE PURCHASER REPRESENTS THAT IT IS ACQUIRING THIS NOTE FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO ANY RESALE OR DISTRIBUTION HEREOF, SUBJECT TO ITS ABILITY TO RESELL THIS NOTE PURSUANT TO RULE 144A OR REGULATION S OR AS OTHERWISE PROVIDED BELOW AND SUBJECT IN ANY CASE TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF THE PROPERTY OF ANY PURCHASER SHALL AT ALL TIMES BE AND REMAIN WITHIN ITS CONTROL. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.

THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, RESELL OR OTHERWISE TRANSFER SUCH NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE REPUBLIC OR ANY AFFILIATE OF THE REPUBLIC WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE) ONLY (A) TO THE REPUBLIC, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501 (a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF U.S. $250,000 AND MULTIPLES OF U.S. $1,000 IN EXCESS THEREOF FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO, OR FOR OFFER OR RESALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, (F) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF AVAILABLE) OR (G) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,

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SUBJECT TO THE REPUBLIC'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (E), (F) OR (G) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO THE REPUBLIC, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE FISCAL AGENT AND, IN EACH OF THE FOREGOING CASES, NOT IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE TRANSFER RESTRICTIONS REFERRED TO IN THIS PARAGRAPH. NO REPRESENTATION CAN BE MADE AS TO AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALE OF THIS NOTE.

IF REQUESTED BY THE REPUBLIC OR BY A DEALER, THE PURCHASER AGREES TO PROVIDE THE INFORMATION NECESSARY TO DETERMINE WHETHER THE TRANSFER OF THIS NOTE IS PERMISSIBLE UNDER THE SECURITIES ACT. THIS NOTE AND RELATED DOCUMENTATION MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON AND PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS NOTE TO REFLECT ANY CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR IN PRACTICES RELATING TO THE RESALES OR TRANSFERS OF RESTRICTED SECURITIES GENERALLY. BY THE ACCEPTANCE OF THIS NOTE, THE HOLDER HEREOF SHALL BE DEEMED TO HAVE AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT."

Each purchaser of Definitive Registered Notes will be required to deliver to the Republic and the Registrar an IAI Investment Letter substantially in the form prescribed in the Fiscal Agency Agreement. The Definitive Registered Notes in definitive form will be subject to the transfer restrictions set forth in the above legend, such letter and in the Fiscal Agency Agreement. Inquiries concerning transfers of Notes should be made to any Dealer.

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TAXATION

The following is a summary of certain Lebanese and U.S. federal income tax consequences resulting from the purchase, ownership and disposition of the Notes. This summary does not purport to consider all of the possible U.S. federal income or Lebanese tax consequences of the purchase, ownership and disposition of the Notes and is not intended to reflect the individual tax position of any beneficial owner. This summary is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change (perhaps with retroactive effect in the U.S.). It deals only with Notes held as capital assets by initial purchasers (unless otherwise specified) and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, tax exempt organizations, regulated investment companies, real estate investment trusts, grantor trusts, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, pass-through entities, individual retirement and other tax-deferred accounts, dealers in securities or currencies, persons that mark their securities to market, persons holding Notes as a hedge against currency risks, as a position in a "straddle" or as part of a conversion, integrated or constructive sale transaction for tax purposes, or persons whose functional currency (as defined in the U.S. Internal Revenue Code of 1986, as amended (the "Code")) is not the U.S. Dollar. Moreover, this summary does not address the gift, estate and alternative minimum tax consequences of the acquisition, ownership, disposition, and retirement of the Notes. The summary does not include any description of the tax laws of any state, local or foreign governments (other than Lebanon) that may be applicable to the Notes or the Holders thereof. The legal authorities on which this summary is based are subject to various interpretations, and no rulings have been or will be sought from any tax agency with respect to the matters described herein.

Persons considering the purchase of the Notes should consult their own tax advisors concerning the application of U. S. federal income and Lebanese tax laws to their particular situations as well as any consequences of the purchase, ownership and disposition of the Notes arising under the laws of any other taxing jurisdiction.

Any U.S. person holding Bearer Notes may be subject to limitations under the U.S. income tax laws, including limitations provided in sections 165(j) and 1287(a) of the Code. Any such person should consult with its tax advisors.

Lebanese Taxation

Income Tax. By virtue of Law No. 16/78 dated May 2, 1978, all payments made in respect of foreign currency loans (including the Notes) incurred by the Republic are, if made to any non-resident of Lebanon, exempt from Lebanese income tax.

Capital Gains Tax. No Lebanese tax will be payable in respect of any gain, whether realized or unrealized, made by a non-resident of Lebanon from any sale or other disposition of any Notes.

Inheritance Taxes. No Lebanese inheritance or similar tax will be payable by the holder of any Note who is a non-resident of Lebanon.

Stamp Duties. No stamp, registration or similar duties or taxes will be payable in the Republic by any nonresident of Lebanon in connection with its purchase of any of the Notes upon issue.

U.S. Taxation

The following summary is based on the advice of Dewey Ballantine LLP and describes certain of the principal U.S. federal income tax consequences resulting from the purchase, ownership and disposition of the Notes and is based upon the Code, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, perhaps with retroactive effect.

As used herein, the term "U.S. Holder" means a beneficial owner of a Note who or which is (i) a citizen or resident of the U.S., (ii) a corporation, or any other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the U.S. or of any political subdivision thereof (including the District of Columbia), or (iii) an estate the income of which is subject to United States federal income taxation regardless of its source, or (iv) a trust if such trust has

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already validly elected to be treated as a United States person for U.S. federal income tax purposes or if a court within the United States can exercise primary supervision over its administration and at least one United States person has the authority to control all substantial decisions of the trust. As used herein, the term "Non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder. In the case of a holder of Notes that is a partnership for U.S. tax purposes, each partner will take into account its allocable share of income or loss from the Notes, and will take such income or loss into account under the rules of taxation applicable to such partner, taking into account the activities of the partnership and the partner.

Tax Consequences to U.S. Holders

Payments of Interest

Generally, subject to the discussion of Original Issue Discount below, payments of interest on a Note will be taxable to a U.S. Holder as ordinary interest income at the time such payments are accrued or are received in accordance with the U.S. Holder's regular method of accounting for U.S. federal income tax purposes. Interest paid on, and any original issue discount (as defined below) accrued with respect to, Notes will constitute income from sources outside the U.S., and, with certain exceptions, will be grouped together with other items of "passive" income, for purposes of computing the foreign tax credit allowable to a U.S. Holder. If a U.S. Holder is predominately engaged in the active conduct of a banking, insurance, financing and similar business, the interest or original issue discount may be considered "financial services income" for purposes of computing the foreign tax credit.

Original Issue Discount

General

The following summary is a general discussion of the U.S. federal income tax consequences to U.S. Holders of the purchase, ownership and disposition of Notes issued with original issue discount (" Discount Notes"). Special rules apply to original issue discount on a Discount Note that is denominated in a Foreign Currency. See "—Foreign Currency Notes—Original Issue Discount."

For U.S. federal income tax purposes, original issue discount is the excess of the stated redemption price at maturity of a Discount Note over its issue price, if such excess equals or exceeds a de minimis amount (generally defined as 1Ú4 of 1 per cent. of the Note's stated redemption price at maturity multiplied by the number of complete years to its maturity). The issue price of each Note in an issue of Notes that are issued for cash is the first price at which a substantial amount of such issue of Notes has been sold for money (ignoring sales to bond houses, broker-dealers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers). The stated redemption price at maturity of a Note generally is the sum of all payments provided by the Note other than "qualified stated interest" payments. The term "qualified stated interest" generally means stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually at a single fixed rate (with certain exceptions for lower rates paid during some periods) or certain variable rates that appropriately take into account the length of the interval between stated interest payments, as described below.

