State and people both show nerves over subsidy reform

Semira N. Nikou

       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 nine 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.

Read Semira Nikou's chapter on Iran's subsidies conundrum in “The Iran Primer” 

Semira N. Nikou works for the Center for Conflict Analysis and Prevention at the U.S. Institute of Peace.