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High Anxiety over Falling Subsidies

by SEMIRA N. NIKOU

15 Nov 2010 08:3329 Comments

State and people both show nerves over subsidy reform.

GasolineLine.jpg[ primer ] A bad case of nerves has hit Iran.

With long-delayed subsidy reform due to take effect any day, merchants have already jacked up prices of basic goods as much as 30 percent in anticipation of higher costs to them. And long lines have been forming at gas stations as Iranians scramble to fill up their cars before increases that many fear could double or more.

The government of President Mahmoud Ahmadinejad is also clearly nervous about potential public reaction. Security forces have been stationed in major cities and around bazaars, which have already gone on strike this year over increased taxes. The regime has signaled that it is prepared to take a heavy-handed approach to popular dissatisfaction.

The president issued a series of tough warnings. "It is possible that Satan tempts some people in the country, for example a factory owner, to put up the price of his products. He might tell himself that no one would notice," Ahmadinejad said in a Nov. 3 speech in northeastern Iran. "Our agents will catch him and fine him and if necessary will announce the names of these people or factories on television, so anyone who wants to abuse the situation will regret it forever."

In an Oct. 30 television appearance, the president separately announced that "economic seditionists" and hoarders attempting to undermine the plan will be punished and publicly humiliated. He has held a special meeting with top police officials to lay the groundwork for any protests.

In 2007, Tehran witnessed unrest after the introduction of gasoline rationing. And political unrest rocked Iran for six months in 2009 after a disputed presidential election.

For the past year, Ahmadinejad has spearheaded a campaign to slash subsidies that have underwritten inefficient industrial practices and wasteful consumer behavior. Subsidies for foodstuffs and fuel have been a growing drain on Iran's economy since 1980. They now cost the government between $70 billion and $100 billion annually -- around one-quarter of its gross domestic product.

The nervousness has been compounded by the fact the price hikes are not a one-time thing. The reforms will play out over five years -- dragging out public anxiety.

Even before the first phase of subsidy reforms, the official inflation for the year so far is around 9 percent. But even government officials suggest it could rise significantly higher. Ahmad Tavakoli, the head of parliament's research center, said the subsidy plan will spark inflation to hit as high as 50 percent this year.

Nervousness has grown in part because of the long delay in implementation. Minister of Economic Affairs and Finance Shamseddin Hosseini had announced that the president would reveal details of the reform plan in his television appearance Oct. 30. Instead, Ahmadinejad again said that prices would not be announced until the night of implementation -- but provided no date.

The Iranian parliament has not even been given details of the plan. Contradictory comments by officials who are either involved in or aware of the decision-making process have raised public concerns that perhaps the government itself has been uncertain about what steps it should take.

Semira N. Nikou works for the Center for Conflict Analysis and Prevention at the U.S. Institute of Peace. This article is presented by Tehran Bureau, the U.S. Institute of Peace, and the Woodrow Wilson International Center for Scholars as part of the Iran project at iranprimer.usip.org.

Related reading by Semira N. Nikou | The Subsidies Conundrum

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29 Comments

When there is 30% unemployment, a potential 50% inflation will topple the government; or at least it will create a terrible period of unrest and perhaps even bloodshed. Mr. Ahmadinejaad, what is your plan to create jobs for the Iranian youth? Huh? What is it, man? Cause I am all ears!

Ekbatana / November 15, 2010 9:18 AM

You cannot afford to subsidize when there are sanctions on the nation which forbid economic growth and development. Sanctions are meant to foster in the sanctioned nation the environment of suffering, hunger, despair which is hoped lead to anger and the populace wanting to commit coup detat. When the people attempt the coup, the Government "cracks down" and the people who sanctioned use the "crack downs" as propaganda to call the sanctioned nation the evil one. Do not look to the Government as the source of the suffering, rather look to the sanctioners, they are the ones that have the power to inflict the suffering.

Muslim / November 15, 2010 9:19 AM

Dont get me wrong. I am partly against the subsidies to this 100 Bil$ extent , yet i am sure that ordinary people are the ones that are gonna suffer the most , if the subsidies are to stop.

Sure enough, there are tons of so called merchants that can not wait to see the subsidies gone. That is when they are gonna get make tons of bucks and government is not gonna do anything.

Agnostic / November 15, 2010 3:54 PM

It is always the ordinary people who suffer from any nationalists/socialists scheme.

