Identifier
Created
Classification
Origin
07IRANRPODUBAI48
2007-07-16 12:45:00
CONFIDENTIAL
Iran RPO Dubai
Cable title:  

AHMADI-NEJAD IS FORCED TO MAKE SOUND ECONOMIC DECISIONS

Tags:  ECON EFIN PGOV IR 
pdf how-to read a cable
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PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0048/01 1971245
ZNY CCCCC ZZH
P 161245Z JUL 07
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0155
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0148
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0139
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0105
RUEATRS/DEPT OF TREASURY WASHINGTON DC
C O N F I D E N T I A L SECTION 01 OF 02 IRAN RPO DUBAI 000048 

SIPDIS

SIPDIS

E.O. 12958: DECL: 7/16/2017
TAGS: ECON EFIN PGOV IR
SUBJECT: AHMADI-NEJAD IS FORCED TO MAKE SOUND ECONOMIC DECISIONS

REF: RPO DUBAI 0043

RPO DUBAI 00000048 001.2 OF 002


CLASSIFIED BY: Ramin Asgard, Acting 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 02 IRAN RPO DUBAI 000048

SIPDIS

SIPDIS

E.O. 12958: DECL: 7/16/2017
TAGS: ECON EFIN PGOV IR
SUBJECT: AHMADI-NEJAD IS FORCED TO MAKE SOUND ECONOMIC DECISIONS

REF: RPO DUBAI 0043

RPO DUBAI 00000048 001.2 OF 002


CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional
Presence Office - Dubai, Department of State.
REASON: 1.4 (d)

1.(C) Summary. Populist President Ahmadi-Nejad is being forced
to announce some very unpopular decisions - under the direction
of the Supreme Leader - due to the enormous pressure the Iranian
government is under to "fix" the economy. While public
attention was still focused on gasoline rationing (reftel),
government officials quietly announced an increase in the costs
of electricity, gas, and water; and eliminated cement subsidies.
Anecdotally, IRPoff was told by a single-source that cost
controls in the dairy sector would soon be lifted as well. Most
likely the government realized it needs to make the very
unpopular decision of removing some subsidies - in the face of
severe domestic criticism and a future third UN resolution - and
is doing so as far ahead of the upcoming Majles election as
possible. It is particularly noteworthy, that the removal of
subsidies (as well as other measures like promotion of
privatization) - across several sectors - is a departure from
nearly three decades of Iranian public-sector driven economic
policy. Such a market-oriented change in economic policy is an
important - and long overdue - structural reform. It is in-line
with the current 5-year economic development plan and follows
the advice of international and domestic economists.
Ahmadi-Nejad may be taking these politically risky economic
measures to bolster Iran's economy in the face of current or
anticipated international economic pressure. End summary.

It is that bad
--------------

2.(C) According to multiple sources, the amount of criticism
leveled against the Iranian government's economic performance is
at an unprecedented level relative to recent years. Leaders are
under enormous pressure to "fix" the economy, report contacts.
Radio Free Europe reported that 50 Iranian economists met
President Ahmadi-Nejad July 13 to personally express their
dissatisfaction with his economic decisions, saying that his

policies "lack any basis in science." Despite best efforts, the
government's economic policies continue to backfire and cause
discord. In just one anecdotal story of many, IRPoff was told
that several private banks are under threat of bankruptcy after
the recent government decree lowering interest rates - a
decision for which Ahmadi-Nejad was severely criticized in the
press. According to one Iranian economist, the decision has
caused a run on all banks. People - not knowing what else to do
- are putting their money in the real estate market - causing
prices to jump yet again. The housing market in Tehran has gone
up by 70% this past year alone, said an Iranian economic
consultant.

3.(C) It appears the government is now realizing that it has to
make structurally sound, yet domestically unpopular decisions in
the face of a possible tightening of sanctions and the expected
third UN resolution. The government is most likely trying to
push these changes through all at once and as far ahead of the
upcoming Majles elections as possible. The changes also track
with Iran's 5-year economic development plan, which policymakers
must pay some nominal deference to, even if it is often ignored.
Most noteworthy is that the decision to remove subsidies tracks
with the advice of international and domestic analysts and is
unprecedented in the history of the Islamic Republic.

Recent unpopular decisions
--------------

4.(C) After several earlier postponements, the IRIG announced on
midnight June 26, that gasoline would be rationed as of June 27
(reftel). While the public was still reeling from the
ramifications of the announcement, the General Manager of
National Gas of Iran Seyyed Reza Kasa'izadeh announced July 4
that rates for electricity, gas and water would increase by 15%
"next week." Referring to gasoline rationing at the
inauguration ceremony for Shahid Reyis Ali Delvari Dam in
Bushehr Province, Ahmadi-Nejad said July 5, "this type of
conservation could also be applied to electricity consumption."
Mehr news agency reported July 7 that the cement subsidy was
being eliminated. IRPoff was told July 1 by an Iranian
consultant that dairy farmers were finally given the green light
to raise prices after several smaller farms went bankrupt
earlier this year - allegedly the government has been
artificially holding prices steady. The consultant claimed that
prices of butter, milk, cheese, etc are about to increase
20-25%. (Note: Contacts have recently alleged that there is a

RPO DUBAI 00000048 002.2 OF 002


butter shortage in general - which is why import tax on butter
was just pushed down to 0%. Endnote)

5.(C) Comment. The fact that the government - under the
direction of the Supreme Leader - appears to be acting on the
recommendations of sound economic doctrine and advice from its
own economists to remove some subsidies would seem to indicate
that the government is at its reckoning point in terms of its
domestic economic policy. It is coming to the realization that
it can no longer continue its reckless economic policies - even
with high oil prices. Instead, Iran may well be seeking to
bolster its heretofore fragile economy through long overdue
structural policy adjustments such as diversification,
privatization, lifting of subsidies, etc., in an effort to
withstand building international pressures. This policy change
may augur needed adjustments to planned UN or international
community economic sanctions approaches.
ASGARD