Identifier
Created
Classification
Origin
07IRANRPODUBAI30
2007-05-03 13:42:00
CONFIDENTIAL
Iran RPO Dubai
Cable title:  

IRANIAN ECONOMIC POLICY: AN EASY TARGET FOR CRITICS

Tags:  PGOV ECON IR 
pdf how-to read a cable
VZCZCXRO4498
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0030/01 1231342
ZNY CCCCC ZZH
P 031342Z MAY 07
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0111
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0104
RUEHDE/AMCONSUL DUBAI PRIORITY 0103
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0063
RUEHAD/USDAO ABU DHABI TC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 03 IRAN RPO DUBAI 000030 

SIPDIS

SIPDIS

E.O. 12958: DECL: 5/3/2017
TAGS: PGOV ECON IR
SUBJECT: IRANIAN ECONOMIC POLICY: AN EASY TARGET FOR CRITICS

REF: RPO DUBAI 0011

RPO DUBAI 00000030 001.2 OF 003


CLASSIFIED BY: Jillian Burns, Director, Iran Regional Presence
Office - Dubai, Department of State.
REASON: 1.4 (d)
C O N F I D E N T I A L SECTION 01 OF 03 IRAN RPO DUBAI 000030

SIPDIS

SIPDIS

E.O. 12958: DECL: 5/3/2017
TAGS: PGOV ECON IR
SUBJECT: IRANIAN ECONOMIC POLICY: AN EASY TARGET FOR CRITICS

REF: RPO DUBAI 0011

RPO DUBAI 00000030 001.2 OF 003


CLASSIFIED BY: Jillian Burns, Director, Iran Regional Presence
Office - Dubai, Department of State.
REASON: 1.4 (d)
1.(C) Summary. While IRPO contacts have long criticized Iranian
economic policy in private conversations, top figures in Iran
appear increasingly vocal in public condemnations of President
Ahmadi-Nejad's programs. After a lull in criticism during the
Nowruz holiday and the British sailor crisis, the pace has
increased as inflation rises and new sanctions loom ahead. The
head of the Majles Research Center lambasted the government for
sidelining experts and technocrats. Majles deputies are
criticizing the government's inability to address poverty and
unemployment. The Majles planning and budget committee cautions
the government against borrowing from the foreign exchange
account to finance current expenditures. Ex-presidential
candidate and advisor to the Supreme Leader Ali Akbar Nateq-Nuri
called on the president to listen to economic advisors and make
"prudent" policies, and former President Rafsanjani advocated
for a more "balanced" economic approach. Although general
analysis suggests that high oil prices will keep the economy
afloat in spite of Ahmadi-Nejad's mismanagement, some contacts
are increasingly doubtful that oil profits will offset the
rapidly declining economic situation. End Summary.

Sidelining of experts
--------------

2.(U) "The ninth government does not pay sufficient attention to
expert views and methods before taking decisions, and I warn
against the low efficiency of the ninth government," said Majles
deputy and head of the Majles Research Center Ahmad Tavakkoli,
who ran against Ahmadi-Nejad in the last presidential election,
at a conference April 25 on the prospects for Iran's 20-year
plan. Advisor to the Supreme Leader Ali Akbar Nateq-Nuri
publicly lamented "wasted" human resources and asserted that
skilled ministerial officials are losing their jobs - due to
their political affiliations -- to "less adept allies of those
in power." "The continuation of this situation results in
stagnation and a waste of human resources," Nateq-Nuri said in

an interview published by the Iranian Students News Agency
(ISNA) April 27.

3.(C) The comments by Tavakkoli and Nateq-Nuri are often echoed
by IRPO contacts who claim that respected academics were forced
into early retirement when Ahmadi-Nejad came to power and that
skilled technocrats have frequently been sidelined to positions
of less influence or ousted from their government positions all
together. One business contact alleged that many of these
technocrats are relocating to Dubai. (Note. IRPO cannot confirm
this allegation but will continue to track the diaspora.
Endnote)

Poverty
--------------

4.(U) Majles social committee member Musa-Reza Servati said that
welfare payments should increase by 15% to keep pace with
inflation, "otherwise the country will face a rise in the ranks
of the needy and an increase in social maladies this year."
Mehr News claimed on April 28 that government assistance levels
do not adequately address the needs of the poor, particularly as
"soaring inflation rates lowers their standard of living every
year." The article, without citing the source of its
statistics, claimed that 12 million people in Iran live below
the poverty line, constituting roughly 18.5% of the population.
Another six million are reportedly "not supported by any
foundation or organization and thus must fend for themselves in
the face of overwhelming difficulties." (Note: Per the
Ministry of Social Welfare, anyone with an income of less than
roughly $400/month lives below the poverty line and average
government salaries are $300/month. Endnote)

5.(C) Most contacts report prices are skyrocketing across the
board and that wages are not keeping pace with inflation. One
Dubai-based financial analyst said the value of her house in
Tehran doubled in just one year. She noted that as prices rise,
Iranians are forced to turn to inferior knock-offs, including
counterfeit medical supplies. On the other hand, an economics
professor from Shiraz University recently told IRPoff that
concern over inflation is severely overblown in Iran, and that
current rates are consistent with the high levels of inflation
seen since the revolution. He claimed that the economic
situation has not drastically changed but that expectations
increased in response to Ahmadi-Nejad's campaign promise to
bring oil wealth to people's tables. The professor is the sole
defender of Iran's inflation rates that IRPoff has met in recent
months. Another contact complained that Iran is turning into a
welfare state, where increasingly people are opting not to work

RPO DUBAI 00000030 002.2 OF 003


if the available work is not in their field.