Resources do not appear from thin air. Governments are far worse about abusing people than "the evil capitalists". After all, government usually has alot more guns. And they don't hesitate to use them.

muhammad billy bob / November 15, 2010 6:20 PM

It is a well known fact that there is no free lunch except for bankers and arms manufacturers.
The subsidies for necessities in Iran have to end but those paid to the Army/Security/Religous bloc must be protected at all costs.Oil money comes out of the ground. The question is who does it belong to? The final arbiter of how resources get allocated is His Royal Highness Khamenei I (hammer of the GM) and the Royal Court gets to divide up the pie. If only we could all agree on Free Market principles you only get what you pay for or earn, it be so much simpler. No subsidies to farmers,plane manufacturers,defense contactors,banks in difficulty and the like. Governments that we elect are far worse at looking after our interests than unelected benevolent Capitalists.

pirooz / November 15, 2010 10:25 PM

Unfortunately many of the predictions about ordinary people suffering are correct.

However, have they not been the ones suffering for the past years as well?

What if people decided to boycott some major industries in Iran, for example the car industry, for only one year.

Would that not bring the economy to a screeching halt and along with it this administration?

What if the "ordinary" people decided that suffering for one year is better that suffering fro another thirty and take actions that matter?

My statements are made from a place of comfort and not being affected as I do not live in Iran right now.

That is why I am asking.

Jamal / November 16, 2010 12:07 AM

jamal,

Iranians dont revolt because they are hungry. They revolt becuse there is injustice...

e.g. 79 revolution, 99 student uprising, 09 election uprising. None were really abt economy.

Anonymous / November 16, 2010 4:43 AM

Oil money doesn't "come out of the ground". It is forced out of the ground by workers. In Iran these workers are forced by the IR to work for only one entity (the IR) and then have a portion of their labor siphoned off to pay off various groups that keep the IR in power. And then they are told they are being given a gift of subsidized products? Like they haven't already paid for these products much more than their true worth?

muhammad billy bob / November 16, 2010 5:05 AM

So take away their subsidies or Uncle Milt will roll in his grave.We can't violate the principles of the holy Free Market.Oil comes out of the ground and so does food. I'm sorry Lehman Bros. didn't invent either. Yes it takes sweat, ingenuity and Capital to produce both but this mythical Free Market doesn't really exist anywhere and you know it. Maybe if they privatised the Oil Industry, Exxon would pay the workers a bit more but on the other hand you might have the outcome of Russia where old women ended up begging on the streets and wages weren't paid while the wealth flew out of the country. No free lunch (or breakfast or dinner)for those Babushkas found frozen solid on the streets of Moscow.Oil is back in the hands of the government, who can say that is wrong for Russia?

pirooz / November 16, 2010 9:27 AM

There are alot of free markets. Governments call them black markets. Because they can not control them.
Everyone was begging in the streets of Russia prior to the limited free enterprise reforms. Waiting in line for hours for the basics of life which are not being produced because there is no benefit to produce.

Keeping production and labor out of the hands of government has many moral and practical benefits .

muhammad billy bob / November 16, 2010 6:28 PM

Muslim, nice try with trying to shift responsibility for Iranians' problems from their regime to "those scary foreigners".

What did trigger the recent sanctions? Was it that other countries do not like ordinary Iranians or was it because of the regime's adventurist actions all over the world?

Iranians do not need nuclear bombs. The only people who need nuclear bombs are the regime leaders who want to be able to continue to "select" presidents, torture & kill anyone who disagrees with them, and enrich themselves.

The regime keeps playing the same dangerous cat & mouse game that got Saddam killed. Stop playing with Iranians' lives and spend their oil revenues on improving their lives instead of chest-pumping for your own egos.

Bahman / November 16, 2010 11:17 PM

Its funny but whenever i want to imagine what state would iran be in 2 years later, its always North Korea that comes to my mind.

- Is not their leader "The beloved leader". That sounds familiar to Iranian leader as well!
- Are the north korean leaders the perpetual rulers, so are Mollas in Iran!
- Is not north korean suffering under all kind of sanctions, so are Iranian people!!!....etc

- Does not NK has a delusional leader and a sucker military, executive and judiciary behind it, So does Iran.

- Did not Nk pursuit of Nuclear power forced it into more isolation, so is Iranian current government status.

- Do NK people want to get rid of their leader, well for that you really need to read some recent articles in NYtimes, NewoYorker ...etc , so is the case with majority of folks in Iran.

Both states are quelching the dissidents, both are arrogant and yet hollow, both disregard the political norms , both are unrepresentative, ...etc.
Ups .. i made a mistake , afteral maybe its North Korea that is modeling itself after Mollas in Iran!!


