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Overview: Iran Analysis Weekly Report June 26, 2016

26 June, 2016

Vistar Business Monitor

Ayatollah Akbar Hashemi Rafsanjani claimed that the Assembly of Experts has identified two potential successors to current Supreme Leader Ayatollah Ali Khamenei.

Rafsanjani stated that the Assembly of Experts, a clerical body formally charged with selecting the next supreme leader, has narrowed its search down to two people. Rafsanjani, who is also a member of the Assembly, did not provide any names or biographical details for the two individuals and noted that the process is confidential. Rafsanjani stated in December 2015 that the Assembly had begun “examining” candidates to succeed Khamenei, who is 76 years old with medical issues. In response to Rafsanjani’s December remarks, Assembly of Experts member Ayatollah Ahmad Khatami stated, “I have heard several times from the Supreme Leader that the Assembly of Experts must have a few leaders up its sleeve. This is not anything new.”

The Iranian Foreign Ministry and several parliamentarians praised resistance against Bahrain’s government after it revoked the citizenship of Ayatollah Isa Qassim, Bahrain’s leading Shia cleric. The IRGC also released a statement warning the Bahraini government that its actions will “inflame the torch of an Islamic revolution of Bahrain and the formation of uprisings against the despotic regime governing the country.” Parliament Speaker Ali Larijani encouraged “the repressed people who have been deprived of their basic rights to revolt” and called for Bahrain’s rulers to “learn from the fate of the Shah of Iran,” who was deposed in the 1979 Islamic Revolution. This rhetoric comes as reports indicate that localized protests have already begun in Bahrain. The decision to strip Ayatollah Isa Qassim of his citizenship appears to be part of a larger crackdown by the government against the country’s Shia majority after the largest Shia political group in the country, al Wefaq, was suspended by a Bahraini court last week. In 2011 Bahrain’s Shia community staged large-scale protests that were suppressed by security forces. Bahraini security officials have repeatedly blamed Iran for having a hand in the uprising.

First Vice President Eshagh Jahangiri ordered the creation of a three-person committee to review the issue of senior Iranian government employees receiving “astronomical salaries” and other benefits far above the mandated cap. Attorney General Mohammad Jafar Montazeri commented on the scandal, stating, “There is the expectation that Rouhani, as he promised, will deal with these government employees. We expect that several individuals who have evidence against them will be removed from their positions.”

Supreme Leader Ayatollah Ali Khamenei downplayed the recent revelations that some senior government employees received “astronomical salaries” as well as other illegal financial perks. Khamenei stated that most officials have not been complicit in the controversy but added that “a few are very bad and must be dealt with.”

Transportation Minister Abbas Akhoundi claimed that the announced deal signed between Boeing and Iran Air will have an estimated value of $25 billion. Boeing also released a statement declaring that “any and all contracts with Iran’s airlines will be contingent upon U.S. government approval.” The U.S. government must issue export licenses for Iran Air’s deals with Boeing and Airbus before they can be finalized. In 2011, the Treasury Department sanctioned Iran Air for transporting military-related equipment on behalf of the IRGC, including to Syria.

The Shanghai Cooperation Organization (SCO) has reportedly rejected Iran’s bid for membership despite Russia’s backing. Reporting indicates that China was behind Iran’s repudiation. Deputy Foreign Minister Ebrahim Rahimpour denied that Iran was rejected SCO membership and claimed that the organization has yet to make a decision on the matter. The SCO is a Eurasian political, economic, and military organization whose members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. Iran, which is currently an observer state in the SCO, had applied for full membership in 2008 but was rejected due to UN sanctions over its nuclear program.

The Financial Action Task Force (FATF) decided to remove anti-money laundering restrictions against Iran for a year. It noted in a statement that it will re-impose the restrictions if Iran fails to make progress in reforming its financial sector within that period. FATF seeks to protect the international financial system by applying countermeasures such as financial, trade, and oil sanctions.

On the economic note, Banks’ compromise to decrease the one-year deposit interest rate to 15 percent and drop of housing loans interest to 11 percent increased optimism in the market during the last trading days.

According to the Statistical Center of Iran, inflation has reached 9.5%, falling below 10% after 25 years. Single digit inflation was a campaign slogan of President Rouhani. However, the economy is still in recession, with some arguing that low demand and weak oil prices have been the main reason behind the falling inflation rate, and not macroeconomic management.

The administration intends to submit budget amendments to the parliament, in a move to find resolutions to the recession. One of the amendments is a call for the return of a note in the primary budget bill, which the previous parliament deleted. Under Note 20, the administration was allowed to pay part of its debt to the banking system through Islamic bond, a move which was both in favor of banks and the emerging debt market. The administration is now suggesting that it should be allowed to offer 300 trillion rials worth of Islamic bonds in the debt market. The securities are set to be liquidated through either the Central Bank bail, or the interbank market, or the bond market.

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