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Iran Parliament Procrastinates on Subsidy Reform

By Mitra Farnik (Source: Mianeh)

Although Iran's parliament has passed the general outlines of a massive overhaul of the country's unwieldy fuel and food subsidy system, much of the detail remains to be worked out and there are signs of wavering in the passing of the proposed legislation.

While everyone agrees that Iran's subsidy-addicted economy is in need of "surgery", inflation fears as well as the impact on already beleaguered and politically unhappy middle classes have kept the bill in limbo. The conservative-controlled parliament also seems wary of taking responsibility for a drastic economic overhaul in a post-election environment consumed by political enmity and confrontation.

The general outline of the proposed law, the Legislation for Targeted Subsidies, was passed on October 11, and lawmakers approved the subsidy cuts for fuel and electricity the next day. But they must still re-ratify the whole legislation after reaching a decision on all 17 of the bill's provisions that beyond cuts also include the target and extent of redirected subsidies. The Guardian Council, the watchdog body that has to assure the constitutional requirement that all sources of spending are specified, must then review the bill before it becomes law.

Close scrutiny of the manner of subsidy cuts and re-direction of certain elements are deemed necessary because the Iranian subsidy system effectively supports the rich as well as the poor by giving greater subsidies to those who consume more. The intention of the proposed legislation is not only to cut unneeded assistance but also to re-direct the money to those who really need it.

However, there are signs that the parliament may be re-thinking its initial support.

Parviz Sarvari, a conservative member of parliament's national security and foreign policy committee, announced in an interview with Mehrnews on October 28 that the assembly is considering a delay in implementation until the next fiscal year which begins on March 21. Jahannews, a website belonging to a conservative deputy, has reported that concerns about the impact of the bill have taken it to the Supreme National Security Council for consideration.

A prominent member of the conservative faction in the parliament, Hassan Sobhani, has even written an open letter to the head of the judiciary imploring him to be ready for the "criminal consequences" of the proposed legislation if implemented, referring to the risk of theft and other crimes associated with increased poverty caused by the plan and that people will try to cheat to get the subsidies.

Alireza Mahjoub, a member of parliament representing the House of Labour, the state-sponsored union body, has warned of increased misery for the poor. Several economists have questioned the value of such "shock therapy", the prescription for which was written by the World Bank and International Monetary Fund, a charge that is full of irony given that it is directed against a plan designed by a government that proclaims economic justice its priority.

Even the hard-line Kayhan daily, usually an avid supporter of President Mahmoud Ahmadinejad, on October 29 published an editorial stating that while surgery is required for the Iranian economy, in reality "the operating room is not ready". From Kayhan's point of view, economic corruption has to be dealt with first before a major overhaul can be implemented in a fair manner.

These reactions are despite the fact that a special parliamentary committee that has been working on the bill since last spring tried hard to soften the painful and inflationary impact of the original text introduced by the Ahmadinejad administration. Still, ambiguities in the bill have left many worried about its eventual implementation.

Everyone agrees that subsidies need to be cut. Their exorbitant amount - estimated by some to be around 90 billion US dollars - requires addressing since they are deemed simply unsustainable. Cheap prices are also an issue because they have encouraged over-consumption in goods ranging from gasoline to bread. For instance, a report by the parliament research centre recently suggested that at the current rate of oil consumption Iran will simply have no oil exports in eight years.

But the parliament disagreed with the speed with which Ahmadinejad wanted to implement the measures so the bill mandates that the cuts - particularly in the fuel subsidies that constitute the bulk of the cost - should be imposed over five years.

The proposed legislation has, however, so far left it to the government to determine the extent of price increases for the previously subsidised goods in any given year. The only provision is that the subsidy cuts should be between 10 billion and 20 billion dollars.

There are worries that if the government goes for the top of this range, it has to increase prices of important commodities such by as gasoline as much 400 per cent, diesel by more than 350 per cent, and electricity by almost 300 per cent, which Ahmad Tavakoli, a conservative deputy who is also an economist, warned raises the spectre of a 60 per cent inflation rate throughout the economy.

At the same time, Seyyed Mohammad Kazem Delkhosh, the deputy chair of the parliament's economy committee, speculated that even if half of 20 billion dollars generated is given out to the needy in cash, the sum would be a measly 20 to 25 dollars per individual and simply inadequate to deal with rapidly rising energy and food prices.

A second concern relates to the distribution of subsidies. The Ahmadinejad administration initially maintained the need to provide them to the poorest 70 per cent of the population. Parliament has reduced this to 50 per cent but there are still disagreements about how much of the saved money should be given to the poor and whether this support should come in the form of direct cash or distributed goods.

Added to the latter concern is the reliability of the data the government has on family incomes. The data was gathered last year based on self-reporting and the government has yet to announce any means of verifying the information given by the 35 to 40 million people out of the approximate population of 70 million who according to officials may be eligible for subsidies.

The third source of concern has to do with decisions on how much of the saved money should be distributed among people. Considering that major elements of Iran's economy - including state-owned factories and plants, private industry, and agriculture - also rely on energy subsidies, the parliamentary bill has allocated at least half of the saved money from subsidy cuts to factories and agricultural enterprises, but so far this section of the bill has not passed.

Neither has the section of the proposed legislation that requires the government to determine the amount of yearly subsidies through the budgetary process rather than on its own. Members of parliament consider this requirement important because deliberations over the yearly budget are one of the few oversight mechanisms the parliament has over the executive branch.

The worry is that without oversight, the government will be reckless, with more concern about immediate popularity among the poor rather than the longer-term health of Iran's agriculture and industry.

Finally, the timing of the plan has also become problematic given events since the June 12 election. Even if one accepts that there was no fraud in the election, the government's own data suggests that opposition candidate Mir Hossein Mousavi did well among the educated, urban middle strata of society. Post-election events that included massive demonstrations in large cities, particularly Tehran, also point to the political unhappiness of these groups. Yet these are the same people who will be left out of government support and still face inflation that cuts into their spending power.

It is not unreasonable to assume that part of the parliamentary hesitation in passing the proposed legislation in its current form has to do with the unsettled domestic political environment and the fear that the implementation of a painful plan by a conservative government - which is not trusted by good part of the population and not deemed particularly capable by the conservative parliament itself - will not only be blamed on the parliament but also court social disruption and instability.

About the author: Mitra Farnik is the pseudonym of an Iranian writer based in the United States.

About Mianeh: Mianeh is a new independent web-based initiative run as a project by the Institute for War & Peace Reporting ( 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.

... Payvand News - 11/10/09 ... --

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