Payments of qualified stated interest on a Discount Note are taxable to a U.S. Holder as ordinary interest income at the time such payments are accrued or are received, in accordance with the U.S. Holder's regular method of tax accounting. A U.S. Holder of a Discount Note having a maturity of more than one year from the date of issue must include original issue discount in income as ordinary interest for U.S. federal income tax purposes as it accrues under a constant yield method generally in advance of receipt of the cash payments attributable to such income, regardless of such U.S. Holder's regular method of tax accounting. In general, the amount of original issue discount included in income by the initial U.S. Holder of a Discount Note is the sum of the daily portion of original issue discount with respect to such Discount Note for each day during the taxable year on which such U.S. Holder held such Discount Note. The "daily portion" of original issue discount on any Discount Notes is determined by allocating to each day in an accrual period a ratable portion of the original issue discount allocable to that accrual period. An "accrual period" may be of any length and the accrual periods may vary in length over the term of the Discount Note as long as (i) each accrual period is no longer than one year, and (ii) each scheduled payment of principal or interest occurs either on the final day of an

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accrual period or on the first day of an accrual period. The amount of original issue discount allocable to each accrual period is generally equal to the difference between (i) the product of the Discount Note's adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account the length of the particular accrual period) and (ii) the amount of any qualified stated interest payments allocable to such accrual period. The "adjusted issue price" of a Discount Note at the beginning of the first accrual period is its issue price. Thereafter, the "adjusted issue price" of a Discount Note is the sum of the issue price plus the amount of original issue discount previously includible in the gross income of the U.S. Holder reduced by the amount of any payment previously made on the Discount Note other than a payment of qualified stated interest. Under these rules, U.S. Holders generally will have to include in income increasingly greater amounts of original issue discount in successive accrual periods.

Acquisition Premium

A U.S. Holder who purchases a Discount Note for an amount that is greater than its adjusted issue price but less than its stated redemption price at maturity will be considered to have purchased the Discount Note at an "acquisition premium." Under the acquisition premium rules, the daily portions of original issue discount which a U.S. Holder must include in its gross income with respect to such Discount Note will be reduced by an amount equal to the daily portion of the original issue discount for such day multiplied by the acquisition premium fraction. The numerator of the "acquisition premium fraction" is the excess of the U.S. Holder's adjusted basis in the Note immediately after its purchase over the adjusted issue price of the Note, and the denominator is the sum of the daily portions for such Note for all days after the date of purchase and ending on the stated maturity date (i.e., the total original issue discount remaining on the Note).

Alternatively, rather than applying the acquisition premium fraction to reduce the daily portion of accrued original issue discount, a U.S. Holder of a Note may elect to compute original issue discount by treating the purchase as a purchase at original issuance and applying the mechanics of the constant yield method described above in "—Original Issue Discount—General." Prior to making this election, U.S. Holders of Notes should consult their own tax advisors concerning the potential U.S. federal income tax consequences to their particular situations.

Notes Subject to Redemption or other Contingencies

For purposes of determining the yield to maturity on a Discount Note, if the issuer or the U.S. Holder has an unconditional option to cause a note to be redeemed or to cause payments on a Note to be made under an alternative payment schedule or schedules, then (i) in the case of an option of the issuer, the issuer will be deemed to exercise or not exercise the option in a manner that minimizes the yield on the Note, and (ii) in the case of an option of the U.S. Holder, the U.S. Holder will be deemed to exercise or not exercise the option or combination of options in a manner that maximizes the yield on the Note.

If an option is exercised, or not exercised, contrary to the assumptions made pursuant to the rules described above, then, solely for purposes of the accrual of original issue discount, the yield to maturity of the Note is redetermined by treating the Note as reissued on the date of the change of circumstances for an amount equal to its adjusted issue price on that date.

Election to Treat all Interest as Original Issue Discount

A U.S. Holder of a Discount Note may elect to include in gross income all interest that accrues on the Note by using the constant yield method described in "—Original Issue Discount—General" with certain modifications. For the purposes of this election, interest includes stated interest, acquisition discount, original issue discount, de minimis original issue discount, market discount, de minimis market discount, and unstated interest, as adjusted by any amortizable bond premium or acquisition premium.

In applying the constant yield method to a Discount Note with respect to which this election has been made, (a) the issue price of the Note will equal the electing U.S. Holder's adjusted basis on the Note immediately after acquisition, (b) the issue date of the Note will be the date of acquisition by the electing U.S. Holder, and (c) no payments on the Note will be treated as payments of qualified stated

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interest. The election must be made for the taxable year in which the U.S. Holder acquires the Note and will generally apply only to the Note (or Notes) identified by the U.S. Holder in a statement attached to the Holder's timely filed federal income tax return. The election may not be revoked without the consent of the U.S. Internal Revenue Service (the "IRS"). If a U.S. Holder makes the election with respect to a Note with "amortizable bond premium" (as described below in "—Amortizable Bond Premium"), then the electing U.S. Holder is deemed to have elected to apply amortizable bond premium against interest with respect to all debt instruments with amortizable bond premium (other than debt instruments the interest on which is excludible from gross income) held by the electing U.S. Holder as of the beginning of the taxable year in which the Note (with respect to which the election is made) is acquired or thereafter acquired. The deemed election with respect to amortizable bond premium may not be revoked without the consent of the IRS.

If the election to apply the constant yield method to all interest on a Note is made with respect to a "Market Discount Note" (as described below in "—Market Discount"), the electing U.S. Holder will be deemed to have made an election to include market discount in income currently over the life of all debt instruments held in the year the election applies and all subsequent tax years. The election to currently include market discount in income may not be revoked without the consent of the IRS. Prior to making an election to treat all income of a Note (or other debt instrument) as original issue discount, U.S. Holders should consult with their own tax advisors as to the consequences resulting from such an election with respect to their own particular situations.

Short- Term Notes

Generally, an individual or other cash basis U.S. Holder of "Short-Term Notes" (i. e., Notes having a fixed maturity date not more than 1 year from the date of issue) is not required to accrue original issue discount for U.S. federal income tax purposes unless it elects to do so. An election by a cash basis U.S. Holder applies to all short-term obligations acquired on or after the beginning of the first taxable year to which the election applies, and for all subsequent taxable years unless the consent is secured from the IRS to revoke the election. Accrual basis U.S. Holders and cash basis U.S. Holders who so elect, are required to accrue original issue discount on Short-Term Notes on either a straight-line basis or, at the election of the U.S. Holder, under the constant yield method (based on daily compounding). In the case of a U.S. Holder not required and not electing to include original issue discount in income currently, any gain realized on the sale or retirement of the Short-Term Note will be ordinary income to the extent of the original issue discount accrued on a straight-line basis (unless an election is made to accrue the original issue discount under the constant yield method) through the date of sale or retirement. U.S. Holders who are not required and do not elect to accrue original issue discount on Short-Term Notes will be required to defer deductions for interest on borrowings allocable to Short- Term Notes in an amount not exceeding the deferred income until the deferred income is realized.

As described above in "Notes Subject to Redemption or other Contingencies," certain of the Notes may be subject to special redemption features. These features may affect the determination of whether a Note has a maturity of one year or less and thus is a Short-Term Note.

