JAPANESE IRAN EXPERT DETAILS SOCIAL-ECONOMIC WOES

C O N F I D E N T I A L SECTION 01 OF 02 TOKYO 003477 SIPDIS STATE FOR ISN/RA, ISN/CPI, AND EEB DEPT OF TREASURY FOR IA/WINSHIP AND TFI/DUVIVIER E.O. 12958: DECL: 12/19/2018 TAGS: EINV ETRD ETTC JA PREL SUBJECT: JAPANESE IRAN EXPERT DETAILS SOCIAL-ECONOMIC WOES REF: TOKYO 2168 TOKYO 00003477 001.2 OF 002 Classified By: CHARGE JIM ZUMWALT FOR REASONS 1.4 (b) AND (d). ¶1. (C) Summary: Iran's Economic Policy, in the view of a top Japanese academic expert on the Middle East, has created or at best exacerbated high unemployment and inflation. He cites social changes including an increasing number of retirees, under-employed younger workers, and a stranglehold on liberalization from the bazaar system, as posing daunting challenges for any economic policy maker in Iran. End Summary. An Impending Social Crisis -------------- ¶2. (C) Real unemployment is probably close to 30 percent in Iran, Japan Institute of Middle East Economic studies Director Koichiro Tanaka recently told econoff. Tanaka travels to Iran a half-dozen or more times a year and maintains extensive contacts among the business community of Iranian ex-patriots living in Tokyo. ¶3. (C) In addition to providing a cause for possible restlessness among Iran's youth, unemployment among young people puts additional pressure on Iran's weak pension programs. In the next ten years, the issue will become more acute as the numbers of retired Iranians increases, Tanaka said. A further potential social problem is that pensions are generally available only for government sector workers. ¶4. (C) Additionally, there is a huge gap in the individual skill set. Many college graduates have few opportunities for professional development. The majority are under employed which makes them ill-equipped to take on higher level positions. There are also over-expectations among the younger generation about employment potential, Tanaka said. ¶5. (C) In 2005, when President Ahmadinejad was elected, Tanaka predicted Iran's economic policies would trigger an economic collapse that would bring down the government. United States policies and the pressure from the international community on Iran, ironically, has kept this scenario from being realized, Tanaka said. Ahmadinejad, is able to use external pressures as a scapegoat for bad economic policies. Traditional Gray Market Rules Iranian Economy -------------- ¶6. (C) Tanaka called the bazaar system the biggest drain on the Iranian economy -- seeing it as a kind of authorized gray market that blocks attempts to liberalize the economy and defies taxation. Iran's level of education and development should equate with a more modern economic system. However, the country's distribution system is dominated by the bazaars, whose members consider themselves as having a right to a share of everything that moves in the country, Tanaka said. ¶7. (C) The bazaar system runs counter to any attempt to liberalize the economy, Tanaka explained. The bazaari strikes in October were able to stop President Ahmadinejad's VAT tax proposal, for example. In the 1970s, the Shah tried to intervene in the business of the bazaaris, and ther enmity contributed to his downfall. In the early 1990s, then President Rafsanjani tried to exert influence for more economic liberalization, but there was too much resistance from the bazaaris, Tanaka explained. ¶8. (C) The other major burden on the economy is the unofficial welfare system run by a blend of religious and governmental institutes who care for certain sectors of TOKYO 00003477 002.2 OF 002 society such as the disabled from the Iran-Iraq war, Tanaka explained. The system is problematic because it does not distribute resources equitably, but only looks after particular groups creating distortions, presumably with political support or acquiescence. Tanaka said the biggest economic problem is the lack of transparency within these groups. Large amounts of government funds go into these institutes, and they are a drain on the country's resources, he explained. ZUMWALT