Iran News ...


02/23/09

Iran: "Targeted Subsidies" Scheme Draws Scepticism

By Arash Hassan-Nia, Tehran (Source: Mianeh)

 

Kazem, a middle-aged van driver, knows just one thing about the authorities' economic development plans, according to which Iranians are to be given 70 US dollars each month. But when asked how and why this is going to happen, he can't explain.

 

President Mahmoud Ahmadinejad first announced a series of economic proposals during an address to the nation at the start of the Iranian New Year on March 20 last year.

 

In mid-July, he fleshed out a seven-point plan during an interview broadcast on Iranian state television.

 

He proposed a series of customs, tax and banking reforms, as well as changes to the way that goods and services are distributed.

 

More controversially, he outlined a new "targeted subsidies" scheme, under which government spending will be diverted to those social groups that need it most.

The Iranian authorities currently subsidise the cost of certain basic goods, such as gas, electricity, water, and medicine, to ensure lower prices for consumers. Subsidised petrol costs a little more than 10 cents a litre, compared to a market price of 40 cents a litre.

 

Under the president's plan, these blanket subsidies would be eliminated and the money saved would be given to lower-income consumers in the form of direct payments.

 

Ahmadinejad promised that his government would pay people the equivalent of 45 to 70 US dollars (43, 078 to 67,011 toman) a month.

 

Kazem, who heard this promise, is now hoping his family of six will receive a combined monthly income of 420 dollars.

 

Yet while some Iranians, like Kazem, have welcomed Ahmadinejad's attempts to revive the flagging economy, critics say the project will lead to a significant hike in prices, and accuse the president of trying to buy votes ahead of the presidential election planned for June 12.

 

The president and other officials argue that ending subsidies on petrol and electricity will lead to a one-off rise in prices, yet will do no lasting damage to the economy.

 

It's hard to get hold of any more details about the economic plan. A bill has reportedly been drafted - but will be defeated in parliament according to some prominent assembly members.

 

It's also unclear how much people will receive under the programme, or who will qualify.

 

Since the president's televised interview was broadcast, some government officials have contradicted the figures he quoted.

 

Ramin Pashaee Fam, a senior official in the central bank, has mentioned significantly lower sums.

 

"If the oil price stays between 35 to 48 dollars, then each individual will receive a payment of at least 19,500 toman (approximately 20 dollars) and a maximum of 43,000 toman," he said.

 

Mohammad Reza Farzin, the speaker of the government's economic development plan workgroup, said that payment amounts had not yet been outlined.

 

"In the targeted subsidies bill... such figures regarding the amount of this cash subsidies payment have not been mentioned," he said. "I have never, in any interview, mentioned any figures for subsidies payable in cash to people."

 

Whatever the payment amount is to be, officials and analysts warn that scrapping subsidies could leave basic goods unaffordable for many.

 

They are also concerned that a rise in the price of petroleum products could have a knock-on effect on the prices of a wide range of goods, as a result of higher transport and manufacturing costs.

 

A report by the Association of Industrial Managers, published in the Karafarin journal, predicts that ending subsidies could cause inflation - which is currently estimated to stand at 24 per cent - to soar to over 60 per cent.

 

Economists are not convinced by the authorities' claims that ending subsidies will result in a single hike in the price of previously subsidised goods, and will have no wider or longer-lasting consequences.

 

"The argument that a leap in prices [for subsidised goods] would not lead to [spiralling] inflation...is one of the crudest and most baseless I have ever heard," said economist Farshad Momeni.

 

Momeni explained that suddenly ending subsidies could have a temporary destabilising affect only if implemented in a healthy economic climate.

 

"For the past 20 years, it has been widely accepted that instability is a key feature of economic conditions [in Iran]," he said.

 

He also argued that it would be unreasonable to end government subsidies on basic goods while salaries remain so slow.

 

"We cannot pay our workforce the wages of workers in Burkina Faso and then demand their expenses to be on a European scale," he said.

 

Many Iranians hope the proposed changes will be dismissed.

 

"Services subsidised by the government are still too costly," said bank employee Karim Heydarian.

 

"If [these subsidies] are eliminated, we will probably not be able to buy even enough water because even well water will be more expensive than orange juic."

 

Behjad Kalhor, a retired insurance company employee, doesn't think the proposals would improve people's standard of living.

 

"How can it be acceptable for a family of four to receive a monthly amount of 200,000 toman (209 US dollars) and then pay more than 400-500,000 toman for petrol, electricity, gas, water and phone bills?" he asked.

 

Farhad, a taxi driver, criticised Iranian politicians for trying to justify ending petrol subsidies by comparing the price of petrol in Iran and other countries.

 

Ahmadinejad has reportedly pointed out that in the US - where petrol is more expensive - 80 million people live below the poverty threshold.

 

"Government officials compare the price of petrol in Iran with that of other countries and come to the conclusion that they should increase the prices," he said.

 

However, Farhad pointed out that the two countries had different concepts of poverty.

 

"The question is: how many people in Iran live below the poverty threshold, as defined in the US?" he asked.

 

He also argued that because Iran is one of the world's biggest oil producers, it should be cheaper here, "The price of petrol is high in countries where they do not have a drop of oil - not in a country like Iran which is sitting on a sea of oil."

 

Arash Hassan-Nia is a journalist in Tehran

 

About Mianeh: Mianeh is a new independent web-based initiative run as a project by the Institute for War & Peace Reporting (iwpr.net) the award-winning non-profit media development organisation that works across the globe to platform local voices and promote international learning and engagement. Mianeh aims to be an open space for ideas, news and debate where writers in Iran can reach out to each other as well as to those outside the country who are interested in learning more about the vibrant and dynamic society that is Iran today.

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