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Ahmadinejad Faces Another Tough Sell On Subsidy Cuts

  • Golnaz Esfandiari

Angry Iranians hit the streets in mid-2007 after the government announced gasoline rationing due to a fiscal squeeze.

Angry Iranians hit the streets in mid-2007 after the government announced gasoline rationing due to a fiscal squeeze.

Tehran resident Laleh is closely following legislation that would sharply reduce energy and food subsidies.

The 47-year-old divorced mother of one, who declined to provide her full name out of fear of retribution, lives on an income of 450,000 toumans (4.5 million rials, or about $450) per month.

She depends on the government subsidies to make ends meet, and calculates that passage of the bill would roughly triple her electricity costs, from 20,000 to 60,000 toumans.

"We won't be able to buy food anymore," she says. "Petrol, everything, will be more expensive."

The source of Laleh's concern is a 17-article bill introduced last year and now winding its way through the Iranian parliament. The legislation, if implemented, would increase the prices of subsidized goods and a portion of the extra revenue would be distributed among low-income families.

But Laleh says her modest salary is high enough to disqualify her from such future aid.

After being approved in its first reading, the legislation returned to parliament for additional changes. On October 12, one article that cuts energy subsidies, including for gasoline, natural gas, and electricity, was passed. Once all the articles are approved by parliament, the legislation must be approved by the Guardians Council before becoming law.

Ahmadinejad initiated the legislation in 2008, arguing that the costly subsidy system was preventing national development. With official figures showing that subsidies for energy and food, including bread, currently cost the Iranian government about $100 billion per year, politicians across Iran's political spectrum favor curtailing the subsidized economy.

But Iran observers note that cutting the subsidies could pose the president with a serious challenge, particularly considering the public anger that remains following the country's June presidential vote. The hundreds of thousands of Iranians who took to the streets to protest what they believed was an election stolen by Ahmadinejad were met with a violent, and deadly, response by the government.

Poor Timing?

In 2007, the sudden rationing of gasoline led to protests and the torching of several gas stations by angry citizens accustomed to cheap gasoline and energy. Under the current rationing system, one liter of gasoline costs 100 toumans ($0.10). Under the draft bill, gasoline prices would rise to as much as 500 or 600 toumans per liter.

Shahin Fatemi, an economic expert and the head of the Paris based European Center for International Studies, suggests that ending populist measures such as energy and food subsidies could mean political suicide not just for Ahmadinejad's "unpopular" government, but for any government.

"When half of the society if facing poverty, when you have an inflation rate of between 20 and 30 percent, you cannot increase people's expenses," Fatemi says. "It's a good idea, particularly regarding energy, but this has to be done at a time when people can bear it."

Critics of the bill have warned that it will make the poor poorer. Alireza Mahjub, a legislator considered close to the reformists, described the bill on October 11 as a warning to the poor and those who support them.

Since its introduction in 2008, the bill has been met with criticism from some economists who warn that it could double already high inflation and increase the cost of living.

Fatemi is among them, saying inflation will rise if the bill is implemented, and social unrest could follow.

"This won't be just about people's political rights being violated," Fatemi says. "More than half of the society, maybe even two-thirds, won't tolerate increased expenses."

Reform Argument

In defending the plan, Ahmadinejad has argued that it will be a more equitable approach and will cut down on excess energy consumption. He said it will also lead to the reform of economic structures.

But Ahmad Rashidi, a Tehran based economist, tells Radio Farda that Iranians have become so dependent on automobiles that even an increase in prices will not affect their gasoline consumption.

"Gasoline is like air and water for the people -- for those who need it for their business, or those who need their cars to take their children to school, or those who go on vacation," Rashidi says. "So it will have a minimal impact on consumption."

Abbas Abdi, a prominent reformist journalist, tells the "Fararu" website that the bill to cut subsidies could become the government's Achilles' heel. He claims the government's only aim is to take control of Iran's oil revenues, and that handing out cash subsidies will lead to corruption.

But Ahmadinejad, who came under intense criticism during the election campaign for perceived economic mismanagement, said on state television on October 12 that cutting the subsidies is a "necessity."

He insisted his government has a proven record of making such necessities a reality.

"There have been similar cases, such as the nuclear issue," Ahmadinejad said. "Everyone wanted Iran to become nuclear because it's sign of progress, honor, and it's an opportunity for the Iranian people. But it was this government that believed it could be done. We became nuclear by relying on the power of the people."

But what the president is hearing could differ sharply from the concerns being voiced by Iranians like Laleh, who predicts that public anger with Ahmadinejad will grow if the bill goes into practice.

Radio Farda broadcaster Fereydun Zarnegar contributed to this report
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    Golnaz Esfandiari

    Golnaz Esfandiari is a senior correspondent with Radio Free Europe/Radio Liberty. She can be reached at EsfandiariG@rferl.org

     

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