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PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0030/01 1231342
ZNY CCCCC ZZH
P 031342Z MAY 07
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0111
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0104
RUEHDE/AMCONSUL DUBAI PRIORITY 0103
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0063
RUEHAD/USDAO ABU DHABI TC
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 03 IRAN RPO DUBAI 000030 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  5/3/2017 
TAGS: PGOV ECON IR
SUBJECT: IRANIAN ECONOMIC POLICY:  AN EASY TARGET FOR CRITICS 
 
REF: RPO DUBAI 0011 
 
RPO DUBAI 00000030  001.2 OF 003 
 
 
CLASSIFIED BY: Jillian Burns, Director, Iran Regional Presence 
Office - Dubai, Department of State. 
REASON: 1.4 (d) 
1.(C) Summary.  While IRPO contacts have long criticized Iranian 
economic policy in private conversations, top figures in Iran 
appear increasingly vocal in public condemnations of  President 
Ahmadi-Nejad's programs.  After a  lull in criticism during the 
Nowruz holiday and the British sailor crisis, the pace has 
increased as inflation rises and new sanctions loom ahead.  The 
head of the Majles Research Center lambasted the government for 
sidelining experts and technocrats.  Majles deputies are 
criticizing the government's inability to address poverty and 
unemployment.  The Majles planning and budget committee cautions 
the government against borrowing from the foreign exchange 
account to finance current expenditures.  Ex-presidential 
candidate and advisor to the Supreme Leader Ali Akbar Nateq-Nuri 
called on the president to listen to economic advisors and make 
"prudent" policies, and former President  Rafsanjani advocated 
for a more "balanced" economic approach.  Although general 
analysis suggests that high oil prices will keep the economy 
afloat in spite of Ahmadi-Nejad's mismanagement, some contacts 
are increasingly doubtful that oil profits will offset the 
rapidly declining economic situation.  End Summary. 
 
Sidelining of experts 
---------------------- 
 
2.(U) "The ninth government does not pay sufficient attention to 
expert views and methods before taking decisions, and I warn 
against the low efficiency of the ninth government," said Majles 
deputy and head of the Majles Research Center Ahmad  Tavakkoli, 
who ran against Ahmadi-Nejad in the last presidential election, 
at a conference April 25 on the prospects for Iran's 20-year 
plan.  Advisor to the Supreme Leader Ali Akbar Nateq-Nuri 
publicly lamented "wasted" human resources and asserted that 
skilled ministerial officials are losing their jobs - due to 
their political affiliations -- to "less adept allies of those 
in power."  "The continuation of this situation results in 
stagnation and a waste of human resources," Nateq-Nuri said in 
an interview published by the Iranian Students News Agency 
(ISNA) April 27. 
 
3.(C) The comments by Tavakkoli and Nateq-Nuri are often echoed 
by IRPO contacts who claim that respected academics were forced 
into early retirement when Ahmadi-Nejad came to power and that 
skilled technocrats have frequently been sidelined to positions 
of less influence or ousted from their government positions all 
together.  One business contact alleged that many of these 
technocrats are relocating to Dubai. (Note.  IRPO cannot confirm 
this allegation but will continue to track the diaspora. 
Endnote) 
 
Poverty 
--------- 
 
4.(U) Majles social committee member Musa-Reza Servati said that 
welfare payments should increase by 15% to keep pace with 
inflation, "otherwise the country will face a rise in the ranks 
of the needy and an increase in social maladies this year." 
Mehr News claimed on April 28 that government assistance levels 
do not adequately address the needs of the poor, particularly as 
"soaring inflation rates lowers their standard of living every 
year."  The article, without citing the source of its 
statistics, claimed that 12 million people in Iran live below 
the poverty line, constituting roughly 18.5% of the population. 
Another six million are reportedly "not supported by any 
foundation or organization and thus must fend for themselves in 
the face of overwhelming difficulties."  (Note:  Per the 
Ministry of Social Welfare, anyone with an income of less than 
roughly $400/month lives below the poverty line and average 
government salaries are $300/month.  Endnote) 
 
5.(C) Most contacts report prices are skyrocketing across the 
board and that wages are not keeping pace with inflation.  One 
Dubai-based financial analyst said the value of her house in 
Tehran doubled in just one year.  She noted that as prices rise, 
Iranians are forced to turn to inferior knock-offs, including 
counterfeit medical supplies.  On the other hand, an economics 
professor from Shiraz University recently told IRPoff that 
concern over inflation is severely overblown in Iran, and that 
current rates are consistent with the high levels of inflation 
seen since the revolution.  He claimed that the economic 
situation has not drastically changed but that expectations 
increased in response to Ahmadi-Nejad's campaign promise to 
bring oil wealth to people's tables.  The professor is the sole 
defender of Iran's inflation rates that IRPoff has met in recent 
months.  Another contact complained that Iran is turning into a 
welfare state, where increasingly people are opting not to work 
 
RPO DUBAI 00000030  002.2 OF 003 
 
 
if the available work is not in their field. 
 