Market Discount

A Note, other than a Short-Term Note, will be treated as purchased at a market discount (a "Market Discount Note") if the amount for which a U.S. Holder purchased the Note is less than (i) the Note's stated redemption price at maturity (in the case of a subsequent purchaser), or (ii) the Note's "revised issue price" (in the case of a Discount Note), and such excess is greater than or equal to 1/4 of 1 per cent. of such Note's stated redemption price at maturity multiplied by the number of complete years to the Note's maturity. If such excess is not sufficient to cause the Note to be a Market Discount Note, then such excess constitutes "de minimis market discount." The Code provides that, for these purposes, the "revised issue price" of a Note generally equals its issue price, increased by the amount of original issue discount that has accrued over the term of the Note.

Any gain recognized on the maturity or disposition of a Market Discount Note will be treated as ordinary income to the extent that such gain does not exceed the accrued market discount on such Note. Alternatively, a U.S. Holder of a Market Discount Note may elect to include market discount in income currently over the life of the Note. Such election shall apply to all debt instruments with market

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discount acquired by the electing U.S. Holder on or after the first day of the first year to which the election applies and may not be revoked without the consent of the IRS.

Market discount accrues on a straight-line basis unless the U.S. Holder elects to accrue such market discount on a constant yield basis. Such an election shall apply only to the Note with respect to which is it made and may not be revoked without the consent of the IRS. A U.S. Holder of a Market Discount Note that does not elect to include market discount in income currently generally will be required to defer deductions for interest in borrowings allocable to such Note in an amount not exceeding the accrued market discount on such Note until the maturity or disposition of or partial payment of principal on such Note.

Amortizable Bond Premium

Generally, a U.S. Holder that purchases a Note for an amount in excess of the principal amount due at maturity will be considered to have purchased the Note with "amortizable bond premium" equal to such excess. A U.S. Holder of such a Note will not be subject to the original issue discount rules and may elect to amortize such premium using a constant yield method over the remaining term of the Note and may offset interest otherwise required to be included in respect of the Note during any taxable year by the amortized amount of such excess for the taxable year. Any election to amortize bond premium with respect to any Note (or general debt obligation) applies to all taxable debt obligations held by the Holder at the beginning of the first taxable year to which the election applies and to all debt obligations thereafter acquired in all subsequent tax years. The election may not be revoked without the consent of the IRS.

If a Note can be optionally redeemed after the U.S. Holder acquires it at a price in excess of its principal amount, special rules would apply that could result in a deferral of the amortization of some bond premium until later in the term of the Note.

With respect to a holder that does not elect to amortize bond premium, the amount of bond premium constitutes a capital loss when the bond matures.

Variable Rate Debt Instruments

Generally, Floating Rate Notes will qualify as a "variable rate debt instrument" if (a) its issue price does not exceed the total noncontingent principal payments due under the Floating Rate Notes by more than an amount equal to the lesser of (i) 0.015 multiplied by the product of the total noncontingent principal payments and the number of complete years to maturity from the issue date or (ii) 15 per cent. of the total noncontingent principal payments, (b) it does not provide for stated interest other than stated interest that pays or compounds at least annually at (i) one or more qualified floating rates, (ii) a single fixed rate and one or more qualified floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a single objective rate that is a qualified inverse floating rate, and (c) a qualified floating rate or objective rate in effect at any time during the term of the Note is set at a current value of that rate (i.e., the value of the rate on any day that is no earlier than three months prior to the first day on which the value is in effect and no later than one year following that first day).

A "qualified floating rate" is any variable rate where variations in the value of such rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which the Floating Rate Notes is denominated. Although a multiple of a qualified floating rate will generally not itself constitute a qualified floating rate, a variable rate equal to the product of a qualified floating rate and a fixed multiple that is greater than 0.65 but not more than 1.35 will constitute a qualified floating rate. A variable rate equal to the product of a qualified floating rate and a fixed multiple that is greater than 0.65 but not more than 1.35, increased or decreased by a fixed rate, will also constitute a qualified floating rate. In addition, two or more qualified floating rates than can reasonably be expected to have approximately the same values throughout the term of the Floating Rate Notes together will constitute a single qualified floating rate. Two or more qualified floating rates will be conclusively presumed to meet the requirements of the previous sentence if the values of all rates on the issued dates are within 25 basis points of each other. A variable rate is not a qualified floating rate if it is subject to certain restrictions (including cap floors, governors, or other similar restrictions) unless such restrictions are fixed throughout the term of the Note or are not reasonably expected to significantly affect the yield on the Note.

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An "objective rate" is a rate other than a qualified floating rate that is determined using a single fixed formula and which is based upon objective financial or economic information, other than information that is within the control of the issuer or a related party, or that is unique to the circumstances of the issuer or a related party such as dividends, profits or the value of such person's stock (but not the issuer's credit quality). Despite the foregoing, a variable rate of interest on Floating Rate Notes will not constitute an objective rate if it is reasonably expected that the average value of such rate during the first half of the Floating Rate Notes' term will be either significantly less than or significantly greater than the average value of the rate during the final half of the Floating Rate Notes' term. A "qualified inverse floating rate," is any objective rate where such rate is equal to a fixed rate minus a qualified floating rate, as long as variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the qualified floating rate.

Generally, if a Floating Rate Note provides for stated interest at a fixed rate for an initial period of less than one year followed by a variable rate that is either a qualified floating rate or an objective rate for a subsequent period, and the value of the variable rate on the Floating Rate Notes' issue date is intended to approximate the fixed rate, then the fixed rate and the variable rate together will constitute either a single qualified floating rate or objective rate, as the case may be. A fixed rate and a variable rate will be conclusively presumed to meet the previous requirements if the value of the variable rate on the issue date of the Floating Rate Notes does not differ from the value of the fixed rate by more than 25 basis points.

If a Floating Rate Note provides for stated interest at a single qualified floating rate or objective rate that is unconditionally payable in cash or in property (other than debt instruments of the issuer) at least annually, then (a) all stated interest with respect to the Note is qualified stated interest, (b) the amount of qualified stated interest and the amount of original issue discount, if any, is determined by assuming that the variable rate is a fixed rate equal to (i) in the case of a qualified floating rate or qualified inverse floating rate, the value as of the issue date, of the qualified floating rate or qualified inverse floating, or (ii) in the case of an objective rate (other than a qualified inverse floating rate), a fixed rate that reflects the yield that is reasonably expected for the Note, and (c) the qualified stated interest allocable to an accrual period is increased (or decreased) if the interest actually paid during an accrual period exceeds (or is less than) the interest assumed to be paid during the accrual period under the foregoing rules.

If a Floating Rate Note does not provide for stated interest at a single qualified floating rate or objective rate, or at a single fixed rate (other than at a single fixed rate for an initial period), the amount of qualified stated interest and original issue discount on the Note are generally determined by (i) determining a fixed rate substitute for each variable rate provided under the Floating Rate Note (generally, the value of each variable rate as of the issue date or, in the case of an objective rate that is not a qualified inverse floating rate, a rate that reflects the yield that is reasonably expected for the Note), (ii) constructing the equivalent fixed rate debt instrument (using the fixed rate substitutes described above), (iii) determining the amount of qualified stated interest and original issue discount with respect to the equivalent fixed rate debt instrument (by applying the general original issue discount rules as described in "—Original Issue Discount—General") and (iv) making the appropriate adjustment for actual variable rates during the applicable accrual period.

