Uncertainty Grows over Plan to Slash Subsidies
by ALI CHENAR in Tehran
23 Nov 2010 19:02
Contradictory policies hamper administration efforts at reassurance.[ dispatch ] While the Iranian government and President Mahmoud Ahmadinejad have maintained a defiant posture regarding economic affairs, his administration's actions reveal a deeply rooted anxiety, which might prove well justified.
The country's present economic conditions certainly do not inspire confidence. Strict sanctions, a large trade deficit, and the low economic growth rate recently reported by the Central Bank of Iran are more than sufficient to make anyone edgy. Add the program that will soon start removing subsidies for consumer products, energy, and public utilities, and no one could blame average Iranians for panicking.
In the face of growing concerns, Ahmadinejad is campaigning relentlessly to calm the public and intimidate his critics. In a recent speech in Hamadan, he said, "After executing this program, you will not find even one person in poverty in all of Iran." In an interview that aired on state-run television, he promised that he would do his part to ease the transition: "I will provide inexpensive loans, give assistance in cash, and help you so you can adapt to the new conditions." He professed his certainty that the plan would "lower consumption and bring prices under control," but that it was still possible that consumption could rise.
As usual, the promise that everything would work out was followed by a word of warning for the "unknown individuals who have resources large enough to distort the market." He declared, "If these people try their old tricks in the marketplace, then will we go after them using Article 49 of the Constitution [which addresses corruption], prosecute them, and ask them how they got their riches." Despite the potential for turmoil, the president has acted as if he is certain that removing the subsidies is the right thing to do. He told a gathering of top officials in the Ministry of Industry and Mining, "Reforming subsidies is a historic opportunity for our economy and our industries. The industrial sector will shake off 150 years of lazy traditions."
These are indeed reassuring words. But have they actually succeeding in calming people? Hassan, who owns a small supermarket in central Tehran, laughed when that question was posed to him: "Haven't you heard the latest joke? People say, 'Go and take a photocopy of your ass, and have it notarized. After this plan is executed your ass is going to be history!'" Iranian humor notwithstanding, he added in a serious tone, "I do not think they know what they are doing and all of these things are very confusing." There are many who are similarly concerned.
"Behind the One Third" is one of many bloggers who have echoed the worries on the street. He described a recent shopping experience in Tehran:
I went to the pharmacy to find Oral-B floss, but they did not have it. It was the third or fourth place I went looking for it, and the answer was the same -- "It has not been distributed." Driving home, my friend called to tell me my application for a loan had been denied. The bank manager had said, "We do not have the necessary funds." I stopped by the supermarket and asked for some lotions. The cashier told me, "We are out. They say the factory is not working anymore, because they cannot get the supplies." I went back to my car and saw the morning paper I had bought: The headline was "Sanctions Cannot Harm Us!"
As is customary with such stories, this almost certainly combines some facts with some exaggeration. Hassan, the central Tehran storekeeper, said that it is "true sometimes we do not get supplies on time, but that is a usual thing in our business. However, these days the delays are a bit more than what we are used to. Some people exaggerate the situation a little." Anecdotal reports aside, the truth of the matter is that average Iranian consumers, far from reassured, are deeply anxious.
They are not alone. Iranian authorities share their concerns. General Ahmad Reza Radan, deputy chief of the national police, has warned that the security forces will deal with those who might use the removal of subsidies as an excuse for disturbing the peace. Ahmadinejad himself has kept almost everybody in the dark about the details of the plan. There has been no announcement regarding the date of its implementation. In explanation, he said, "I want to minimize the effects and reduce the opportunity for speculation and racketeering." He asked people "to be patient and do not increase your consumption for the next six months so we can have a smooth transition." There is no official forecast of the increase in prices. No one knows what to expect.
The uncertainty has prompted the government to enforce tighter controls and to announce new decrees designed to micromanage the economy. It has insisted that there should be no increase in the price of necessities. Contradictorily, however, it banned imports of grain, rice, and beef (the ban on beef imports was recently lifted). Just last week the Commerce Ministry announced that each merchant can import just one type of product. The recent announcement of this regulation -- dubbed "specialized imports" -- infuriated the head of Tehran's Chamber of Commerce. He declared, "We have told the government we are hundred percent against the new policy."
"There are many mixed signals," an economist in Iran, speaking to Tehran Bureau on condition of anonymity, observed. "On the one hand, the government seems determined to carry on a program of economic liberalization; on the other hand, it uses the undesirable consequences to expand its control of economic affairs." However, increased government interference in the marketplace and the efforts at economic micromanagement may well backfire. According to the economist, "Governments often overestimate their own efficiency and underestimate the market dynamism." They invariably look for factors outside markets when their policies fail. "This causes a very unhealthy rigidity among policy makers," he said.
The government is trying harder and harder to downplay its liberalization program. On November 12, after a joint meeting with members of the Majles (parliament), Ahmadinejad told reporters that "reforming subsidies and removing them are two different things. The government does not want to remove subsidies -- I will continue them in a more efficient way." Many Majles deputies, including the MP from the president's hometown, Mostafa Kavakebian, have asked the administration to be more transparent about its plans. Some others have said the government should set the new prices itself to forestall rapid hikes.
Now, the governor of Tehran province has announced that all official buildings, universities, public schools, and other government-related activities will be shut down tomorrow, Wednesday. The official announcement cites Tehran's dangerous level of air pollution, among the highest in the world. In the past, similar announcements have coincided with politically sensitive steps. Many speculate that tomorrow is the day when the government is going to begin implementing the subsidy cuts. The decision to shut down the city is thus rumored to be an attempt to preempt potential demonstrations.
For the moment, even the inveterately defiant president appears to be wavering in the face of strong, broad-based pessimism. His administration just announced that it would continue to provide subsidized fuels for personal vehicles for another month. The ultimate dimensions of the liberalization program remain far from certain.
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