VZCZCXRO8714
RR RUEHDE RUEHDIR
DE RUEHMS #0310/01 1170705
ZNR UUUUU ZZH
R 260705Z APR 08
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 9521
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 MUSCAT 000310 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR NEA/ARP, EEB/TPP/ABT/ATP 
COMMERCE FOR ITA THOFFMAN 
 
E.O. 12958: N/A 
TAGS: PGOV EAGR EAID ECON ETRD MU
SUBJECT: IMPACT OF RISING FOOD/COMMODITY PRICES - OMAN 
 
REF: A. STATE 39410 
 
     ¶B. MUSCAT 293 
     ¶C. MUSCAT 148 
     ¶D. MUSCAT 123 
 
-------- 
Summary 
------- 
 
¶1. (SBU) The Omani government is grappling with soaring 
inflation, with the price of some food products reportedly 
rising by as much as 47% over the past year.  Responding to 
public pressure, the government has augmented public sector 
wages, capped rental increases, and warned wholesalers about 
hoarding and price gouging.  It has shied away from 
introducing significant food subsidies; rather, it has worked 
with suppliers to develop affordable packages of food 
staples.  To avoid currency speculation, which could push 
food prices higher, the government has indicated that it will 
retain its currency peg to the dollar at the current rate of 
exchange for the immediate future.  Media outlets have been 
predictably complimentary in reporting the government's 
efforts to control rising prices, which has helped quell 
public complaints over escalating costs.  End Summary. 
 
-------------------------- 
Inflation-Driven Increases 
-------------------------- 
 
¶2. (U) In general, revenues from high oil prices have led in 
part to higher demand levels and subsequent across-the-board 
price increases in food, building materials, labor, and real 
estate throughout the region.  The Ministry of National 
Economy reported that the overall annual inflation level in 
Oman for February 2008 was 10.2%, the highest it has been in 
16 years.  Prices for food, non-alcoholic beverages, and 
tobacco collectively rose 18.1%, but food products accounted 
for most of the increase.  Leading the way was fish, the 
price of which increased by 47.4%, followed by oil and fats 
at 35.6%, cereals at 29.1%, eggs at 26.1%, milk at 21.6%, and 
meat and poultry at 18.1%.  Non-alcoholic beverages only 
increased by .5%, followed by vegetables at 3.6% and tea at 
5.2%. 
 
-------------- 
Under Pressure 
-------------- 
 
¶3. (U) Under pressure to take action, the Sultan responded to 
rising costs in February by mandating an increase in public 
sector salaries based on grade status.  Those at the bottom 
of the pay scale received a salary increase of 43%, while 
mid-level grades obtained raises ranging from 7-12%.  Those 
at the higher end of the salary scale received a 5% bump, 
while stipends for government retirees saw a 10% increase 
over current levels. 
 
¶4. (U) The Sultan also ordered an increase in pension rates 
for government retirees, effective from the end of March 
¶2008.  Following a similar tiered format for the recent 
public sector wage hikes, the Sultan decreed a 35% increase 
for those receiving the minimum monthly pension amount, a 17% 
increase for those receiving between 100-200 rials (USD 
260-520) per month, a 10% increase for those receiving 
between 200-300 rials (USD 520-780), and a 5% increase for 
those receiving over 300 rials (USD 780).  The Sultan also 
granted an exemption for retired and active personnel in the 
armed forces and the Royal Guard of Oman from paying the 
balance of armed forces housing loans up to 3,000 rials (USD 
7,800) for those earning or receiving less than 300 rials per 
month.  For the remaining value of the loans over this 
amount, the Sultan granted a 50% exemption. 
 
¶5. (U) In addition, the Sultan called for stronger monitoring 
of retailers for price gouging.  The media carried a stern 
warning from Oman's Attorney General that price manipulators 
would be punished by up to two years in prison and a $1,300 
fine, along with reports that the Ministry of Commerce and 
Industry had launched raids on local bakeries.  The Minister 
of Commerce and Industry followed up by urging merchants to 
recognize their "social responsibility" with regard to the 
price of basic food products.  As a result, ATO Dubai 
reported that importers agreed to prepare and provide 5,000 
boxes of food products per month for two months (total of 
10,000 boxes) at below-retail prices.  Each box contains 
rice, cooking oil, milk powder, sugar, tea, chickpeas, 
lentils, pasta, ketchup, and hot sauce.  The boxes run $36 
during the two-month period, which ends June 20.  Both Omanis 
 
MUSCAT 00000310  002 OF 002 
 
 
and expatriates are eligible to buy the boxes at 75 retail 
outlets in Oman.  To prevent hoarding by wholesalers, the 
Ministry of National Economy has lent personnel to help 
Commerce and Industry officials conduct inspections of 
warehouses. 
 
¶6. (U) The government has taken other steps to ease price 
hikes.  For example, as a majority shareholder in Oman Flour 
Mills, the government lowered the profit margin on the sale 
of flour.  It is also looking at ways to better enforce its 
property rental cap, which is currently set at 15%.  Oman 
does not subsidize food prices, and in general, its 
leadership is reluctant to establish them. 
 
¶7. (U) The government is also turning to an "Origin Oman" 
program to encourage residents to buy local products, which 
are often cheaper than imports.  One media outlet recently 
carried a front-page article entitled "How Far Did Your Pizza 
Travel?" to point out that food costs have been driven 
upwards by the long distances ingredients now travel. 
Creators of the campaign are working with local companies to 
raise awareness of their products in Oman. 
 
---------------------------- 
No Change in Monetary Policy 
---------------------------- 
 
¶8. (SBU) The government has said publicly that it is 
committed to maintaining its currency peg to the dollar at 
the current rate of exchange, in spite of the February 
inflation report.  Policymakers, while acknowledging the 
difficulty in maintaining the peg, believe that a revaluation 
would not temper inflation in the wake of surging regional 
demand.  One Central Banker pointed out that the dollar's 
weakness accounts for only a fraction of price increases, 
attributing the rest to demand-driven increases in the costs 
of building materials and labor, among others.  To mop up 
excess liquidity, the Central Bank has increased commercial 
bank reserve requirements from 3% to 5% and issued more 
certificates of deposit.  Nevertheless, upward pressure on 
prices remain - Oman's money supply increased 40% over the 
past year, the stock market appreciated 16% in 2008, Omani 
land values have skyrocketed, and the government continues to 
spend significant sums of its budget surplus on expensive 
development projects. 
 
------------------ 
Public Perceptions 
------------------ 
 
¶9. (SBU) Media outlets, tightly monitored by the government, 
have been complimentary in their reporting of the 
government's initiatives.  The laudatory coverage has 
diffused complaints over low pensions that have been 
simmering for years.  Similarly, the splash announcement of a 
public-sector salary increase allayed criticism from a 
sizable contingent of disgruntled Omanis, the great majority 
of whom are on the government payroll.  Positive public 
responses reflect the government's use of a compliant media 
to quell complaints on food costs. 
GRAPPO