If a Floating Rate Note provides for stated interest either at one or more qualified floating rates or at a qualified inverse floating rate and in addition provides for stated interest at a single fixed rate (other than a single fixed rate for an initial period), the amount of interest and original issue discount is determined as in the immediately preceding paragraph with the modification that the Floating Rate Note is treated, for purposes of the first three steps of the determination, as if it provided for a qualified floating rate (or qualified inverse floating rate, if the Note provides for a qualified inverse floating rate) rather than the fixed rate. The qualified floating rate (or qualified inverse floating rate) replacing the fixed rate must be such that the fair market value of the Note as of the issue date would be approximately the same as the fair market value of an otherwise identical debt instrument that provides for a qualified floating rate (or qualified inverse floating rate) rather than a fixed rate.

Sale, Exchange, Disposition or Retirement of a Note

Except as discussed above, upon the taxable sale, exchange, disposition or retirement of a Note, a U.S. Holder generally will recognize gain or loss equal to the difference between the amount realized on the

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sale, exchange or retirement (other than amounts representing accrued and unpaid interest not previously included in gross income) and such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in a Note generally will equal such U.S. Holder's initial investment in the Note increased by any original issue discount included in gross income and any accrued market discount included in gross income decreased by the amount of any payments that are not deemed qualified stated interest payments and any amortizable bond premium applied to reduce interest with respect to such Note. Such gain or loss generally will be long-term capital gain or loss if the Note has been held for more than one year at the time of such sale, exchange or retirement. If the U.S. Holder is not a corporation, the maximum marginal U.S. federal income tax rate applicable to capital gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income if the holding period of the Note exceeds one year and will further be reduced if such holding period exceeds five years. Any gain or loss recognized upon a sale, exchange or retirement of a Note by a U.S. Holder generally will be U.S. source income or loss for U.S. foreign tax credit purposes. The ability to deduct capital losses is limited.

Contingent Payment Debt Instruments

General

A U.S. Holder of a contingent payment debt instrument (" Contingent Payment Note"), must accrue interest income over time based upon a projected payment schedule that is derived from the issuer's cost of capital for fixed-rate noncontingent debt instruments. The primary method for such accrual is the noncontingent bond method. Under the noncontingent bond method, the issuer of a Contingent Payment Note is required to calculate the yield it would reasonably be expected to pay on a noncontingent fixed-rate debt instrument and then construct a projected payment schedule of all contingent and noncontingent payments on the instrument that produces the comparable yield. The projected payment schedule is then used to determine the amount of original issue discount that is includible in gross income by a U.S. Holder on a Contingent Payment Note during a tax year, as well as to make positive and negative adjustments to such amount in order to arrive at the interest income or ordinary loss to be included in the U.S. Holder's income for the tax year.

The amount of interest that accrues on a Contingent Payment Note must be adjusted upward or downward to reflect differences between the actual and projected amounts of the contingent payments. These periodic positive and negative adjustments determine the amount of interest income or, in general, ordinary loss to U.S. Holders of Contingent Payment Notes during a particular accrual period. If the actual amount of a contingent payment is more than its projected amount, the difference is a positive adjustment on the date of the payment. If the amount of a contingent payment is less than its projected amount, the difference is a negative adjustment on the date of the payment. The U.S. Holder accounts only for those adjustments that occur during a taxable year in which it holds a Contingent Payment Note. The amount, if any, by which total positive adjustments on a Contingent Payment Note exceed the total negative adjustments in the taxable year is a net positive adjustment. A net positive adjustment is generally treated as additional interest for the taxable year. The amount, if any, by which total negative adjustments on a Contingent Payment Note exceed the total positive adjustments in the taxable year is a net negative adjustment. A U.S. Holder's net negative adjustment on a Contingent Payment Note for a taxable year is treated as follows: (i) first, it reduces the amount of interest for the taxable year that the U.S. Holder would otherwise account for on the Contingent Payment Note, then (ii) if the net negative adjustment exceeds the interest that would otherwise be taken into account, the excess is treated as an ordinary loss by the U.S. Holder. However, the amount treated as ordinary loss is limited to the amount of interest income recognized by the U.S. Holder on the Contingent Payment Note in prior taxable years reduced by the total amount of the net negative adjustments treated as ordinary loss on the Contingent Payment Note in prior taxable years. If the net negative adjustment exceeds the sum of the amounts treated as a reduction of interest and as ordinary loss on the contingent Payment Note for the taxable year, the excess is a negative adjustment carryforward. In general, a U.S. Holder treats a negative adjustment carryforward for a taxable year as a negative adjustment on the Contingent Payment Note as of the first day of the succeeding taxable year. However, if a Holder of a Contingent Payment Note has a negative adjustment carryforward on the Contingent Payment Note in a taxable year in which the Contingent Payment Note is sold, exchanged, or retired, the negative adjustment carryforward reduces the U.S. Holder's amount realized on the sale, exchange or retirement.

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Sale, Exchange, Disposition or Retirement

In general, any gain recognized by a U.S. Holder on the sale, exchange, disposition or retirement of a Contingent Payment Note is interest income. Any loss so recognized by a U.S. Holder is in general ordinary loss to the extent that the total interest inclusions on the Contingent Payment Note exceed the total net negative adjustments the U.S. Holder already accounted for as ordinary loss. Any additional loss is treated as loss from the sale, exchange, or retirement of the Contingent Payment Note. If at the time of the sale, exchange, or retirement there are no remaining contingent payments due on the Contingent Payment Note under the projected payment schedule, then any gain or loss recognized by the U.S. Holder is generally treated as gain or loss from the sale, exchange, or retirement of the Contingent Payment Note.

For purposes of determining the amount realized by a U.S. Holder on the scheduled retirement of a Contingent Payment Note, a U.S. Holder is treated as receiving the projected amount of any contingent payment due at maturity. If the amount received is different from the projected amount, the difference is treated as a positive or negative adjustment, as discussed above. The amount realized by a U.S. Holder on the retirement of a Contingent Payment Note is reduced by any negative adjustment carryforward determined in the taxable year of the retirement. An unscheduled retirement of a Contingent Payment Note (or the receipt of a pro-rata payment that is treated as a retirement of a portion of a Contingent Payment Note) is treated as a repurchase of the Contingent Payment Note by the issuer from the U.S. Holder for the amount paid.

Foreign Currency Notes

The following summary relates to Notes (the "Foreign Currency Notes") that are denominated in a currency or basket of currencies other than the U.S. Dollar ("Foreign Currency").

Payments of Interest in a Foreign Currency

Cash Method. A U.S. Holder who uses the cash method of accounting for U.S. federal income tax purposes and who receives a payment of interest on a Note (other than original issue discount or market discount) will be required to include in income the U.S. Dollar value of the Foreign Currency payment (determined on the date such payment is received) regardless of whether the payment is in fact converted to U.S. Dollars at that time, and such U.S. Dollar value will be the U.S. Holder's tax basis in such Foreign Currency.

Accrual Method. A U.S. Holder who uses the accrual method of accounting for U.S. federal income tax purposes, or who otherwise is required to accrue interest prior to receipt, will be required to include in income the U.S. Dollar value of the amount of interest income (including original issue discount or market discount and reduced by amortizable bond premium to the extent applicable) that has accrued and is otherwise required to be taken into account with respect to a Note during an accrual period. The U.S. Dollar value of such accrued income will be determined by translating such income at the average rate of exchange for the accrual period or, with respect to an accrual period that spans two taxable years, at the average rate for the partial period within the taxable year. A U.S. Holder may elect, however, to translate such accrued interest income using the rate of exchange on the last day of the accrual period or, with respect to an accrual period that spans two taxable years, using the rate of exchange on the last day of the taxable year. If the last day of an accrual period is within five business days of the date of receipt of the accrued interest, a U.S. Holder may translate such interest using the rate of exchange on the date of receipt. The above election will apply to other obligations held by the U.S. Holder and may not be changed without the consent of the IRS.

