MINISTER: "PRESSURE" LED TO PRICE STABILIZATION

C O N F I D E N T I A L MUSCAT 000148

SIPDIS

SIPDIS

STATE FOR NEA/ARP
COMMERCE FOR ITA THOFFMAN

E.O. 12958: DECL: 02/18/2018
TAGS: ECON PGOV MU
SUBJECT: MINISTER: "PRESSURE" LED TO PRICE STABILIZATION
PLAN

REF: MUSCAT 123

Classified By: Ambassador Gary A. Grappo for Reasons 1.4 (b,d)


1. (C) On February 16, the Ambassador raised the Sultan's
price stabilization initiatives (reftel) with Commerce and
Industry Minister Maqbool bin Ali Sultan. Maqbool noted that
the government had been "under a lot of pressure" to take
action against the rising level of inflation, which was
reported by the Ministry of National Economy to be at over 8%
in December -- the highest in 16 years. The Minister,
however, was not surprised about such price increases when
"there are so many projects underway."


2. (C) The Minister commented that the Sultan's decision to
reduce wheat prices would affect the government's profits at
its flour mill "in a big way." (Note: The Commerce
Ministry's Director General of Planning also serves as Oman
Flour Mills' chairperson. The government is the majority
shareholder of the company. End Note.) Maqbool added that
his ministry has been in discussion with the retail industry
to urge them to recognize their "social responsibility" with
regard to the price of basic food products, such as rice,
sugar, cooking oil, flour, tea, and milk. The Ministry is
also watching closely prices for cement and steel. "We are
conducting convincing exercises," mused the Minister. "A lot
can be done this way." To prevent hoarding by wholesalers,
Maqbool remarked that the Ministry of National Economy has
lent personnel to help Commerce and Industry officials
conduct inspections of warehouses.


3. (C) Maqbool stated that these measures were taken to avoid
establishing additional subsidies, which he noted had been on
the rise in Saudi Arabia and Qatar. "I am against
subsidies," said the Minister. "They don't work in the
long-term." Maqbool elaborated that in lieu of further
subsidies, the government had increased public sector wages
in a tiered format to benefit those who needed the bump the
most.


4. (C) Comment: The Minister's statements reflect the
incremental approach the government has adopted toward
cushioning the effect of rising prices. They also reflect
the level of the Sultan's involvement in the decision-making
process. Embassy expects that the government, after rolling
out its public sector wage hike and augmenting its subsidy
program, will continue to employ "consultative mechanisms" --
such as committees to study the dynamics of rent and food
prices -- to show the public that it remains engaged on cost
of living issues. End comment.
GRAPPO