IRAN'S BAZAAR STRIKES HIGHLIGHT RESISTANCE TO ECONOMIC

C O N F I D E N T I A L RPO DUBAI 000048

SIPDIS

E.O. 12958: DECL: 10/23/2018
TAGS: PGOV ECON ETRD SOCI IR
SUBJECT: IRAN'S BAZAAR STRIKES HIGHLIGHT RESISTANCE TO ECONOMIC

REFORMS

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


1. (U) Summary: Store owners in bazaars in Esfahan, Mashad,
Tabriz, and Tehran shut down their businesses in early October
to protest President Ahmedinejad's decision to levy a three
percent value added tax, which was implemented on Sept 22.
According to press reports, merchants feared that the increase
of consumer products prices will lead to a decreased demand in
an economy already plagued by 30 percent inflation. In
response, Ahmedinejad halted the implementation of the law by
two months. The government concession to the merchants is a
move to placate a power base with traditional, but waning, ties
to Iran's clerical structure and influence over internal
politics. End summary.


2. (U) The strike against the value added tax (VAT) started in
Esfahan by gold merchants on October 4 and spread throughout the
city. The Iran daily newspaper Etemad reported that Esfahani
store owners threatened to close their bank accounts, and
pro-Khameini news agency, Yari, said the regime's special forces
dispersed a silent demonstration of 500-1,000 merchants and
closed the city centre to traffic. On October 9, the protests
spread to other Iranian cities, and on October 12, Tehran's
market shut completely. A leader of the National Guilds
Association, Mohammad Azad, said `unknown persons' threatened to
set fire to shops that did not shut down. Merchants protested
the levy for its lack of transparency and a further expansion of
the underground economy. One seller explained that a three
percent tax levy translates to a 740,000 toman (USD 750)
increase per kilogram of gold.


3. (U) The strike occurred during President Ahmedinejad's
roll-out of his Economic Transformation Plan that he hopes will
secure his re-election in 2009. The director of the Iranian
National Tax Administration (INTA) Ali-Akbar Arab Mazar said
that the VAT will help curb money laundering and will fulfill
one of the requirements of World Trade Organization membership.
Analysts say, though, that the bazaari protest is a symbol of
dissatisfaction with Ahmedinejad's recent economic policies,
including gas rationing, the cessation of subsidies to
manufacturers, and potential plans to cut energy subsidies. One
trader told a news agency, "We should not be happy with anything
less than [the] collapse of [Mr.] Ahmadi-Nejad's government."


4. (U) Traditionally, the bazaaris have been seen as a political
litmus test because of the merchants' close ties to the clergy.
Some analysts say that Ahmedinejad's delayed implementation of
the policy and directive to his finance minister to find a
suitable action plan in collaboration with the unions means
bazaaris have maintained a degree of influence over internal
politics. An INTA statement indicates its desire to cooperate
with the bazaaris, "the country's tax office hereby announces
its readiness to offer the required facilities to implement the
law in order to remove the concerns of the respected traders,
organizing coordination meetings and providing training and
information to the respected officials of the storekeepers'
unions."


5. (C) Comment: These VAT protests are the first major strike by
merchants since 1979, when they helped overthrow the Shah, and
suggest that they still can mobilize and retain some political
influence. While Ahmadinejad's economic policies have been
flawed, the scaling back of subsidies and efforts to improve tax
revenue collection are actually long-overdue positive reforms.
Entrenched interests have resisted such measures in the past,
and the Iranian government had been reluctant to antagonize
powerful consituencies with the inevitable upheaval they would
create. Ahmadinejad is continuing such measures, even in the
face of such upheavals. But it is important to distinguish
protest against economic mismanagement, versus protest against
the "transaction costs" of necessary economic reforms. End
comment.

ASGARD