Agnostic / November 17, 2010 12:37 AM

In the ideal world of the apostles of the free markets governments wouldn't exist at all, there would only be a mass of consumer/producers free of government intervention. Doesn't that scenario seem a little unrealistic you, a little utopian (or dystopian) fantasy. Of course it is, and the financial crash of 2008 shows that when it comes down to it America the cradle of free enterprise was forced to ignore the longstanding dogma,to prevent the collapse of their financial system, to pay huge subsidies to privately-owned banks. They did that during the Long-Term Capital bankruptcy and the S&L collapse as well as other cases. Now at the time I was waiting for widespread shareholder revolts the spirit of Adam Smith riding before them but no nothing. Shareholders United, the backbone of capitalism didn't even squeak. And good thing they didn't, because the danger was a global one. So there are Free Marketeers and those who are only when it suits them. Which type are you? Would you have denied the private companies the government subsidies they needed to survive thereby torpedoing the world economy?

pirooz / November 17, 2010 5:49 AM

I see a verbal diatribe of oral diarrhea above. Why so verbose? Solution: GET RID OF ISLAMIC REPUBLIC. We have NEVER been ISLAMIC REPUBLIC and do NOT want to be. We're Iran, Persia, or you can add Republic to either of those names, but NOT ISLAMIC.

Akhoond Kosh / November 17, 2010 8:06 AM

It looks like someone a little lost,with aspergers just wandered in from another site.

pirooz / November 17, 2010 10:17 AM

Well, if the government is going to get rid of the subsidies then, what would be done to tuition-free universities like University of Tehran, Sharif University, Shiraz University ,or Amir Kabir Univeristy?

All of the aforementioned universities along other big city universities are the cradle of opposition to the rule of clergy and dictatorship.

I think the next step of Ahmadinejad would be to remove the education subsidy of these universities. He will make all the universities in Iran like Imam Sadegh University or Imam Hossein University.

AMin / November 17, 2010 10:34 PM

It is a matter of fact, that the Islamic Republic was never given a real chance to proof itself and show its good sides. A turbulent revolutionary atmosphere in 1978, 1979 and 1980, an 8 year-lasting imposed war, US sanctions, Iran-Lybia act, military threats, encirclement, pressure on the nuclear program, financing of oppossition and terrorist groups against Tehran... the regime in Tehran is mainly a product what particlarly foreign environment did to it (be it for good or negative reasons)...

my 5 cents

Cyrus / November 17, 2010 10:39 PM

Pirooz,

In one post you, correctly, write the U.S. is not a free market economy. Then in another you say the U.S. economy tanked because of free market principles?

There are no private banks in the U.S. For that matter, there is very little private enterprise in the U.S. The U.S. government gives out billions of taxpayer money to "private companies".

The only reason the U.S. economy is in such a state is because the economic future is pinned to rather outdated, socialists principles of the late 19th and early 20th centuries. FDIC, et al. allow careless people to play with other peoples money, knowing full well that if they fail, the taxpayer (who probably works for them for $10 an hr.) will give up, at gun point, 25-50% of their labor.

Let's be honest. There is no such thing as utopia. Under free markets some people lose. Under nationalist/socialists systems more people lose.

The ideal is to keep government interference to an absolute minimal. No government would be great. But if they must exist, they should see the writing on the wall. Protect life and liberty and they'll be ok. When they try to regulate or favor one person over another they get into real trouble.

muhammad billy bob / November 18, 2010 5:39 AM

So that means you are the second type of Free Marketeer, I thought so. When it suits you subsidies are sinful but at other times they are unavoidable so they are OK.You don't really believe in anything. Here I thought you were a Heritage Foundation, Flea-party true believer.

pirooz / November 18, 2010 9:32 PM

pirooz,

huh?...Subsidies are always bad, or sinful if that's the term you'd like. Even if it's subsidies to large entities like multi-national companies like Wal-Mart, McDonalds, and Fidelity Investments. Or subsidies to pay for my neighbors childern's education at an ultra-right christian school.

I really do believe in something. Freedom of individuals to live their lives free of others intrusions. People who want to control others' lives do so in 2 ways. Economic and social. I support others' total economic and social freedom. Which are inter-woven, btw.

......I like your "Flea-party" dig, though. The only the thing the "Tea party" agree on is that they hate immigrants. Particularly, those from Latin America.

Obviously, you do not get libertarian principles. In it's most basic form it is to say that the individual owns him/herself and their labor. It's basically a live and let live philosophy.

