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PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0036/01 1771442
ZNY CCCCC ZZH
P R 251442Z JUN 08 ZDK
FM RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0287
INFO RUCNIRA/IRAN COLLECTIVE
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHDE/AMCONSUL DUBAI 0248
RUEHAD/AMEMBASSY ABU DHABI 0216
RUEHDIR/RPO DUBAI 0279

C O N F I D E N T I A L SECTION 01 OF 03 RPO DUBAI 000036 
 
SIPDIS 
 
LONDON FOR GAYLE, BERLIN FOR PAETZOLD 
ISTANBUL FOR ODLUM, BAKU FOR MCCRENSKY 
 
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 
 
DUBAI 00000036  001.4 OF 003 
 
 
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 
 
--------------------------------------------- -------------- 
 
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 
 
--------------------------- 
 
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 
 
----------------------------------------- 
 
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 
 
DUBAI 00000036  002.4 OF 003 
 
 
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 
 
--------------------------------------------- ------ 
 
 
 
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 
 
---------------------- 
 
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 
 
---------------------- 
 
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, 
 
DUBAI 00000036  003.4 OF 003 
 
 
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