Prior to making such an election, a U.S. Holder of Notes should consult their own tax advisors as to the consequences resulting from such an election with respect to their particular situations.

A U.S. Holder will recognize exchange gain or loss (which will be treated as ordinary income or loss) with respect to accrued interest income on the date such income is received. The amount of ordinary income or loss recognized will equal the difference, if any, between the U.S. Dollar value of the Foreign Currency payment received (determined on the date such payment is received) in respect to such accrual period and the U.S. Dollar value of interest income that has accrued during such accrual period (as determined above).

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Purchase, Sale, Disposition and Retirement of Notes

A U.S. Holder who purchases a Note with previously owned Foreign Currency will recognize ordinary income or loss in an amount equal to the difference, if any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S. Dollar fair market value of the Foreign Currency used to purchase the Note, determined on the date of purchase.

As discussed above, generally, upon the sale, exchange, disposition or retirement of a Note, a U.S. Holder will recognize taxable gain or loss equal to the difference between the amount realized on the sale, exchange or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain or loss generally will be capital gain or loss (except to the extent of any accrued market discount not previously included in the U.S. Holder's income) and will be long-term capital gain or loss if at the time of sale, exchange or retirement the Note has been held by such U.S. Holder for more than one year. If a U.S. Holder receives Foreign Currency on such a sale, exchange or retirement, the amount realized will be based on the U.S. Dollar value of the Foreign Currency on the date the payment is received or the date of the instrument's disposition (or deemed disposition). In the case of a Foreign Currency Note that is traded on an established securities market, a cash basis U.S. Holder or electing accrual basis taxpayer will determine the amount realised on the settlement date. The election available to accrual basis U.S. holders must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS. To the extent the amount realized represents accrued but unpaid interest not previously included in the U.S. Holder's gross income, however, such amounts must be taken into account as interest income, with exchange gain or loss computed as described in "— Foreign Currency Notes—Payments of Interest In a Foreign Currency" above.

As discussed above, a U.S. Holder's adjusted tax basis in a Note will equal the cost of the Note to such holder, increased by the amounts of any market discount or original issue discount previously included in income by the holder with respect to such Note and reduced by any amortized acquisition or other premium and any principal payments received by the holder. A U.S. Holder's tax basis in a Foreign Currency Note, and the amount of any subsequent adjustments to such holder's tax basis, will be the U.S. Dollar value of the Foreign Currency amount paid for such Note, or of the Foreign Currency amount of the adjustment, determined on the date of such purchase or adjustment.

Gain or loss realized upon the sale, exchange or retirement of a Note that is attributable to fluctuations in currency exchange rates generally will be U.S. source ordinary income or loss that will not be treated as interest income or expense . Gain or loss attributable to fluctuations in exchange rates will equal the difference between the U.S. Dollar value of the Foreign Currency principal amount of the Note, determined on the date such payment is received or the date of the Note's disposition, and the U.S. Dollar value of the Foreign Currency nominal amount of the Note, determined on the date the U.S. Holder acquired the Note. Such Foreign Currency gain or loss will be recognized only to the extent of the total gain or loss realized by the U.S. Holder on the sale, exchange or retirement of the Note.

Original Issue Discount

In the case of a Foreign Currency Note that is a Discount Note or Short-Term Note, (i) original issue discount is determined in units of the Foreign Currency, (ii) accrued original issue discount is translated into U.S. Dollars as described in "—Foreign Currency Notes—Payments of Interest in a Foreign Currency-Accrual Method" above and (iii) the amount of Foreign Currency gain or loss on the accrued original issue discount is determined by comparing the amount of income received attributable to the discount (either upon payment, maturity or an earlier disposition), as translated into U.S. Dollars at the rate of exchange on the date of such receipt, with the amount of original issue discount accrued, as translated above.

Market Discount and Amortizable Bond Premium

In the case of a Foreign Currency Note with market discount, the market discount is determined in units of the Foreign Currency in which the Market Discount Note is denominated. Accrued market discount (other than market discount currently included in income) will be translated into U.S. Dollars at the spot rate on the date of disposition of the Market Discount Note, and accounted for accordingly. No portion of the accrued market discount is treated as exchange gain or loss. Accrued market discount currently included in income will be translated into U.S. Dollars at the average exchange rate for the

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accrual period. Exchange gain or loss with respect to accrued market discount currently includible in income will be determined in the manner described in "— Foreign Currency Notes—Payments of Interest In a Foreign Currency—Accrual Method" above with respect to computation of exchange gain or loss on accrued interest.

Amortizable bond premium on a Foreign Currency Note will be computed in the units of the Foreign Currency in which the Note is denominated (or in which the payments are determined). Amortizable bond premium will reduce the interest income in units of the Foreign Currency. Exchange gain or loss is realized with respect to the bond premium with respect to a Note issued with amortizable bond premium by treating the portion of premium amortized with respect to any period as a return of principal. With respect to any U.S. Holder that does not elect to amortize bond premium, the amount of bond premium will constitute a market loss when the bond matures.

Exchange of Foreign Currencies

A U.S. Holder will have a tax basis in any Foreign Currency received as interest or on the sale, exchange or retirement of a Foreign Currency Note equal to the U.S. Dollar value of such Foreign Currency, determined at the time the interest is received or at the time of the sale, exchange or retirement. Any gain or loss realized by a U.S. Holder on a sale or other disposition of Foreign Currency (including its exchange for U.S. Dollars or its use to purchase Notes) generally will be ordinary income or loss.

Non- U. S. Holders

Subject to the discussion of backup withholding below, (a) payment of principal, premium, redemption amounts and interest by the Republic or any paying agent to a Non-U.S. Holder will not be subject to U.S. federal income or withholding tax and (b) gain realized by a Non-U.S. Holder on the sale or redemption of the Notes is not subject to United States federal income tax or withholding tax. Special rules may apply in the case of Non-U.S. Holders (i) that are engaged in a U.S. trade or business, (ii) that are former citizens or long-term residents of the United States, "controlled foreign corporations," "foreign personal holding companies," corporations which accumulate earnings to avoid U.S. federal income tax, each within the meaning of the Code, or (iii) certain non-resident alien individuals who are present in the U.S. for 183 days or more during a taxable year. Such persons are urged to consult their U.S. tax advisors before purchasing Notes.

Information Reporting and Backup Withholding

For each calendar year in which the Registered Notes are outstanding, each participant of DTC, Euroclear or Clearstream, Luxembourg, or indirect participant holding an interest in a Registered Note on behalf of a beneficial owner of a Note and each paying agent making payments in respect of a Registered Note will generally be required to provide the IRS with certain information, including such beneficial owner's name, address, taxpayer identification number (either such beneficial owner's Social Security number, its employer identification number or its IRS individual taxpayer identification number, as the case may be), and the aggregate amount of interest (including original issue discount) and principal paid to such beneficial owner during the calendar year. These reporting requirements, however, do not apply with respect to corporations, Non-U.S. Holders and certain other beneficial owners.

In the event that a beneficial owner of a Note fails to establish its exemption from such information reporting requirements or is subject to the reporting requirements described above and fails to supply its correct taxpayer identification number in the manner required by applicable law, or underreports its tax liability, as the case may be, the participant of DTC, Euroclear or Clearstream, Luxembourg, or indirect participant holding such interest on behalf of such beneficial owner or paying agent making payments in respect of a Note may be required to "backup" withhold a tax with respect to Notes. Under recently enacted legislation, the backup withholding tax rate is 30% for years 2002 and 2003, 29% for years 2004 and 2005, and 28% for 2006 and thereafter. The backup withholding tax is not an additional tax and may be credited against the beneficial owner's U.S. federal income tax liability if the required information is furnished to the IRS. Compliance with the identification procedures contained in IRS Form W-8BEN will establish an exemption from information reporting and backup withholding for those Non-U.S. Holders who are not exempt recipients.

