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PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0003/01 0231040
ZNY CCCCC ZZH
P 231040Z JAN 08
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0215
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0208
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0189
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0157
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 000003 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  1/23/2018 
TAGS: ECON PGOV IR
SUBJECT: MAJLES CLASHES WITH AHMADINEJAD ON BUDGET 
 
RPO DUBAI 00000003  001.2 OF 002 
 
 
CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional 
Presence Office, Department of State. 
REASON: 1.4 (d) 
 
1.(SBU) Summary:  President Ahmadinejad presented his budget for 
the Iranian year 1387 (March 2008-March 2009) to parliament 
January 7.  Appealing to the electorate ahead of the March 
parliamentary elections, Ahmadinejad again shopped the idea of 
redistributing oil wealth and raised total expenditures by 19%. 
This year's budget however, streamlined compared to years past, 
is creating quite a controversy.  Many MPs are declaring it 
violates sections of the constitution and that it does not 
provide a clear break down of sources of funding and how those 
funds will be used.  The Director of the Majles Research Center 
Ahmad Tavakoli said MPs have three options:  reject the budget 
altogether; try to amend the budget; or use the 1386 budget and 
simply adjust for inflation.  Etemaad-e-Melli reported January 
22 that MP Naderan of the Majles budget and planning commission 
said the budget bill is one issue in which the government will 
have a taste of more Majles disagreement.  End summary. 
 
The new budget 
 
--------------- 
 
2.(SBU) President Ahmadinejad submitted his 2008-2009 (Iranian 
year 1387) budget bill to the Majles January 7, calling it the 
"operational directive" for the government, according to press 
reports.  The 600-page bill was drastically shortened from the 
thousands of pages presented in previous years; a move the 
president said will make the document more comprehensible and 
transparent.  Zawya reported January 23 that the budget bill 
projects a 19% increase in total expenditures to a record $295.6 
billion, up from $248.8 billion.  Appealing to the electorate 
ahead of the March parliamentary elections, Ahmadinejad told the 
Majles that ordinary people expect to benefit from record oil 
prices and "the government and parliament cannot stay 
indifferent to this expectation...we need to redistribute the 
oil money to the people."  Numerous contacts have said that 
there is a growing frustration inside Iran, not with poverty per 
se, but with the increasing disparity of wealth and the 
declining middle class.  Multiple sources have said a greater 
number of BMWs and Mercedes luxury vehicles can be seen on the 
streets of Tehran.  (Note:  Due to tariffs such vehicles are 
$200,000-$250,000 and are reportedly purchased via upfront cash 
transactions.  Endnote) 
 
3.(SBU) The president balanced the budget based on an oil price 
basis of $39.70/barrel, an 18% increase over last year's budget, 
but well below current oil prices which are close to 
$100/barrel.  According to Zawya, the president said that the 
budget would need $36 billion in foreign currency, which will 
cover petroleum imports and the cost of developing public 
transport. 
 
Critics of the bill 
 
------------------- 
 
4.(C) According to a political/economic analyst within Iran, the 
1387 budget is generating "important" controversy, with many MPs 
claiming it violates the portion of the constitution dealing 
with budget preparation and governmental accounting. 
 
5.(C) Parliamentarians are concerned that the government has not 
provided a clear, transparent break-down on where the monies are 
coming from and how they will be spent, said the analyst. 
Reportedly, many Majles members are worried that the document 
gives an unprecedented free hand to the cabinet ministries to 
spend their budgets as they see fit.  This is not only in 
violation of the law, argue the MPs, but it also reduces 
parliamentary control over government spending - a point that is 
particularly salient if the new parliament elected in March 2008 
is controlled by opposition groups, said the analyst.  (Comment: 
 It seems unlikely that reformers will regain control of the 
Majles.  Election coverage to be reported septel.  End comment) 
 
6.(SBU)  Tehran's conservative MP and Director of the Majles 
Research Center Ahmad Tavakoli, said the parliament has three 
available options in regards to the budget: 
 
-- reject the budget altogether.  However the government would 
then not have enough time to prepare a new document before 
year's end (March 19). 
 
-- amend the budget and send it back to the government for 
 
RPO DUBAI 00000003  002.2 OF 002 
 
 
review.  Many favor this approach in parliament, however the 
current administration has rarely accepted criticism from 
parliament.  If the Majles opts for this option, Majles Speaker 
Haddad-Adel has reportedly been given the task of convincing 
Ahmadinejad to accept the amendments with the promise that the 
Majles will move quickly to ratify the budget. 
 
-- scrap budget 1387 and adjust the 1386 budget (2007-2008) 
budget for inflation. 
 
7.(SBU) Etemaad-e-Melli reported January 22 that MP Naderan of 
the Majles budget and planning commission said he personally 
believes the budget bill will not be rejected but will undergo 
drastic changes in form and content.  He said that the budget 
bill is one issue in which the government will have a taste of 
more Majles disagreement. 
 
8.(C) Comment.  The president's economic critics will most 
likely not approve of the new budget.  With inflation officially 
running at 19% (according to Iran's Central Bank) and liquidity 
growth at 40% last year, the 19% increase in government spending 
will only add to inflationary pressures.  However it does not 
appear that Ahmadinejad will curb his spending any time soon, as 
it is a favored tool of his to buy voters, particularly in the 
provinces.  The current administration has chronically failed to 
invest their oil windfall revenues in economic programs that 
could assist with long-term economic growth and stability, in 
favor of myopic short-term handouts. 
ASGARD