High Anxiety in Iran: Awaiting Economic Reform

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Nikoo Harf Maher / Corbis

Iranians crowd Tehran's histric bazaar.

While office workers and students relaxed on the benches and well-watered lawns of Central Tehran's City Park one day last week, 40-year old Habib had little reason to enjoy his pleasant surroundings. He had just been fired that morning from his job as a construction worker after complaining to his employer that he had not been paid for two months. He, like countless other unemployed men in the capital, will spend the afternoon in the park scanning the familiar red and black print of the jobs supplement of Tehran's most popular newspaper, Hamshahri. "Last week I wanted to kill myself, my life has gone so out of control," Habib says, "It's not just me, the whole of the lower classes are suffering in their souls."

Habib shows me the front page of Hamshahri, which means "Citizen" in Farsi. The paper leads with the announcement by President Mahmoud Ahmadinejad that millions of Iranians like Habib and his family will soon receive long-promised cash payments to help them cope with higher prices resulting from anticipated cuts in subsidies on energy and a broad range of essential goods. But there's a painful caveat: the proposed 810,000 rial ($80) payment, destined to reach over 60 million Iranians, according to official estimates, will sit untouched in over 15 million bank accounts. Householders will not be able to withdraw their money until a date specified by the government. According to the head of a government agency which in translation is called the "Subsidy Target-ization Organization," the period which the payments will cover is also "unclear."

When the money can be spent and for how long it is meant to last are decisions that are expected to emanate over the coming weeks from the Ministry of Economy and Finance, located just across Khayyam Street, opposite City Park, where Habib sits with his copy of Hamshahri. "I don't think they will really give money to the people," Habib tells me as the leaves of the tall sycamore trees are shaken by the early-autumn breeze. "They have only ever taken from the people, they do not have hands that give."

His skepticism reflects misgivings that have only intensified as the administration of President Ahmadinejad moves toward weaning Iran's economy from its harmful addiction to blanket subsidies on natural gas, gasoline, electricity, water and a range of essential household food items and groceries — a habit that costs an estimated $100 billion in public money every year. There is no doubt that cutting subsidies makes good economic sense. Studies have shown that as much as one-third of bread made with subsidized flour is simply thrown out. Iranians are notorious for their blithe disregard for energy efficiency in their homes. It is also thought that around 70% of the subsidies directly benefit the top third of income earners, making the current system not only wasteful but regressive.

Successive governments since the end of the Iran-Iraq war in 1988 have all made the project of overhauling Iran's vast and inefficient subsidies system a stated policy objective, but until now, no government has come this close to embarking on actual reforms. Analysts point to the fact that the Ahmadinejad administration enjoys a confluence of political factors that his predecessors could never have dreamed of: an emasculated political opposition, full support of Iran's security forces and the stalwart backing of Iran's Supreme Leader, Ayatollah Ali Khamenei.

But now, on the brink of implementation, Iranian politics and society have been gripped by a sense of uncertainty and foreboding that the Ahmadinejad administration has done nothing to allay. In fact, the government's skittishness about the issue has only raised anxieties. Earlier this month, Finance Minister Shamseddin Hosseini surprised politicians, economists and ordinary people alike by announcing at a press conference that that the unsubsidized price of gasoline would be announced just one hour before the new prices hit the pumps, raising fears of a repeat of the civil unrest in 2007 when the introduction of fuel rationing led to at least 12 filling stations being torched by angry motorists.

Within days of Hosseini's remark, 100 MPs signed a letter demanding more details about the impending subsidy reforms, some even asking for implementation to be postponed despite already being more than six months overdue. The influential Majlis National Security and Foreign Policy Committee issued its own request that the administration provide more "clarity." Worries had already been increasing in recent weeks because the electricity and gas bills of customers seemingly chosen at random skyrocketed in what many believed to be a trial balloon to test public reactions to higher prices.

By the middle of the October, apprehensions had reached the pulpit of Iran's ritual political-religious get-together — Friday Prayers at Tehran University — where clerics hand-picked by Supreme Leader reflect the current political climate and counsel the nation's politicians. "I have been told repeatedly that the price of water and electricity has soared," said Ayatollah Ahmad Jannati, a hard-line cleric who heads Iran's powerful legislative watchdog, the Guardian Council. "If it is the right thing to do — and it must be done — then it should be explained so people are convinced," Jannati insisted, urging the government "not to do anything to make the people dissatisfied." But the administration of President Ahmadinejad remains deeply reticent about giving away specifics regarding the subsidies plan, choosing instead to say such information would only help shadowy elements intent on subverting the Islamic Republic.

The economy, however, is not waiting for the government to provide clarity, and has responded in its own fashion. This week the Alef news website, run by Ahmad Tavakoli, a member of parliament and a vocal critic of President Ahmadinejad, reported that a range of domestic manufacturers had already increased prices of their goods by between 5% and 20%. "When society expects inflation, prices rise," the site quoted one importer as saying. Many fear the government is not doing enough to cushion or prepare the populace for the radical shift. As Ramin Sadeghian, a senior official at the Iran Chamber of Commerce, wrote in an online editorial: "When important surgery is planned all the necessary tests and preparations are done beforehand. The capacities of the patient are tested and then the surgery is carried out. If this is done without sufficient care, the patient is endangered and could even die."

At this point, there is little trust in official statistics. Inflation figures have been widely questioned with many fearing that the knock-on effect of higher energy costs for producers and distributors could prompt a return to double digit price rises on essential goods. While Iran's central bank asserted in May that inflation fell below 10% for the first time in years, households have yet to feel prices easing.

"The prices of goods are not clear at all," says Habib whose voice falters as he begins to describe his domestic situation, "if meat is 2,500 tomans [about $2.40)] today, next week or in a few days it's 3,500 or 4,500." He underlines his desperation by saying, "God be my witness, in the last three years I haven't once bought my dear wife a single kilogram of meat."