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Prospective purchasers of Notes are advised to consult their own tax advisers as to the consequences of a purchase, ownership and disposition of Notes, including, without limitation: (i) the applicability and effect of any state, local or non-U.S. tax laws to which they may be subject and of any legislative or administrative changes in law; (ii) the U.S. federal income tax consequences of the Republic withholding of any foreign withholding taxes (and of the payment by the Republic of Additional Amounts with respect thereto); and (iii) the availability of a credit or deduction for any foreign withholding taxes.

Proposed EU Savings Directive

On December 13, 2001 the EU Commission published a revised proposal for a new directive regarding the taxation of savings income. Subject to a number of important conditions being met, it is proposed that Member States will be required to provide to the tax authorities of another Member State details of payment of interest or other similar income paid by a person within its jurisdiction to an individual resident in that other Member State, subject to the right of certain Member States to opt instead for a withholding system for a transitional period in relation to such payments. The proposed directive is not yet final, and may be subject to further amendment and/or clarification.

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SUBSCRIPTION AND SALE

The following is subject to change in the applicable Pricing Supplement. In addition, the Dealer(s) who have agreed to purchase Notes in a Series or Tranche from the Republic will be specified in the applicable Pricing Supplement.

ABN AMRO Bank N.V., BNP PARIBAS, Commerzbank Aktiengesellschaft, Credit Suisse First Boston (Europe) Limited, Deutsche Bank AG London, J.P. Morgan Europe Limited, Merrill Lynch International, Morgan Stanley & Co. International Limited, Nomura International plc and Salomon Brothers International Limited have, in the Program Agreement, dated March 8, 1999, as supplemented (the "Program Agreement"), agreed with the Republic a basis upon which they may from time to time agree to subscribe or procure subscribers for Notes. Any such agreement will extend to those matters stated under "Forms of the Notes" and "Terms and Conditions of the Notes" above. The Program Agreement makes provision for the resignation of existing Dealers and the appointment of additional Dealers. In the Program Agreement, the Republic has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment of the Program and the issue of Notes under the Program.

Selling Restrictions

The Notes have not been and will not be registered under the laws of any jurisdiction, nor has any other action been taken, nor will any action be taken, by the Republic, the Dealers or any other person that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Circular or any amendment or supplement hereto or thereto, or any other offering material relating to the Republic or the Notes, in any country or jurisdiction where action for any such purpose may be required. The offer and sale of Notes, and the delivery of this Offering Circular, are restricted by law in certain jurisdictions and Notes may not be offered or sold, and this Offering Circular may not be distributed, in any jurisdiction under circumstances where such offer, sale or distribution would be prohibited or restricted by law.

Without limiting the foregoing, prospective purchasers of Notes should be aware of the following restrictions:

United States of America

The Notes have not been and will not be registered under the Securities Act or any applicable state securities laws and may not be offered or sold within the United States to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act and the applicable state securities laws. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.

Notes in bearer form are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to United States persons, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meaning given to them by the United States Internal Revenue Code of 1986 and regulations thereunder.

Each Dealer has agreed or will agree that, except as permitted by the Program Agreement, it has not offered and sold, and will not offer or sell, Notes of any Tranche (a) as part of their distribution at any time and (b) otherwise until 40 days after the later of the date of issue of the relevant Tranche of Notes and the completion of the distribution of such Tranche as certified to the Fiscal Agent or the Republic by the relevant Dealer(s) within the United States to, or for the account or benefit of, U.S. persons, and that it will have sent to each Dealer to which it sells Notes of such Tranche during the Distribution Compliance Period a confirmation or other notice setting forth the restrictions on offers and sales of such Notes within the United States or to, or for the account of benefit of, U.S. persons.

In addition, until 40 days after the commencement of the offering of any Tranche of Notes, an offer or sale of Notes of such Tranche within the United States by a Dealer (whether or not participating in the offering of such Notes) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with an applicable exemption from registration under the Securities Act.

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Notwithstanding the foregoing, Dealers nominated by the Republic may arrange for the offer and sale of Registered Notes in the United States pursuant to Rule 144A under the Securities Act. Each purchaser of such Notes is hereby notified that the offer and sale of such Notes may be made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. In addition, pursuant to the terms of the Program Agreement, Definitive Registered Notes may be offered and sold in the United States to Institutional Accredited Investors pursuant to Section 4(2) of the Securities Act or in a transaction otherwise exempt from registration under the Securities Act. See "Notice to Purchasers and Holders of Restricted Notes and Transfer Restrictions."

In addition, certain Series of Notes in respect of which any payment is determined by reference to an index of formula, or to changes in prices of securities or commodities, or certain other Notes will be subject to such additional U.S. selling restrictions as the Republic and the relevant Dealers may agree, as indicated in the relevant Pricing Supplement. Each Dealer has agreed that it will offer, sell and deliver such Notes only in compliance with such additional U.S. selling restrictions.

United Kingdom

Each Dealer has represented and agreed, and each further Dealer appointed under the Program will be required to represent and agree, that:

(i) in relation to Notes which have a maturity of one year or more, it has not offered or sold and, prior to the expiry of the period of six months from the issue date of such Notes, will not offer or sell any such Notes to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 ;

(ii) in relation to any Notes having a maturity of less than one year from the date of issue, (a) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (b) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (the "FSMA") by the Issuer;

(iii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

(iv) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.

The Netherlands

Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell in The Netherlands any Notes with a denomination of less than Euro 50,000 (or its foreign currency equivalent) other than to persons who trade or invest in securities in the conduct of a profession or business (which include banks, stockbrokers, insurance companies, pension funds, other institutional investors and finance companies and treasury departments of large enterprises) unless one of the other exemptions from or exceptions to the prohibition contained in

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article 3 of the Dutch Securities Transactions Supervision Act 1995 ("Wettoezicht effectenverkeer 1995") is applicable and the conditions attached to such exemption or exception are complied with.

General

Each Dealer has agreed or will agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes this Offering Circular and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Republic nor any other Dealer shall have any responsibility therefor.

Neither the Republic nor any of the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.

With regard to each Tranche, the relevant Dealer(s) will be required to comply with such other additional restrictions as the Republic and the relevant Dealer(s) shall agree and as shall be set forth in the applicable Pricing Supplement.

Purchasers of Notes sold by the Dealers may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price and accrued interest, if any.

Although application has been made to list the Notes to be issued under the Program on the Luxembourg Stock Exchange, each Series or Tranche of Notes is a new issue of securities with no established trading market. Any one or more of the Dealers may make a market in the Notes, but are not obliged to do so and may discontinue any market-marking, if commenced, at any time without notice. No assurance can be given as to the liquidity of the trading markets for the Notes.

In connection with the offering of Notes in any Series or Tranche, the Dealer designated for the purpose as the Stabilizing Dealer in the applicable Pricing Supplement may engage in transactions that stabilize, maintain or otherwise affect the market price of those Notes. These transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M under the Exchange Act pursuant to which the Dealer may bid for or purchase Notes for the purpose of stabilizing their market price. It also may create a short position for the account of the Dealers by selling more Notes in such Series or Tranche in connection with the offering of those Notes than they are committed to purchase from the Republic, and in this case may purchase those Notes in the open market following completion of the offering of the Notes to cover all or a portion of such short position. In addition, the Stabilizing Dealer, on behalf of the Dealers, may impose "penalty bids" under contractual arrangements with Dealers whereby it may reclaim from a Dealer for the account of the other Dealers, the selling concession with respect to those Notes that are distributed in this offering but are subsequently purchased for the account of the Dealers in the open market. Any of the transactions described in this paragraph may result in the maintenance of the price of the relevant Notes at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time.

