Iran’s Plan to Phase Out Subsidies For Staple Items Holds Risks
The outside world may be focused on Iran’s intensifying confrontation with the West over its nuclear program. But at home, Iranians are more concerned with an ambitious and risky new effort to overhaul the country’s troubled economy.
If it goes awry, the plan to phase out Iran’s system of state subsidies, which has existed for decades, could profoundly destabilize the government of Mahmoud Ahmadinejad, who has aggressively championed change. But it could also help wean Iran from its dependence on foreign gasoline and insulate the economy from new sanctions — which are a strong possibility if Iran continues to defy Western pressure over its nuclear program.
The new plan has been the subject of frenzied debate in shops, blogs and homes across Iran, not to mention the Parliament. Lawmakers across the political spectrum have warned of catastrophic price shocks once subsidies are lifted.
Conservatives seem deeply worried about the repercussions, with some saying the plan could lead to a crime wave, or worse. Opposition leaders like Mir Hussein Moussavi have begun hinting that the government’s failure to stem economic pain could become their new rallying cry.
There is widespread agreement that selling everyday goods at far below market prices, which costs the Iranian government an estimated $100 billion a year, makes little economic sense. It encourages overconsumption of gasoline and other products, discourages domestic production and makes Iran more dependent on imports, economists say. The subsidies are also regressive, because the rich pay the same artificially low prices as the poor and consume far more. And they encourage smuggling.
Previous governments have tried to eliminate subsidies and build a more dynamic, market-oriented economy, but retreated in the face of popular pressure. Ahmadinejad — who has long cast himself as a champion of the poor and a scourge of Iran’s privileged elite — has pushed hard on the issue, and last month Iran’s Parliament gave him full authority to begin paring back the subsidies this year.
Ahmadinejad, not known in the past for favoring strong pro-market medicine for Iran’s ailing economy, has presented the measure as a matter of economic justice. He says half of the money the government saves by eliminating subsidies will go to helping poorer Iranians adjust to higher prices.
But the measure also has clear political motives. The changes would hit hardest at the urban middle class, which has tended to favor Ahmadinejad’s opponents. And the president clearly hopes to carry out an important policy change that two predecessors, Mohammad Khatami and Ali Akbar Hashemi Rafsanjani — now leaders of the opposition — tried and failed to achieve.
The risks are serious, however, and lately even some conservatives have hinted that Ahmadinejad may not be up to the task.