Foreign exchange account
--------------

6.(U) Majles Planning and Budget Committee member Ali Dirbaz
told ISNA that "growth of liquidity and inflation is the outcome
of the decisions of the past two years. To overcome this
deficiency we must stop repeating what we have done. The
current expenditures must not be financed by the foreign
reserves."

7.(C) Business contacts and economists frequently complain to
IRPoff of over-borrowing from the foreign exchange account (aka
Oil Stabilization Fund). One economist noted that by purchasing
rials from the Central Bank of Iran with the foreign exchange
funds, Ahmadi-Nejad in effect added an additional 36 percent of
cash into the market that previously did not exist. This cash,
or liquidity, needs to go somewhere. First, said the economist,
people bought up all the gold; once gold prices skyrocketed,
people began investing in the real estate market. (Note: This
is a single-source comment but from a historically credible
source. Endnote)

Privatization
--------------

8.(U) Despite the Supreme Leader calls February 19 for speedier
privatization (reftel),it appears Iran is headed in the
opposite direction. Majles Research Center head Tavakkoli
complained that the Iranian government has "chanted the slogan
of privatization" the last 16 years, all the while slowly
increasing the number of state-run companies. Tavakkoli alleged
that in 2004, 531 government companies were listed on the
national budget, whereas that number now exceeds 2,500.
Tavakkoli argues that if Iran is looking to model its economy
after that of another country, it should look to China as "we
must defend economic efficiency and increasing national wealth;
and we must ensure social justices and the fair distribution of
national wealth and national assets."

9.(C) IRPO contacts have reinforced this view. A political
science professor recently claimed to IRPoffs that despite
rhetoric about privatization, the public sector in Iran has
actually grown from 60 to 75%. The Shiraz economics professor
said Iranians have been hearing of privatization efforts for
years and are doubtful such plans will be actualized. Others
claim, however, that talk of pending privatization has caused
business slowdowns as companies slotted for privatization feel
themselves to be in a holding pattern. That said, many contacts
put greater blame for slowdown in business and capital
expenditure on political uncertainties as Iran's international
relations deteriorate.

Way forward
--------------

10.(U) Speaking to economic students at the end of April,
Expediency Council Chairman Rafsanjani implied that the Islamic
Republic has not been able to implement its long-term economic
policies due to the Iran-Iraq war that lasted throughout most of
the 1980s. Since 1988, Iran focused on reconstruction of the
country, he said. Now, in order to establish social welfare and
increase employment opportunities, Iran should adopt a "balanced
policy" to implement "incremental change" in Iran, opined
Rafsanjani. In additional to a ditente policy in foreign
relations, the components of this policy include empowering the
private sector, balancing the foreign exchange rate, and
balancing subsidies.

11.(C) Several reformist-leaning Iranians told IRPoff that
although Rafsanjani would not normally be their "first choice"
for president, his ideas are logical and preferable to the
policies of the current administration. One complained that
Ahmadi-Nejad does not understand economics and that his policies
"don't make sense." To illustrate his point, he said
Ahmadi-Nejad raised tariffs on mobile phones from 4 to 64
percent, despite the fact that Iran does not produce mobile
phone sets locally and therefore there is no domestic product to
protect. (Note: IRPoff was later told by another source that
the tariff was put in place to assist a "connected" businessman
who was having difficulty unloading mass quantities of phones he
had already imported. Endnote) In contrast, one economist
said, "Rafsanjani has power and money - now he is looking to
create a legacy that will last beyond his lifetime. The other
guys (including the Supreme Leader) are too busy managing the

RPO DUBAI 00000030 003.2 OF 003


details to stay in power instead of thinking about what's good
for the Iranian people."

12.(C) Comment: The current government's economic policies have
been under frequent attack, including the open letter to
Ahmadi-Nejad in June 2006 in which 50 economists laid out their
ten main "concerns," stating "the policies of your
administration, if continued, can result in a still graver
situation for the country's economy." However, it appears that
such criticism is getting more frequent and is coming from more
prominent sources. While current and possible future sanctions
on Iran clearly have a chilling effect on the business climate,
it is noteworthy that these Iranians put as much blame on
internal economic mismanagement by the current government.
Contacts previously said that as long as oil dollars are coming
in, Iran's economy could float for years to come. However,
IRPoff has noticed a new level of despair and hopelessness in
Iranian contacts in the past month, with some saying oil profits
may not be enough to off-set Iran's economic problems. Some
Dubai-based Iranians claim that the economic situation is
driving out even staunch nationalists from Iran, primarily for
Dubai. One Iranian business student - who is the son of a
former high level official in Iran - first complained to IRPoff
that Iranian-Americans and the media only present the negative
side of Iran's economy. However, when asked to point out
something positive, he told IRPoff he could do so in 2-3 years.
End Comment
BURNS