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GENERAL INFORMATION

Authorizations

The establishment of the Program was duly authorized pursuant to a Resolution of the Council of Ministers dated February 24, 1999. Any issuance of Notes under the Program is subject to, and conditional upon, (i) the existence or adoption of a law by the Lebanese Parliament authorizing the issuance of such notes (or the underlying borrowing) and (ii) obtaining any other necessary consents, approvals and authorizations in connection with the issuance of any such notes. The first increase of the Program amount from U.S. $550,000,000 to U.S. $2,500,000,000 was duly authorized by a Council of Ministers' Resolution dated September 29, 1999. The second increase of the Program amount from U.S. $2,500,000,000 to U.S. $3,500,000,000 was authorized by a Council of Ministers' Resolution dated October 10, 2000. The third increase of the Program amount from U.S. $3,500,000,000 to U.S. $6,000,000,000 was authorized by a Council of Ministers' Resolution dated April 19, 2001. The fourth increase of the Program amount from U.S. $6,000,000,000 to U.S. $8,500,000,000 was authorized by Council of Ministers' Resolutions dated September 6, 2001 and February 28, 2002. The fifth increase of the Program amount from U.S. $8,500,000,000 to U.S. $9,500,000,000 was authorized by a Council of Ministers' Resolution dated August 29, 2002. The sixth increase of the Program amount U.S. $9,500,000,000 to U.S. $13,500,000,000 was authorized by a Council of Ministers' Resolution dated December 18, 2002.

Listing of Notes on the Luxembourg Stock Exchange

Application has been made to list Notes issued under the Program on the Luxembourg Stock Exchange. The Luxembourg Stock Exchange has allocated to the Program the number 12132 for listing purposes. However, Notes may be issued under the Program which will not be listed on the Luxembourg Stock Exchange or any other stock exchange. In connection with the listing of the Program on the Luxembourg Stock Exchange, a legal notice relating to the Program and copies of relevant documents have been lodged with the Chief Registrar of the District Court in Luxembourg (Greffier en Chef du Tribunal d'Arrondissement de et Luxembourg), where such documents may be examined and copies obtained upon request. Prior to the listing of any Notes in a Series on the Luxembourg Stock Exchange, a legal notice relating to the issuance of Notes and copies of relevant documents will be deposited with the Chief Registrar of the District Court of Luxembourg, where such documents may be examined and copies of such documents may be obtained.

Documents Available

So long as Notes are capable of being issued under the Program, copies of the following documents will, when published, be available and can be obtained from the specified office of the Paying Agent for the time being in Luxembourg:

(i) the Program Agreement, the Fiscal Agency Agreement and the Procedures Memorandum;

(ii) a copy of this Offering Circular;

(iii) any future offering memoranda, prospectuses, information memoranda and supplements including Pricing Supplements (save that a Pricing Supplement relating to an unlisted Note will only be available for inspection by a Holder of such Note and such Holder must produce evidence satisfactory to the Paying Agent as to the identity of such Holder) to this Offering Circular and any other documents incorporated herein or therein by reference; and

(iv) in the case of each issue of Notes subscribed pursuant to a syndication or purchase agreement, such syndication or purchase agreement (or equivalent document).

Clearing Systems

The appropriate common code and ISIN for each Tranche of Bearer Notes and Registered Notes allocated by Euroclear and Clearstream, Luxembourg upon acceptance into their respective clearing

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systems will be specified in the applicable Pricing Supplement. In addition, the Republic will make an application for any Registered Notes to be accepted for trading in book-entry form by DTC. The CUSIP and/or CINS numbers for each Tranche of Registered Notes will be specified in the applicable Pricing Supplement. The Republic may also apply from time to time for Notes to be accepted for clearance through MIDCLEAR. If the Notes are to clear through an additional or alternative clearing system, the appropriate information will be specified in the applicable Pricing Supplement.

Material Change

Save as disclosed in this Offering Circular, there has been no material adverse change in the financial position of the Republic since December 31, 2001 .

Litigation

The Republic is not involved in any litigation or arbitration proceedings which are material in the context of the issuance of Notes pursuant to the Program and, so far as the Republic is aware, no such litigation or arbitration proceedings are pending or threatened.

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ANNEX A

FORM OF THE PRICING SUPPLEMENT

Pricing Supplement dated [ ]

The Lebanese Republic Issue of [Aggregate Principal Amount of Tranche] [Title of Notes] under the U.S. $ 13,500,000,000 Global Medium Term Note Program

This document constitutes the Pricing Supplement relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Offering Circular dated December 23, 2002. This Pricing Supplement must be read in conjunction with such Offering Circular.

Include whichever of the following apply or specify as "Not Applicable" (N/ A). Note that the numbering should remain as set out below, even if "Not Applicable" is indicated for individual paragraphs or subparagraphs. Italics denote directions for completing the Pricing Supplement.

1. Issuer: The Lebanese Republic

2. (ii) Series Number: [ ]

(ii) Tranche Number: [ ]

(If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible)

3. Specify Currency or Currencies: [ ]

4. Aggregate Principal Amount: [ ]

(i) Series (if more than one Tranche has been issued)

(ii) Tranche:

(iii) The principal amount of each global [ ] note, if more than one to be issued for (Specify the initial amount of each global note the Tranche (distinguishing between Temporary and Permanent Global Notes) which should equate to the Aggregate Principal Amount specified above)

5. (i) Issue Price of Tranche: [ ] per cent. of the aggregate principal amount [plus accrued interest from [insert date] (in the case of fungible issues only, if applicable) [ ] (Required only for listed issues)

(ii) Net proceeds:

6. Specified Denominations: [ ] [ ]

7. (i) Issue Date [ ]

(ii) Interest Commencement Date (if [ ] different from the Issue Date)

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8. Maturity Date: [ ]1 (Specify date or (for Floating Rate Notes) Interest Payment Date falling in the relevant month and year)

9. Interest Basis: [ ] per cent. Fixed Rate] [specify reference rate e. g. LIBOR plus/ minus [ ] per cent.]

Floating Rate]

[Other (specify)] (further particulars specified below)

10. Redemption/Payment Basis: [Redemption at par]

11. Change of Interest of Redemption/Payment [ ] Basis: (Specify details of any provisions for convertibility of Notes, either automatically or at the option of the Republic and/ or Holders of Notes, into another interest or redemption/ payment basis)

12. Put/Call Options: [Investor Put]

[Issuer Call]

[(further particulars specified below]

13. Listing: [Luxembourg/other( specify)/ None]

14. Method of distribution: [Syndicated/Non-syndicated]

PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE

15. Fixed Rate Note Provisions 16. Floating Rate [Applicable/Not Applicable] (If not applicable, Note Provisions delete the remaining subparagraphs of this paragraph)

(i) Fixed Rate[(s)] of Interest: [ ] per cent. per annum [payable [annually/semi-annually/quarterly/ monthly] in arrear]

(ii) Fixed Interest Date(s): [ ] in each year

(iii) Fixed Coupon Amount(s): [ ] per [ ] in Principal Amount

(iv) Fixed Day Count Fraction: [Actual/Actual or 30/360]

(v) Initial Broken Amount: [ ] (Insert particulars (including amount, currency and denomination) of any initial interest amounts which do not correspond with the Fixed Coupon Amounts[(s)])

1 [ Notes with a maturity of less than one year from their date of issue in respect of which the issue proceeds are to be accepted by the Republic in the United Kingdom or whose issue otherwise constitutes a contravention of Section 19 of the FSMA, must have a minimum redemption value of £100,000 or its equivalent in any other currency.]