Foreign exchange account 
------------------------------- 
 
6.(U) Majles Planning and Budget Committee member Ali Dirbaz 
told ISNA that "growth of liquidity and inflation is the outcome 
of the decisions of the past two years.  To overcome this 
deficiency we must stop repeating what we have done.  The 
current expenditures must not be financed by the foreign 
reserves." 
 
7.(C) Business contacts and economists frequently complain to 
IRPoff of over-borrowing from the foreign exchange account (aka 
Oil Stabilization Fund).  One economist noted that by purchasing 
rials from the Central Bank of Iran with the foreign exchange 
funds, Ahmadi-Nejad in effect added an additional 36 percent of 
cash into the market that previously did not exist.  This cash, 
or liquidity, needs to go somewhere.  First, said the economist, 
people bought up all the gold; once gold prices skyrocketed, 
people began investing in the real estate market. (Note:  This 
is a single-source comment but from a historically credible 
source.  Endnote) 
 
Privatization 
--------------- 
 
8.(U) Despite the Supreme Leader calls February 19 for speedier 
privatization (reftel), it appears Iran is headed in the 
opposite direction.  Majles Research Center head Tavakkoli 
complained that the Iranian government has "chanted the slogan 
of privatization" the last 16 years, all the while slowly 
increasing the number of state-run companies.  Tavakkoli alleged 
that in 2004, 531 government companies were listed on the 
national budget, whereas that number now exceeds 2,500. 
Tavakkoli argues that if Iran is looking to model its economy 
after that of another country, it should look to China as "we 
must defend economic efficiency and increasing national wealth; 
and we must ensure social justices and the fair distribution of 
national wealth and national assets." 
 
9.(C) IRPO contacts have reinforced this view.   A political 
science professor recently claimed to IRPoffs that despite 
rhetoric about privatization, the public sector in Iran has 
actually grown from 60 to 75%.  The Shiraz economics professor 
said Iranians have been hearing of privatization efforts for 
years and are doubtful such plans will be actualized.  Others 
claim, however, that talk of pending privatization has caused 
business slowdowns as companies slotted for privatization feel 
themselves to be in a holding pattern.  That said, many contacts 
put greater blame for slowdown in business and capital 
expenditure on political uncertainties as Iran's international 
relations deteriorate. 
 
Way forward 
----------------- 
 
10.(U) Speaking to economic students at the end of April, 
Expediency Council Chairman Rafsanjani implied that the Islamic 
Republic has not been able to implement its long-term economic 
policies due to the Iran-Iraq war that lasted throughout most of 
the 1980s.  Since 1988, Iran focused on reconstruction of the 
country, he said.  Now, in order to establish social welfare and 
increase employment opportunities, Iran should adopt a "balanced 
policy" to implement "incremental change" in Iran, opined 
Rafsanjani.  In additional to a ditente policy in foreign 
relations, the components of this policy include empowering the 
private sector, balancing the foreign exchange rate, and 
balancing subsidies. 
 
11.(C) Several reformist-leaning Iranians told IRPoff that 
although Rafsanjani would not normally be their "first choice" 
for president, his ideas are logical and preferable to the 
policies of the current administration.  One complained that 
Ahmadi-Nejad does not understand economics and that his policies 
"don't make sense."  To illustrate his point, he said 
Ahmadi-Nejad raised tariffs on mobile phones from 4 to 64 
percent, despite the fact that  Iran does not produce mobile 
phone sets locally and therefore there is no domestic product to 
protect.  (Note:  IRPoff was later told by another source that 
the tariff was put in place to assist a "connected" businessman 
who was having difficulty unloading mass quantities of phones he 
had already imported.  Endnote)  In contrast, one economist 
said, "Rafsanjani has power and money - now he is looking to 
create a legacy that will last beyond his lifetime.  The other 
guys (including the Supreme Leader) are too busy managing the 
 
RPO DUBAI 00000030  003.2 OF 003 
 
 
details to stay in power instead of thinking about what's good 
for the Iranian people." 
 
12.(C) Comment:  The current government's economic policies have 
been under frequent attack, including the open letter to 
Ahmadi-Nejad in June 2006 in which  50 economists laid out their 
ten main "concerns," stating "the policies of your 
administration, if continued, can result in a still graver 
situation for the country's economy."  However, it appears that 
such criticism is getting more frequent and is coming from more 
prominent sources.  While current and possible future sanctions 
on Iran clearly have a chilling effect on the business climate, 
it is noteworthy that these Iranians put as much blame on 
internal economic mismanagement by the current government. 
Contacts previously said that as long as oil dollars are coming 
in, Iran's economy could float for years to come.  However, 
IRPoff has noticed a new level of despair and hopelessness in 
Iranian contacts in the past month, with some saying oil profits 
may not be enough to off-set Iran's economic problems.  Some 
Dubai-based Iranians claim that the economic situation is 
driving out even staunch nationalists from Iran, primarily for 
Dubai.  One Iranian business student - who is the son of a 
former high level official in Iran - first complained to IRPoff 
that Iranian-Americans and the media only present the negative 
side of Iran's economy.  However, when asked to point out 
something positive, he told IRPoff he could do so in 2-3 years. 
End Comment 
BURNS