SUBSIDY REFORM IS KEY FEATURE OF AHMADINEJAD'S NEW ECONOMIC

C O N F I D E N T I A L SECTION 01 OF 03 RPO DUBAI 000036

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E.O. 12958: DECL: 6/25/2018
TAGS: IR PGOV ECON
SUBJECT: SUBSIDY REFORM IS KEY FEATURE OF AHMADINEJAD'S NEW ECONOMIC
PLAN

REF: RPO DUBAI 0020

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

1.(C) Summary: President Ahmadinejad presented his new plan to
fix the Iranian economy in a televised address to the nation
June 24. Ahmadinejad listed his view of the problems facing the
Iranian economy, citing slow economic growth, unemployment,
inflation, waste of national assets, extravagance, and the
growing gap between rich and poor as the key issues. The
boldest feature of the economic plan is a reform of the subsidy
system, an idea that the president first proposed in April,
following the most recent parliamentary elections (reftel).
Ahmadinejad also stressed the need for banking reform and a new
tax collection system. The subsidy reform proposal would
represent a fairly big step, since the current system features
heavy subsidies for gasoline, electricity, food staples and
other consumer goods. However, it is unclear when and how the
plan will be implemented, if it is approved by the legislature.
End summary.

Iran's economic problems: number one--slow economic growth

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2.(SBU) President Ahmadinejad unveiled his new plan to address
the problems facing the Iranian economy in a televised address
on state television June 24. Ahmadinejad began his assessment
of Iran's economic problems by citing slow economic growth as a
key deficiency. "We make huge investments and enjoy a high
quality and quantity of human resources, the country's top
managers and administrative organs work some 20 hours a day, but
the economic growth of our country is not constant and
sustainable, suffering greatly from [the] slightest shocks." He
called Iran's economic growth last year "satisfactory" but
admitted "it could have also been better." Referring to Iran's
economic growth since 1998 (i.e. including the Khatami era),he
said the curve of the country's economic growth since that time
"shows great fluctuations."

Unemployment and inflation

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3.(SBU) Unemployment and inflation are Iran's second and third
major economic problems, the president said. Unemployment has
been a problem in Iran for 40 years, Ahmadinejad said, lamenting
that the rate has been in the double digits for most of the past
20 years. "Of course we tried to decrease the unemployment rate
to less than 11%, but this rate is not constant and has constant
fluctuations," Ahmadinejad offered before moving on to the issue
of inflation. His presentation did not include a way to address
the problem of unemployment, which is one of the economic issues
of most direct concern to the average Iranian.

4.(SBU) On inflation, Ahmadinejad said that this also has
affected Iran for the past 50 years, citing the "country's total
dependence on oil incomes" as the main cause of inflation. "In
[the] country's development plan, efforts have been made to
lower this inflation rate, but that has not happened and as a
result we inject liquidity to the system in [the] form of making
investments, but the output is not satisfactory," the president
said. Complaining about the economic planning problems created
by inflation, Ahmadinejad added, "Inflation is among the major
roots adding to deepening the social gaps and depriving the
government of the chance to devise proper economic plans, while
creating problems for the implementation of the government's
various plans, and we therefore need to harness and decrease our
national economy's inflation rate."

Waste, extravagance, and wealth disparity

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5.(SBU) Continuing the litany of problems affecting Iran's
economy, Ahmadinejad cited waste of national assets and
extravagance as two major issues. "Currently the greatest waste
is in consuming energy in our country...and we can for instance
particularly refer to the waste of different types of energy,
fuel, bread, electricity, and time." Extravagance also plagues
the Iranian economy, he said, "While our culture emphatically
advises us to avoid it." Briefly mentioning the drought
affecting Iran this summer, the president cited the higher water

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usage in the agricultural sector as an example of extravagance.

6.(SBU) Ahmadinejad attempted to reinforce his populist message
by then drawing attention to the widening gap between rich and
poor social classes in Iran. "Lowering this gap was one of the
ideals of our revolution...what bothers us is that a large group
[of] our society is deprived...since we are all members of the
same family it is not right for some members to consume several
times more..." Ahmadinejad said.

Addressing the problems: subsidy and customs reform

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7.(SBU) The feature of the president's economic plan is a reform
of the subsidy system, an idea that he first proposed in April,
following the most recent parliamentary elections (reftel). In
his June 24 speech, Ahmadinejad said that the subsidies were
meant to "support the low income and deprived social groups,"
and should be distributed in a "goal-oriented manner." He
added, "The current apparatus of paying subsidies is very
problematic, since it is meant to help the deprived classes, but
it works in the opposite direction." Ahmadinejad's new plan
proposes direct cash payments to low income families instead of
subsidies. "In [the] near future the National Statistics Center
of Iran will issue a communiqui so that those who need to apply
for subsidies would fill out forms that will be evaluated, so
that with highest benefits we would leave behind the goal
orientation period of subsidies," he said.

8.(U) Ahmadinejad also called for changes in the customs system.
"There is no connection link among the different customs
offices nationwide either, which is why despite the hard work,
the problems remain unsolved...the government is after solving
this problem through ratification of a law," he said.

Tax and banking reform

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9.(U) Calling to attention the problems of the tax system,
Ahmadinejad said, "Since we do not have a proper tax collection
system, many of our citizens do not even know they have to pay
taxes." To address that problem, "the government has devised
the comprehensive, automatic information and tax collection
system, that based on proper training and sufficient information
dissemination can improve the country's tax collection system."

10.(SBU) While explicitly refraining from criticizing the
managers of Iran's banks, whom he called "among the most
hardworking social groups," the president said the banking
system is also in need of reform. The current banking system is
not capable of "proper supervision over the process of economic
activities," Ahmadinejad said, making a vague reference to
corruption. He continued, "It is possible for a small group of
people to take advantage of this system illegally, but if this
structure would be reformed this problem, too, would be solved."


Majles to examine plan

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11.(U) The president's economic reform plan will now need to be
reviewed by the Majles. Majles speaker Ali Larijani told
domestic press that a special economic committee will be
established in parliament to study the plan. According to Fars
News, Larijani said that such a major economic reform requires a
comprehensive study and careful preparations, and added his
recommendation that the government should move very cautiously
in regard to the economic reform plan and there should be no
hurry. He noted that no exact date has been set for the
implementation of the plan.

12.(C) Comment: In the presentation of his new economic reform
plan, as reported by Iranian press, Ahmadinejad spent more time
listing the many problems that plague that Iranian economy than
proposing specific methods to address those problems. The
exception was the proposed subsidy reform plan, which if
enacted, would represent a fairly bold departure from past
practice and run the risk of triggering public outcry. The
current system features heavy subsidies for gasoline,

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electricity, food staples and other consumer goods, which
Iranians have relied on for decades. However, it is unclear how
and when the plan would be implemented, if it is approved by the
parliament. Majles approval of the president's plan is not a
foregone conclusion, particularly under the supervision of new
Majles speaker Larijani. Larijani is a conservative critic of
the president, whom some observers list as a potential
challenger in the 2009 Iranian presidential elections. He may
not inclined to assist Ahmadinejad's tarnished image as an
economic steward in advance of these elections.ASGARD