NO GOOD DEED GOES UNPUNISHED IN IRAN: THE CASE OF CENTRAL

S E C R E T SECTION 01 OF 02 IRAN RPO DUBAI 000022

SIPDIS

SIPDIS

E.O. 12958: DECL: 4/24/2018
TAGS: ECON EFIN PGOV IR
SUBJECT: NO GOOD DEED GOES UNPUNISHED IN IRAN: THE CASE OF CENTRAL
BANK GOVERNOR TAHMASEB MAZAHERI KHORZANI

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

1.(S) Summary: Iran's Central Bank governor may be the next
casualty in President Ahmadinejad's cabinet reshuffling,
according to press reports. An economic consultant in Iran said
that Central Bank governor Tahmasab Mazaheri ordered banks to
begin implementing five new directives, in a bid to regulate the
national financial market and curb inflation April 19, without
first getting approval from Ahmadinejad. Instead, Mazaheri
reportedly submitted his plan to Ahmadinejad's government on the
same day that he ordered banks to implement it. On April 20,
Ahmadinejad asked his Economic Commission to review the plan and
called a meeting of top bankers in Qom. Mazaheri was noticeably
missing from the meeting, which has prompted speculation that he
will soon be replaced. Mazaheri was reportedly fired from his
post as Economic Minister under Khatami after he refused to
release monies from the Oil Stabilization Fund to influential
reformists. If reports of his dismissal are accurate, it again
demonstrates the continuing difficulties facing ethical
technocrats within Iran's crony-laden centralized economy. End
Summary.

Mazaheri's plan for controlling inflation

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2.(S) In the wake of the most recent dismissals of the Interior
Minister and the Economic and Finance Minister, press articles
are speculating that Central Bank of Iran (CBI) governor
Tahmasab Mazaheri may be the next to go - despite having been on
the job for less than one year. The technocratic Mazaheri
reportedly ordered banks on April 19 to begin implementing five
new directives, in a bid to regulate the national financial
market and curb inflation, said an economic consultant in Iran.
The directives state that:

-- Bank Maskan will be the sole source of housing loans to
first-time home buyers - state owned and private banks as well
as financial and credit institutions will no longer be allowed
to do so.

-- Banks can not rely on the CBI for cash when offering credit
to eligible clients.

-- Banks can no longer use the deposits of usury-free savings
accounts for investment in other areas. CBI approval could be
granted in exceptional circumstances, such as investment in key
development projects and plans that can enhance efficiency and
create new job opportunities in "deprived" areas.

-- Bank interest rates have been determined according to the
level of inflation plus a marginal profit to be determined. The
CBI has set inflation in the last Iranian year at 18 percent,
meaning the final banking rate is expected to rise from the
current 12 percent in state banks to above 18 percent.

-- 33 percent of all banking credits will go to industries and
mines, 25 percent to the agricultural sector, 16 percent to
housing and construction, 17 percent to commerce and services,
and about 9 percent to exports.

3.(S) According to the consultant, expected benefits of the plan
are as follows:

-- corruption could be curbed by minimizing the activities of
intermediaries in the financial network, if Bank Maskan was the
sole financial entity offering housing and construction loans.

-- a better balance between supply and demand, enhanced
management efficiency, and the ability to secure sufficient
funds for the housing and construction markets.

-- could help the government to control and absorb excess
liquidity from the market, a main factor behind the high
inflation rates.

Government reaction to Mazaheri's directive

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3.(S) Mazaheri forwarded the directives to the banks and to
Ahmadinejad's government at the same time, alleged the
consultant, without getting the government's buy-off before

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directing banks to implement his plan. Labor Minister Mohammad
Jahromi, who is reportedly a close ally of president Ahmadinejad
and considered to be the government's economic spokesperson,
came out on April 20 opposing the CBI package on grounds that
increased banking rates of return will only hurt local
industries, especially small to medium sized enterprises.
Ahmadinejad also reportedly asked the Economic Commission of the
government to revise the CBI plan, and called a meeting of bank
governors April 20, from which Mazaheri was noticeably absent,
according to press reports.



Bio notes

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4.(C) Mazaheri served as the Economic and Finance Minister under
former President Khatami, until he was reportedly let go for
refusing to release monies from the oil stabilization fund to
influential reformists for unspecified uses. Upon his dismissal
he became the Managing Director of the Export Development Bank
of Iran (EDBI). When Ahmadinejad came to power in 2005,
Mazaheri was appointed Deputy Economic and Finance Minister
under now ex-Minister, Danesh-Jafari. According to press
reports, Danesh-Jafari lobbied hard for Mazaheri's appointment
as CBI governor in the fall of 2007.

5.(S) Comment: With a reputation as a technocrat and an
apparent track record of probity in his economic stewardship
Mazaheri is an individual who could, given the opportunity,
positively influence Iran's economy. Unfortunately for him --
and perhaps also for the Iranian economy--he may be made a
scapegoat, again.
ASGARD