Iran risks unrest as it cuts food and fuel price subsidies

Nov. 03

Iran’s President Mahmoud Ahmadinejad said on Wednesday that anyone trying to profiteer from his policy of slashing subsidies would be punished and publicly humiliated.

Mr. Ahmadinejad says “the biggest economic plan in the past 50 years” – eliminating the $100-billion subsidies which have kept prices of food and fuel in Iran artificially low for decades – will lead to a fairer, less wasteful and richer society.

Opposition politicians and foreign economists agree that reform is needed but say that, if handled badly, it could cause massive inflation and possibly reignite the street unrest which followed Mr. Ahmadinejad’s contested re-election last year.

Mr. Ahmadinejad has said cash payments to poorer families will soften the blow and that any problems will be the fault of criminals and “economic seditionists” – the government’s opponents at home and abroad who want to bring him down.

“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,” he told a crowd in Bojnurd, 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 for ever.”

Headline inflation rose for the second month running, to 9.2 per cent from 8.9 per cent, Iran’s Central Bank announced on Wednesday. Consumer prices were up 1.8 per cent on the previous month and 11.9 per cent year-on-year, Mehr news agency reported.

But many politicians and clerics doubt official figures and Ahmad Tavakoli, the head of parliament’s research centre, has said inflation could reach 50 per cent this year.

Some Iranians have already seen huge electricity price increases and motorists are waiting for a likely 400 percent increase in the price of gasoline. Huge queues have been forming at gas stations when rumours of price rises spread.

In 2007, riots erupted when the state started rationing subsidized fuel, which can still be bought for 1,000 rials (around $0.10) per litre.

Interior Minister Mostafa Mohammad Najjar said the police would put down any protests over the subsidy cuts. “If a few people want to oppose the whole nation and seek to protest, (police) will firmly and legally deal with them,” he was quoted as saying in the Tehran Times daily.

Iran’s police chief said he held a special session with Mr. Ahmadinejad “to clarify our tasks regarding the plan.”

Under a first phase, $20-billion (U.S.) of subsidies should be cut in the second half of the Iranian year, which started in September.

By chance, that has coincided with tighter economic sanctions imposed by countries which fear Iran is seeking nuclear weapons. The sanctions have caused some foreign companies to pull out of Iran’s vital oil and gas sector and have made international financial transactions harder.

Mirhossein Mousavi, who lost the June 2009 presidential election to Mr. Ahmadinejad in a vote the opposition says was rigged, said eliminating wasteful subsidies was the right policy but that the government would implement it wrongly.

“Generally no one is opposed to the subsidy reform plan, our main point is that there is no one in power who can manage this plan and the majority of the famous and capable experts have been sidelined,” he was quoted as saying on an opposition website.

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