EYEING 2009: AHMADINEJAD PRESSES AHEAD WITH ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 02 IRAN RPO DUBAI 000020 SIPDIS SIPDIS E.O. 12958: DECL: 4/17/2018 TAGS: PGOV ECON IR SUBJECT: EYEING 2009: AHMADINEJAD PRESSES AHEAD WITH ECONOMIC REFORM REF: A. RPO DUBAI 0015; B. 2007 RPO DUBAI 0048 RPO DUBAI 00000020 001.2 OF 002 CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional Presence Office, Department of State. REASON: 1.4 (d) 1.(C) Summary: The economy was the major focus of campaigning in the March 2008 Majles elections (ref A),and will most likely be a key campaign issue for presidential candidates next year. Failing to adequately redistribute oil wealth to the satisfaction of the Iranian people, as promised in his 2005 campaign, President Ahmadinejad is attempting to turn his economic record around before next year's elections by implementing former presidential candidate Mehdi Karroubi's populist plan to provide "50 thousand tomans for every Iranian." According to press reports, Ahmadinejad plans to phase out government subsidies of goods in favor of direct, monthly cash payments to every Iranian. Economists, while supportive of the plan in principle, are skeptical of the ninth government's capacity to effectively implement such a program. End Summary. Economy takes center stage -------------- 2.(C) Despite increased oil revenue and continued economic growth of 5.3% -- according to latest official figures; rising inflation, sustained high-liquidity, continued high-unemployment rates, and international sanctions have given Iranians much to complain about when it comes to the economy. The economy was a key campaign issue for parliamentarians in the March elections (ref A),and will most likely be hotly debated in next year's presidential elections as well. In an April 2008 World Public Opinion poll, a 49% plurality of Iranians said they were "mostly dissatisfied," with the economy. Economists inside Iran have repeatedly and publicly criticized Ahmadinejad for his failure to redistribute oil wealth and manage the economy effectively (ref B). Ahmadinejad responding to public concern? -------------- 3.(C) Ahmadinejad, in an apparent attempt to win electorate favor in the run-up to next year's presidential elections, announced at the start of the Iranian New Year (March 20),that he has a "new economic plan" that includes "big reform." According to an April 8 article in Rooz Online, if reports are accurate, after 2 1/2 years in office Ahmadinejad and his economic advisors have decided to implement the campaign promise of 2005 presidential candidate Mehdi Karroubi. During the ninth presidential elections, Karroubi's campaign promise was direct cash subsidies of "50 thousand Tomans (roughly $50 USD) for every Iranian." 4.(SBU) An anonymous "informed source" was quoted by Fars News as saying that "gradual payment of cash subsidies" is among the new policies set to be announced by Ahmadinejad. The source added that "in the first phase of the program, energy subsidies such as gasoline subsidies will be deposited into accounts of every individual, and gradually people with high incomes will be removed from the list of energy subsidies recipients. In the next phase, essential goods subsidies such as wheat and bread subsidies will be paid out in cash." Echoing reports in Fars, the website Alef (affiliated with conservative MP Ahmad Tavakkoli) reported that "according to the most probable scenario suggested in this program, energy and essential goods subsidies will be paid in cash to different target groups. In the program's initial drafts, it is expected that with the phasing out of these subsidies, their equal in cash payments be paid directly to all Iranian citizens. An initial estimate has placed the payment for year 1387 (2008-2009) at 50 thousand tomans per month per person." Economists supportive, but skeptical -------------- 5.(SBU) Since the announcement of the subsidy reform, the Iranian press has played host to a milange of editorials from economists. E'temad newspaper carried one April 12 titled, "The cash subsidy scheme might be another blunder in the economy." In the article, the author claims that while the program has theoretical merit, implementation by the ninth government could have a "highly damaging and dangerous impact on our economy." "Few remarks by government experts suggest that the necessary RPO DUBAI 00000020 002.2 OF 002 studies regarding the operational aspects of this project have been carried out comprehensively by an expert team and that the necessary ground for implementing the scheme is now ready...Previous experience in the ninth government shows that the government is usually unaware of repercussions and consequences of its economic policies and frequently rely on good will to resolve the country's economic issues," claimed the editorialist. 6.(C) Comment: Reforming Iran's current subsidy regime could be a positive step towards improving the overall health of the economy. However, as the economist pointed out if not implemented properly it could drastically add to domestic woes. Without careful management of the subsidy reform, inflation could skyrocket as prices adjust to market forces and further liquidity is injected into an already satiated market. ASGARD