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Rouhani’s shift alarms Iran’s liberals
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Iranian President Hassan Rouhani’s honeymoon with his countrymen may have ended with a box of rice, chicken and cheese. A blazing row over the distribution of free food parcels has seen him apologize on state television after opposition media pictured people queuing for hours in subzero temperatures. Reportedly, three died waiting in line.

The furor shows the mountain Rouhani faces in challenging a populist political culture where Iranians see the state as a fount of goods and welfare. Advocates of market reforms suddenly find themselves questioning whether his administration is serious about reducing the role of government and encouraging the private sector.

According to a narrative common abroad, Rouhani won last June’s election because reformist voters sought social and political freedoms. The reality is more prosaic: He won because voters thought he could improve their economic prospects, partly by getting the West to ease sanctions thanks to diplomatic progress on the nuclear issue.

Oddly, in Iran it is the political “right” – the “principlists” or fundamentalists – who generally support government welfare schemes, which show the beneficence of the Islamic Republic. On the other hand, the “left” or reformists have inclined since the 1990s toward economic reform, as have pragmatic conservatives such as Rouhani.

But raising living standards by developing a vibrant private sector will take time. Meanwhile fundamentalists, uneasy over talks with world powers and waiting to pounce, are well-placed to exploit any popular discontent over declining state welfare.

Enter free food handouts. The practice began under the previous president, Mahmoud Ahmadinejad, and was renewed last week amid confusion. Eligibility was announced only the night before the distribution began, with hampers going only to those earning less than the equivalent of $170 a month. Even so, there were ill-tempered scenes as some people who had been queuing for hours were turned away empty-handed from state-owned stores or religious foundations. Ministers have given different figures of those eligible for the aid, with some going as high as 10 million households, or roughly 36 million people, which is nearly half the population.

Others bemoaned the quality of the 10 kilograms of rice, two frozen chickens, two dozen eggs, cheese and cooking oil. Reports of the rice being bartered from India and the fowl from Turkey in exchange for oil or gas lent a suitably nationalist tinge to complaints – even though Iran grows a small proportion of the rice it consumes.

The whole affair “contradicted dignity,” according to Gholam-Hossein Mohseni-Ejei, the prosecutor-general and a former intelligence minister. After heated questions in Parliament, Speaker Ali Larijani, who is generally sympathetic to Rouhani, asked for the scheme to be reconsidered.

What the government is trying to do is far from clear. Rouhani’s television appearance, itself delayed by a dispute with state TV over who would interview the president, did little to clarify matters.

At first, there was speculation that Rouhani saw food hampers as a way of cushioning the blow of phasing out cash handouts. These were introduced under Ahmadinejad supposedly as payments “targeted” at the poor in order to ease the phasing out of state subsidies of everyday items such as gasoline and bread. But in practice the cash handouts have gone to most Iranians and, according to many economists, are costing more than subsidies, which were variously estimated in 2007, before they began to be “phased out,” at $50 billion to $100 billion a year.

Plus, many subsidies remain. Motorists, for example, still receive a monthly quota of subsidized gasoline. The costs of the whole matrix of subsidies and handouts are buried in a mist that belies Rouhani’s commitment to transparency.

Food baskets are not a make or break issue for government finance. A leading Iranian business journalist said he thought four allocations a year would cost $1 billion. But supporters of market reform fear that the president is stepping back from a liberalizing agenda, and there are even rumors of two ministers threatening to resign.

“I thought Rouhani’s philosophy was based on sense and logic – and that his policies aimed at transforming the economy, creating jobs, reducing inflation, and reducing waste and mismanagement,” the business journalist said. “But by this action he has gone back to war-time methods of distributing food. At first I thought it was a one-time gift to low-income groups at a time of high inflation or maybe to clear existing stocks, or perhaps to replace cash payments. But then the government announced this distribution will be repeated next month and even next winter as well.”

Nor is a date set for ending cash payments. In presenting his draft budget to Parliament in December, Rouhani said they would continue until “an alternative” was found. Some doubt government claims that it will balance the books in 2014-2015 and question the viability of a budget that assumes exports of 1.5 million barrels of oil a day – 400,000-500,000 barrels above current levels – and 3 percent growth, after a 5 percent contraction in 2013.

It will be difficult to streamline this messy array of handouts and subsidies while managing public expectations, particularly in the face of fundamentalists anxious to fan any flames of unrest. In general, Rouhani has received encouragement from Supreme Leader Ayatollah Ali Khamenei, but the leader is sensitive to public opinion and to the ebb and flow of factional politics.

Iranians are in no mood to tighten their belts with inflation officially at 37 percent and unemployment at 12 percent. But to turn things round, Rouhani may need to prescribe a dose of austerity.

Adding to the set of challenges he faces is that the sight of food queues in Iran will encourage proponents of tighter sanctions in the United States and elsewhere. The more Iran is squeezed, they will argue, the likelier the Islamic Republic will agree to curb its nuclear program.

Gareth Smyth has reported from the Middle East since 1992, and was chief Iran correspondent of The Financial Times from 2003-2007. He wrote this commentary for THE DAILY STAR.

 
A version of this article appeared in the print edition of The Daily Star on February 14, 2014, on page 7.
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iran economy / Hassan Rouhani / food handouts / fuel subsidies / Iran
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Story Summary
Iranian President Hassan Rouhani's honeymoon with his countrymen may have ended with a box of rice, chicken and cheese.

The furor shows the mountain Rouhani faces in challenging a populist political culture where Iranians see the state as a fount of goods and welfare.

According to a narrative common abroad, Rouhani won last June's election because reformist voters sought social and political freedoms.

On the other hand, the "left" or reformists have inclined since the 1990s toward economic reform, as have pragmatic conservatives such as Rouhani.

Rouhani's television appearance, itself delayed by a dispute with state TV over who would interview the president, did little to clarify matters.

At first, there was speculation that Rouhani saw food hampers as a way of cushioning the blow of phasing out cash handouts.

To turn things round, Rouhani may need to prescribe a dose of austerity.
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