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(vi) Final Broken Amount: [ ] (Insert particulars (including amount, currency and denomination) of any initial broken interest amounts which do not correspond with the Fixed Coupon Amounts[(s)])

(vii) Other terms relating to the method of calculating interest for Fixed Rate Notes:

16. Floating Rate Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph. Also consider whether EURO, BBA, LIBOR or EURIBOR is the appropriate reference rate after January 1, 1999)

(i) Interest Payment Dates/Specified [ ] Period(s): (Specify either a period or periods or a specific date or dates)

(ii) Interest Period [ ]

(iii) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Convention Preceding Business Day Convention /other details

(iv) Additional Business Center(s): [ ]

(v) Rate(s) of Interest: [Screen Rate Determination/ISDA Determination/other (give details)]

(vi) Party responsible for calculating the [ ] Rate(s) of Interest and Interest Amount(s) (if not the Calculation Agent):

(vii) Screen Rate Determination:

- Reference Rate: [ ]

- Interest Determination Date(s): [ ]

- Relevant Screen Page (or Alternative [ ] Screen Page, if applicable)

(viii) ISDA Determination:

- Floating Rate Option: [ ]

- Designated Maturity: [ ]

- Reset Date: [ ]

(ix) Margin(s) [plus/minus] [ ] per cent. per annum

(x) Minimum Interest Rate (if any): [ ] per cent. per annum

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(xi) Minimum Interest Rate (if any): [ ] per cent. per annum

(xii) Day Count Fraction: [Actual/365 or Actual/Actual or Actual/365 (Fixed) or Actual/360 or 30/360 or 360/360 or "Bond Basis" or 30E/360 or "Eurobond basis" – choose from options set out in Condition 5(b)(iv)]

(xiii) Full back provisions relating to the [ ] method of calculating interest (e.g. (insert details) round up provisions, denominator) and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions:

PROVISIONS RELATING TO AMORTIZATION AND REDEMPTION

17. Amortization of Principal

(i) Amortization Amount(s): [ ]

(ii) Amortization Amount(s): [ ]

(iii) If redeemable in part:

(a) Minimum Redemption Amount: [ ]

(b) Higher Redemption Amount: [ ]

(iv) Notice period (if other than as set out [Condition 7(c) applies/other] in Condition 7(c):

19. Put Option [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph)

(i) Optional Redemption Date: [ ]

(ii) Optional Redemption Amount(s) and [ ] method, if any, of calculation of such amount(s):

(iii) Notice period (if other than as set out [Condition 7(d) applies/other) in Condition 7(d):

20. Final Redemption Amount: [Par/other — include the method, if any, of calculating the same — fall- back provisions must be inserted— and party responsible for calculation if different from that specified in paragraph 16( v)

21. Early Redemption Amount: [ ] (insert amount or details — if other than any set out in Condition 7( e) — and party responsible for calculation, if different from that specified in paragraph 16( v) above)

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GENERAL PROVISIONS APPLICABLE TO THE NOTES

22. Form of Notes: [Definitive Registered Notes] [Regulation S Global Notes] [Restricted Global Note] [Not Applicable/ give details] [Definitive Bearer Note2] [Global Bearer Note(2)]

23. Additional Financial Center(s) or other (Note that this item relates to the place of special provisions relating to Payment Dates: payment, and not interest period end dates, to which item 16( ii) relates

24. Talons for future Coupons or Receipts to be [Yes/No. If yes, give details] attached to Definitive Notes (and dates on which such Talons mature):

25. Redenomination Clause: [Not Applicable/Other] (In the case of Notes denominated in the currency of one of the member states of the European Union, whether the Notes will include a redenomination clause providing for the redenomination of the Specified Currency in euro and, if so specified, the wording of the Redenomination Clause in full

26. Use of Proceeds: [ ]

27. Other terms or special conditions and/or [Not Applicable/ give details] modifications:

28. Governing Law: New York

DISTRIBUTION

29. (i) If syndicated, names of Managers: [Not Applicable/give names]

(ii) Stabilizing Dealer (if any): [Not Applicable/give names]

30. If non-syndicated, name of Dealer: [Not Applicable/give names]

31. Additional or alternative selling restrictions: [Not Applicable/give names]

OPERATIONAL INFORMATION

32. ISIN Code: [ ]

33. Common Code: [ ]

34. CUSIP: [ ]

35. CINS number (Regulation S CUSIP): [ ]

36. Any clearing system(s) other than Euroclear [Not Applicable/DTC – give name(s) and and Clearstream, Luxembourg and the number(s)]] relevant identification number(s):

2 Payments of principal and interest (if any) in respect of Bearer Definitive Notes and Bearer Notes represented by any bearer global Note will be made against presentation or surrender, as the case may be, of such Bearer Definitive Note or bearer global Note at the specified office of any Paying Agent outside of the United States.

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37. Delivery Delivery [against/free of payment]

38. Additional or different Paying Agent(s) (if any):

[LISTING APPLICATION]

39. This Pricing Supplement comprises the details required to list the issue of Notes described herein pursuant to the U.S. $ 13,500,000,000 Global Medium Term Note Program of the Lebanese Republic. The Republic accepts responsibility for the information contained in this Pricing Supplement.

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THE ISSUER

FISCAL AGENT, TRANSFER AGENT, REGISTRAR and EXCHANGE AGENT

Deutsche Bank Trust Company Americas 60 Wall Street New York New York 10005

PAYING AGENT AND TRANSFER AGENT PAYING AGENT, TRANSFER AGENT AND LISTING AGENT Deutsche Bank AG London Deutsche Bank Luxembourg S.A. Winchester House 2 Boulevard Konrad Adenauer 1 Great Winchester Street L-1115 Luxembourg London EC2N 2DB

DEALERS

ABN AMRO BANK N.V. BNP PARIBAS 250 Bishopsgate 10 Harewood Avenue London EC2M 4AA London NW1 6AA

Commerzbank Aktiengesellschaft Credit Suisse First Boston (Europe) Limited 60 Gracechurch Street One Cabot Square London EC3M 0HR London E14 4QJ

Deutsche Bank AG London J.P. Morgan Europe Limited Winchester House 125 London Wall 1 Great Winchester Street London EC2Y 5AJ London EC2N 2DB

Merrill Lynch International Morgan Stanley & Co. International Limited Merrill Lynch Financial Centre 25 Cabot Square 2 King Edward Street Canary Wharf London EC1A 1HQ London E14 4QA

Normura International plc Salomon Brothers International Limited Nomura House Citigroup Centre 1 St Martin's-le-Grand Canada Square London EC1A 4NP Canary Wharf London E14 5LB

LEGAL ADVISERS to the Republic

As to U.S. Law: As to Lebanese Law: Freshfields Bruckhause Deringer Nabil Abdel-Malek 65 Fleet Street Pasteur Street London EC4Y 1HS Pasteur 40 Building Achrafieh Beirut, Lebanon

LEGAL ADVISERS to the Dealers

As to U.S. Law: As to Lebanese Law: Dewey Ballantine Abousleiman & Partners 1 Undershaft 11 Place de L'Etoile London EC3A 8LP Riad El-Solh Sector Beirut,Central District Lebanon

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