VZCZCXRO3619
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0048/01 1971245
ZNY CCCCC ZZH
P 161245Z JUL 07
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0155
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0148
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0139
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0105
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 IRAN RPO DUBAI 000048 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  7/16/2017 
TAGS: ECON EFIN PGOV IR
SUBJECT: AHMADI-NEJAD IS FORCED TO MAKE SOUND ECONOMIC DECISIONS 
 
REF: RPO DUBAI 0043 
 
RPO DUBAI 00000048  001.2 OF 002 
 
 
CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional 
Presence Office - Dubai, Department of State. 
REASON: 1.4 (d) 
 
1.(C) Summary.  Populist President Ahmadi-Nejad is being forced 
to announce some very unpopular decisions - under the direction 
of the Supreme Leader - due to the enormous pressure the Iranian 
government is under to "fix" the economy.  While public 
attention was still focused on gasoline rationing (reftel), 
government officials quietly announced an increase in the costs 
of electricity, gas, and water; and eliminated cement subsidies. 
 Anecdotally, IRPoff was told by a single-source that cost 
controls in the dairy sector would soon be lifted as well.  Most 
likely the government realized it needs to make the very 
unpopular decision of removing some subsidies - in the face of 
severe domestic criticism and a future third UN resolution - and 
is doing so as far ahead of the upcoming Majles election as 
possible.  It is particularly noteworthy, that the removal of 
subsidies (as well as other measures like promotion of 
privatization) - across several sectors - is a departure from 
nearly three decades of Iranian public-sector driven economic 
policy.  Such a market-oriented change in economic policy is an 
important - and long overdue - structural reform.  It is in-line 
with the current 5-year economic development plan and follows 
the advice of international and domestic economists. 
Ahmadi-Nejad may be taking these politically risky economic 
measures to bolster Iran's economy in the face of current or 
anticipated international economic pressure.  End summary. 
 
It is that bad 
--------------- 
 
2.(C) According to multiple sources, the amount of criticism 
leveled against the Iranian government's economic performance is 
at an unprecedented level relative to recent years.  Leaders are 
under enormous pressure to "fix" the economy, report contacts. 
Radio Free Europe reported that 50 Iranian economists met 
President Ahmadi-Nejad July 13 to personally express their 
dissatisfaction with his economic decisions, saying that his 
policies "lack any basis in science."  Despite best efforts, the 
government's economic policies continue to backfire and cause 
discord.  In just one anecdotal story of many, IRPoff was told 
that several private banks are under threat of bankruptcy after 
the recent government decree lowering interest rates - a 
decision for which Ahmadi-Nejad was severely criticized in the 
press.  According to one Iranian economist, the decision has 
caused a run on all banks.  People - not knowing what else to do 
- are putting their money in the real estate market - causing 
prices to jump yet again.  The housing market in Tehran has gone 
up by 70% this past year alone, said an Iranian economic 
consultant. 
 
3.(C) It appears the government is now realizing that it has to 
make structurally sound, yet domestically unpopular decisions in 
the face of a possible tightening of sanctions and the expected 
third UN resolution.  The government is most likely trying to 
push these changes through all at once and as far ahead of the 
upcoming Majles elections as possible.  The changes also track 
with Iran's 5-year economic development plan, which policymakers 
must pay some nominal deference to, even if it is often ignored. 
 Most noteworthy is that the decision to remove subsidies tracks 
with the advice of international and domestic analysts and is 
unprecedented in the history of the Islamic Republic. 
 
Recent unpopular decisions 
-------------------------------- 
 
4.(C) After several earlier postponements, the IRIG announced on 
midnight June 26, that gasoline would be rationed as of June 27 
(reftel).  While the public was still reeling from the 
ramifications of the announcement, the General Manager of 
National Gas of Iran Seyyed Reza Kasa'izadeh announced July 4 
that rates for electricity, gas and water would increase by 15% 
"next week."  Referring to gasoline rationing at the 
inauguration ceremony for Shahid Reyis Ali Delvari Dam in 
Bushehr Province, Ahmadi-Nejad said July 5, "this type of 
conservation could also be applied to electricity consumption." 
Mehr news agency reported July 7 that the cement subsidy was 
being eliminated.  IRPoff was told July 1 by an Iranian 
consultant that dairy farmers were finally given the green light 
to raise prices after several smaller farms went bankrupt 
earlier this year - allegedly the government has been 
artificially holding prices steady.  The consultant claimed that 
prices of butter, milk, cheese, etc are about to increase 
20-25%.  (Note:  Contacts have recently alleged that there is a 
 
RPO DUBAI 00000048  002.2 OF 002 
 
 
butter shortage in general - which is why import tax on butter 
was just pushed down to 0%.  Endnote) 
 
5.(C) Comment.  The fact that the government - under the 
direction of the Supreme Leader - appears to be acting on the 
recommendations of sound economic doctrine and advice from its 
own economists to remove some subsidies would seem to indicate 
that the government is at its reckoning point in terms of its 
domestic economic policy.  It is coming to the realization that 
it can no longer continue its reckless economic policies - even 
with high oil prices.  Instead, Iran may well be seeking to 
bolster its heretofore fragile economy through long overdue 
structural policy adjustments such as diversification, 
privatization, lifting of subsidies, etc., in an effort to 
withstand building international pressures.  This policy change 
may augur needed adjustments to planned UN or international 
community economic sanctions approaches. 
ASGARD