MAJLES CLASHES WITH AHMADINEJAD ON BUDGET

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SIPDIS

SIPDIS

E.O. 12958: DECL: 1/23/2018
TAGS: ECON PGOV IR
SUBJECT: MAJLES CLASHES WITH AHMADINEJAD ON BUDGET

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

1.(SBU) Summary: President Ahmadinejad presented his budget for
the Iranian year 1387 (March 2008-March 2009) to parliament
January 7. Appealing to the electorate ahead of the March
parliamentary elections, Ahmadinejad again shopped the idea of
redistributing oil wealth and raised total expenditures by 19%.
This year's budget however, streamlined compared to years past,
is creating quite a controversy. Many MPs are declaring it
violates sections of the constitution and that it does not
provide a clear break down of sources of funding and how those
funds will be used. The Director of the Majles Research Center
Ahmad Tavakoli said MPs have three options: reject the budget
altogether; try to amend the budget; or use the 1386 budget and
simply adjust for inflation. Etemaad-e-Melli reported January
22 that MP Naderan of the Majles budget and planning commission
said the budget bill is one issue in which the government will
have a taste of more Majles disagreement. End summary.

The new budget

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2.(SBU) President Ahmadinejad submitted his 2008-2009 (Iranian
year 1387) budget bill to the Majles January 7, calling it the
"operational directive" for the government, according to press
reports. The 600-page bill was drastically shortened from the
thousands of pages presented in previous years; a move the
president said will make the document more comprehensible and
transparent. Zawya reported January 23 that the budget bill
projects a 19% increase in total expenditures to a record $295.6
billion, up from $248.8 billion. Appealing to the electorate
ahead of the March parliamentary elections, Ahmadinejad told the
Majles that ordinary people expect to benefit from record oil
prices and "the government and parliament cannot stay
indifferent to this expectation...we need to redistribute the
oil money to the people." Numerous contacts have said that
there is a growing frustration inside Iran, not with poverty per
se, but with the increasing disparity of wealth and the
declining middle class. Multiple sources have said a greater
number of BMWs and Mercedes luxury vehicles can be seen on the
streets of Tehran. (Note: Due to tariffs such vehicles are
$200,000-$250,000 and are reportedly purchased via upfront cash
transactions. Endnote)

3.(SBU) The president balanced the budget based on an oil price
basis of $39.70/barrel, an 18% increase over last year's budget,
but well below current oil prices which are close to
$100/barrel. According to Zawya, the president said that the
budget would need $36 billion in foreign currency, which will
cover petroleum imports and the cost of developing public
transport.

Critics of the bill

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4.(C) According to a political/economic analyst within Iran, the
1387 budget is generating "important" controversy, with many MPs
claiming it violates the portion of the constitution dealing
with budget preparation and governmental accounting.

5.(C) Parliamentarians are concerned that the government has not
provided a clear, transparent break-down on where the monies are
coming from and how they will be spent, said the analyst.
Reportedly, many Majles members are worried that the document
gives an unprecedented free hand to the cabinet ministries to
spend their budgets as they see fit. This is not only in
violation of the law, argue the MPs, but it also reduces
parliamentary control over government spending - a point that is
particularly salient if the new parliament elected in March 2008
is controlled by opposition groups, said the analyst. (Comment:
It seems unlikely that reformers will regain control of the
Majles. Election coverage to be reported septel. End comment)

6.(SBU) Tehran's conservative MP and Director of the Majles
Research Center Ahmad Tavakoli, said the parliament has three
available options in regards to the budget:

-- reject the budget altogether. However the government would
then not have enough time to prepare a new document before
year's end (March 19).

-- amend the budget and send it back to the government for

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review. Many favor this approach in parliament, however the
current administration has rarely accepted criticism from
parliament. If the Majles opts for this option, Majles Speaker
Haddad-Adel has reportedly been given the task of convincing
Ahmadinejad to accept the amendments with the promise that the
Majles will move quickly to ratify the budget.

-- scrap budget 1387 and adjust the 1386 budget (2007-2008)
budget for inflation.

7.(SBU) Etemaad-e-Melli reported January 22 that MP Naderan of
the Majles budget and planning commission said he personally
believes the budget bill will not be rejected but will undergo
drastic changes in form and content. He said that the budget
bill is one issue in which the government will have a taste of
more Majles disagreement.

8.(C) Comment. The president's economic critics will most
likely not approve of the new budget. With inflation officially
running at 19% (according to Iran's Central Bank) and liquidity
growth at 40% last year, the 19% increase in government spending
will only add to inflationary pressures. However it does not
appear that Ahmadinejad will curb his spending any time soon, as
it is a favored tool of his to buy voters, particularly in the
provinces. The current administration has chronically failed to
invest their oil windfall revenues in economic programs that
could assist with long-term economic growth and stability, in
favor of myopic short-term handouts.
ASGARD