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Iran MPs may halt Ahmadinejad subsidy reform

Iranians shop at Tehran’s old main bazaar in downtown Tehran.

DUBAI: Iran’s parliament voted Sunday to consider suspending plans for further reform of the country’s food and fuel subsidies, with legislators citing economic pain caused by the plunge of the rial currency.

Subsidy reform has been a centrepiece of the economic policies of President Mahmoud Ahmadinejad, so parliament’s vote was a political blow to the president at a time when he faces growing public discontent over the rial’s slide.

Of 240 members of parliament present, 179 voted to consider whether to halt the second phase of subsidy reform, according to the Iranian Labor News Agency. It did not say when the decision would be made.

The reform aims to ease pressure on state finances by cutting tens of billions of dollars from the amount which the government pays to subsidize low consumer prices for food and fuel, while offsetting the impact on Iran’s poorest citizens by giving them monthly cash payments.

“In conditions in which the inflation rate is increasing and the currency market is in disorder, the second phase of this law must be stopped,” said Gholamreza Mesbahi-Moghaddam, head of parliament’s budget and planning committee and author of the motion, according to parliamentary news agency Icana.

The government introduced the first stage of subsidy reform in late 2010. At the time, Ahmadinejad called it the “biggest economic plan of the past 50 years.”

But domestic critics including many members of parliament say the reform has contributed to soaring inflation, which is officially running at around 25 percent, and charge that the plan has been used by Ahmadinejad for his own political benefit, because he can control welfare payments under the scheme.

Parliament’s vote Sunday was a fresh sign that Western sanctions against Iran, imposed over its disputed nuclear program, are having a fundamental impact on its economy.

Last week police clashed in Tehran with protesters who were angered by the collapse of the rial, which lost a third of its value against the U.S. dollar over 10 days as the sanctions cut the country’s ability to earn hard currency from oil exports.

The president’s term ends in mid-2013 but some analysts think Supreme Leader Ayatollah Ali Khamenei could remove him before then if public discontent continues to worsen.

Jafar Qaderi, spokesman for a parliamentary committee formed to support producers of goods, told Icana the committee would call Central Bank Governor Mahmoud Bahmani and the industry and oil ministers for questioning about the rial crisis Monday.

Parliament members also want to summon Ahmadinejad for questioning about the rial, but their request must still be approved by a parliamentary supervisory board.

In a speech Saturday, Ahmadinejad referred to the currency crisis but did not offer solutions.

“Messing up the market ... and the efforts by some to undermine the morale of the people are devilish acts,” he said, according to Fars news agency.

The rial’s drop is pushing down living standards. Although Iranians say there are no significant shortages of daily necessities, imported goods, including food and some medicines, have rocketed in price or difficult to find.

“The situation is getting really bad in Iran because of our currency,” said Saleh, a 48-year-old Iranian sailor whose wooden dhow was visiting Dubai to trade. He declined to give his full name because of the political sensitivity of his remarks.

A 40 kg bag of imported Indian basmati rice, which cost around 800,000 rials in Iran three months ago, now costs 1.7 million (roughly $45 at latest exchange rates), he said.

“People are frustrated, I’m frustrated. I have problems taking care of my family now. Food is expensive but we have no choice but to buy it,” said the father of four.

The government has tried to boost the rial by pressuring dealers to trade at certain rates and by arresting money changers whom it blames for speculating against the currency.

Tehran’s prosecutor, Abbas Jafari Dowlatabadi, said 30 “main suspects” had been arrested for meddling in the currency market. They were found with large amounts of foreign exchange and gold coins bought illegally, Dowlatabadi said, adding that more arrests were expected, according to Fars.

But so far official pressure seems to have backfired. Many money changers in Tehran are not willing to trade at state-set rates and too frightened to trade at black market rates.

This is depriving many Iranians of access to hard currency they want for overseas travel and foreign study, and to protect their savings against inflation. The Iranian Students’ News Agency said dealers in Tehran’s Ferdowsi Avenue and Istanbul intersection were not selling dollars at any rate Sunday.

 
A version of this article appeared in the print edition of The Daily Star on October 08, 2012, on page 5.

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