Or, as I prefer, leave me alone and I'll leave you alone. It's always seemed really odd to me how many people do not want to leave me alone. It amazes me how many people feel they can steal my money, tell me who I can marry, who I can work for, who I can employ, etc. As long as they have guns of the government behind them, they think this is moral.

muhammad billy bob / November 19, 2010 4:10 AM

pirooz - I have always though muh..... billy bob is a mixed up soul. Hope he comes to the right path one day!!

rezvan / November 19, 2010 4:16 AM

Libertarianism can include Lyndon Larouche and his ilk or Spanish Anarchism which was attacked both from the fascists and the communist left and then there is the Tea Party Libertarians who seem to want the freedom to destroy in their ignorance what others have painstakingly built over a cenury of struggle. They are a band of bully-boy children who get pleasure out of stomping on sandcastles at the beach but what do you expect from another demented outgrowth of the Republican Party (there have been many). I have a feeling that the commies in China are going to give them a masterclass in the free market capitalism that they claim to cherish so much.
Subsidies paid to the weakest and poorest are in no way comparable to those paid to Goldman Sachs or General Dynamics which is what Eisenhower (he would qualify as conspiricy theorist today) pointed out when he said that every aircraft carrier, ICBM and F16 means thousands miles of roads , scores of schools and hospitals unbuilt. That the withdrawal of subsidies in the IRI should get the blessing of the IMF, World Bank shows their total incomprehension of how 4/5ths of the world live.
In Iran every project undertaken to puff up the regimes prestige is going make most people even poorer but if you want to you can put the boot in and remind them all " there's no free lunch". I am sure as an Iranian you wouldn't want to do that.

pirooz / November 19, 2010 6:11 AM

pirooz,

Larouche was not a libertarian. I think he ran as a Democrat.

Like I said, you need to educate yourself about libertarian principles. There are many people who claim they are for liberty (like Ajmadinejad, who claims Iran is the freest country in the world)but the proof is in the pudding. There are very, very few tea partiers who are libertarian.

Subsidies paid to the richest person in the world are exactly comparable to those paid to the poorest. Both are stolen from someone else by the use of force. When you try to decide who should receive this stolen money you end up where countless legislatures have ended up. Stealing from people, then "giving" them back about 10% of that stolen money. And telling them they should be thankful for such.

muhammad billy bob / November 19, 2010 12:29 PM

Sorry Rezvan. I will never be a socialist.

It is my belief, (or maybe wishful thinking), that most of the world is turning away from the disater of collectivist ideologies of the 19th and 20th centuries.

muhammad billy bob / November 19, 2010 6:59 PM

Well the tea party wouldn't like to hear you say that. I think when comes down to it there are very few true libertarians anywhere, probably none.
Maybe its my lack of education but I don't see "Every man for himself and the devil take the hindmost" as a principle. Stay true to your principles.

pirooz / November 19, 2010 10:31 PM

@ Muhammad Billy

I liked your take on libertarians.

Agnostic / November 19, 2010 11:20 PM

pirooz,

That is one thing we agree about. There are very few libertarians. In the U.S. the LP receives consistantly 1% of the vote from the 50% that bother to vote. Not very many people.

One of the reasons for such little support is many believe as you do. That libertarianism is "every man for himself" and socialism is not. But if you'd look into the socialist systems of the U.S., western Europe, etc. You see that that system is very much every man for himself. You either join the collective or you are in for a world of hurt.

There is nothing secure, or nice, or compassionate about socialism. They've just had alot of taxpayer money to argue their case in the government run schools, government run media, etc.

muhammad billy bob / November 19, 2010 11:38 PM

pirooz,

Yes, I do think think you may need to investigate libertarianism a little.

You seem to be operating from outdated and incorrect information about libertarians.

The Larouce arguement is 30 years old and incorrect. I don't know where or why that rumor got started, but Larouce had no libertarian tendicies, and like I said he ran as a Democrat. I think he could be best be described as a national socialists.

Which is how I would describe 99.9% of the tea partiers. They firmly believe in social security, a large military, government run education, etc. etc. They just want to be the people who are running these socialist programs.

muhammad billy bob / November 19, 2010 11:56 PM

@ Pirooz

Anarchism and Libertarianism are drastically different. Those people in spain you are talking about were collectivists on a decentralized scale. Libertarians on believe in themselves. Also the Anarchists fought along side most communist groups, they only had a few scuffles with the stalinists.

Dawood Ali / December 10, 2010 12:14 AM