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Viewing cable 09RPODUBAI501, IRAN'S EXECUTIVE-LEGISLATIVE SUBSIDIES TUG OF WAR CONTINUES

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Reference ID Created Released Classification Origin
09RPODUBAI501 2009-11-19 14:24 2011-08-24 01:00 UNCLASSIFIED Iran RPO Dubai
VZCZCXRO2734
PP RUEHBC RUEHDE RUEHKUK RUEHTRO
DE RUEHDIR #0501/01 3231424
ZNR UUUUU ZZH
P 191424Z NOV 09
FM RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0637
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0484
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEIDN/DNI WASHINGTON DC
RUCNIRA/IRAN COLLECTIVE
RHEHAAA/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC
RHMFISS/USCENTCOM TELECOM CENTER MACDILL AFB FL
RUEHDIR/RPO DUBAI 0638
UNCLAS SECTION 01 OF 02 RPO DUBAI 000501 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON IR PGOV PREL
SUBJECT: IRAN'S EXECUTIVE-LEGISLATIVE SUBSIDIES TUG OF WAR CONTINUES 
 
REF: RPO DUBAI 468 
 
DUBAI 00000501  001.2 OF 002 
 
 
1. (C) SUMMARY: Passage of the targeted subsidy reform bill has 
stalled in the Majlis over President Ahmadinejad's demand his 
administration have full control over how subsidy savings are 
spent.  The Majlis and Ahmadinejad have been unable to come to a 
compromise after an impasse in the Majlis and Ahmadinejad's 
threat to withdraw the bill. The matter has been referred to a 
joint Majlis-Executive committee to break the deadlock. 
Ahmadinejad seems determined to control billions of dollars in 
potential savings as part of a broader strategy to extend his 
authority. END SUMMARY. 
 
 
 
ROUND ONE - SUBSIDIES MUST END 
 
 
 
2. (C) When the first part (12 articles) of the subsidy reform 
bill was introduced in the Majlis, Ahmadinejad tried to 
influence the debate, repeatedly emphasizing the need to employ 
free-market principles to fix the Iranian economy (reftel). 
Mixing a populist message about how the rich benefitted most 
from subsidies while delivering the tough news that Iranians 
need to be weaned off government dependency, he argued 
forcefully for the end of subsidies in numerous public 
appearances.  The Supreme Leader, who had previously endorsed 
the need to reform consumption, concurred and endorsed subsidy 
reform in a mid-October speech, and as a result, MPs approved 
the plan to end subsidies over five years (NOTE: Subsidy removal 
is expected to generate USD 20 billion in savings in the first 
year with an additional USD 20 billion in each subsequent year, 
ultimately leading to an annual USD 100 billion savings by Year 
Five. END NOTE.) 
 
 
 
BAIT AND SWITCH EXPOSES AHMADINEJAD'S TRUE INTENT 
 
 
 
3. (C) As discussion turned to the second half of the bill, 
Ahmadinejad tried to re-frame the subsidy reform debate.  The 
government, he argued in a one-hour television interview 
November 11, "is not after eliminating the subsidies...our goal 
is proper allocation of the subsidies."  Having won the argument 
to end subsidies, he now asserted the government's right to 
determine how to spend the savings.  Ahmadinejad refused to 
accept the possibility of Majlis oversight. 
 
 
 
4. (C) IRPO contacts argued that Ahmadinejad is driven 
ideologically by redistribution but tactically by the desire to 
control resources.  In a recent conversation, one Iranian 
economics professor based at the American University in Sharjah 
argued that for Ahmadinejad, "the meat is in the cash payments" 
and ceding control of some subsidy funds is an unfortunate 
consequence of reforming the system.  Our contact likened the 
situation to the gasoline ration program introduced two years 
ago.  The program was meant to limit gasoline consumption, and 
did so successfully, but also allowed the Ahmadinejad government 
to hand out smart cards to loyalists in the IRGC and Basij who 
earn a profit from the sale of subsidized gasoline on the 
secondary market.  Similarly with subsidy reform, our contact 
postulated Ahmadinejad will reward loyalists with extra cash in 
the form of extra subsidy cash smart cards.  Indeed, an MP loyal 
to Ahmadinejad and a member of the Majlis Planning and Budget 
Commission told Fars News November 16 that the payment of 
subsidies to Iranian citizens would be in the form of credit 
cards while the government announced it was opening up 36 
million bank accounts to pay cash.  Both possibilities would 
give Ahmadinejad significant control over how and to whom funds 
are distributed. 
 
 
 
AHMADINEJAD BULLIES PARLIAMENT... 
 
 
 
5. (C) Since the Majlis has taken up the debate on how subsidy 
savings will be distributed, Ahmadinejad has tried to apply 
increasing amounts of pressure on MPs to cede any authority over 
the funds to him.  Debate on the second part of the subsidy 
 
DUBAI 00000501  002.2 OF 002 
 
 
reform bill started November 1.  Majlis extended payments to all 
Iranians (Ahmadinejad had proposed the bottom 70 percent) and 
approved Article 13 requiring the government to request funds to 
make cash payments through the annual budget process.  Since 
then, Ahmadinejad has made four visits to the Majlis (one 
unannounced), submitted a letter withdrawing the bill, and 
scolded MPs publically for demanding oversight.  As a result, 
they approved a subsequent article allowing the government to 
determine how to spend funds.  With the government refusing to 
provide any details as to how the funds will be distributed or 
allowing the Majlis any oversight, MPs refused to repeal Article 
13 and the government refused to move forward with the article 
included in the final text. 
 
 
 
...BUT THEY PUSH BACK 
 
 
 
6. (C) Since then, MPs have only hardened their position. 
Majlis Speaker Ali Larajani, in an interview with state media 
November 16 said he worried that "there is no way to re-assess 
the target orientation of subsidies after ratification by MPs." 
Hinting at the political power play underway, Larijani also 
refused to give Ahmadinejad any credit for how far the bill had 
come stating the MPs had approved all the articles at the 
Supreme Leader's request. Additionally, he said whatever form 
subsidy reform would take depends largely on what the Supreme 
Leader decides. 
 
 
 
7. (C) The Majlis and the administration set up a joint 
committee November 15 to try and break the impasse. 
 
Ahmadinejad attended a session of the six-person committee 
November 18 and admonished MPs for making any changes to the 
subsidy reform bill and urged them to give his government full 
control.  What emerged was an agreement to form an "independent 
body" that will administer the program.  Its membership remains 
unclear. MPs are expected to balk if they have no membership and 
the government is expected to do the same if MPs are included. 
 
 
 
8. (C) COMMENT: In the larger context, Ahmadinejad's demand for 
authority over the subsidy savings (which currently compromise 
one-third of the country's USD 300 billion annual revenue) 
reflects other recent moves to further centralize his 
government's control over state functions.  If Ahmadinejad and 
his administration do succeed in gaining sole authority over the 
expenditure of subsidies, it will represent a significant 
increase in his agglomeration of power.  But this debate also 
exemplifies the increasingly bitter relations between 
Ahmadinejad and the Majlis, especially Larijani. END COMMENT. 
EYREA