Farideh Farhi

HONOLULU –While in the past few weeks, the world’s attention has been on the interim agreement over the transfer of Iran’s enriched uranium to Russia, Iran’s domestic scene has been consumed with the fate of subsidy reform proposed by the Ahmadinejad administration and mulled over by the Parliament.

Parliament passed the general outlines of the “Legislation for Targeted Subsidies” on October 11, but it must still re-ratify the whole legislation after reaching a decision on all seventeen of the bill’s provisions before the bill is sent to the Guardian Council for final approval. In short, much remains to be worked out in terms of details and there are signs of wavering.

This was perhaps why Ahmadinejad felt obliged in his October 29 speech in the city of Mashhad not only to defend the nuclear agreement but also his subsidy reform plan, chastising “those who are scaring people” and insisting that “this government is thinking about support and providing for the people and not confronting people.” Since becoming president in 2005, Ahmadinejad has used subsidies to secure a base of political support within the underclass.

But now, he is encountering significant opposition from Parliament. What Ahmadinejad did not reveal was that the “fear mongers” are mostly members of the Principilist (the moderate conservative) faction in the Parliament. Opposition to the plan is also on display in the hard-line press—which traditionally supports his views and policies. One of the reasons is that various factions within the government fear that painful subsidy cuts will spark further political unrest.

Hassan Sobhani, a prominent member of the conservative faction in the Parliament, has gone as far as to write an open letter to the head of the judiciary imploring him to be ready for an increase in the crime rate if the legislation is passed. Parviz Sarvari, a conservative member of Parliament’s National Security and Foreign Policy Committee, announced on October 28 that the Parliament is considering a delay in implementing the legislation until next fiscal year, which begins on March 21, 2010. And Jahannews, a Web site belonging to the conservative member of Parliament, Alireza Zakani, is reporting that concerns about the impact of the legislation have taken the bill to the Supreme National Security Council for consideration.

Even an October 29 editorial in the hard-line Kayhan daily newspaper, which is the mouthpiece for Supreme Leader Ali Khamenei, Ahmadinejad and other hardliners argued that, while surgery is needed for the Iranian economy, the reality is that “the operating room is not ready.”

To be sure, everyone agrees that subsidies—estimated by some to be around $90 billion—need to be cut and redirected. They were designed more as a price support system, subsidizing the poor and rich and, in the process, encouraging over-consumption and waste in goods as varied as gasoline and bread.

But inflation worries about the withdrawal of price supports have already led the Parliament to change the speed of enforcing Ahmadinejad’s plan, mandating the cuts—particularly in fuel subsidies, which constitute the largest bulk of government obligations—to occur over a five-year span.

Still, despite the limitations proposed on the government regarding the extent of subsidy cuts in the first year, there is concern that the plan will be used mostly as a means to generate revenues for the government, leading to sharp increases in the prices of important commodities such as gasoline, diesel fuel, and electricity. In the words of Ahmad Tavakoli, a conservative member of Parliament who is also an economist, this would raise the specter of a 60 percent inflation rate throughout the economy. To many economists like him, such inflationary infusion is nothing but “shock therapy” or a medicine given out by the World Bank and International Monetary Fund—a charge that is full of irony given its direction against a government that proclaims economic justice as its priority.

Distribution of new subsidies is also a concern. The Ahmadinejad administration has maintained the need to distribute subsidies to the bottom 70 percent of the population. The parliamentary committee on subsidy reform reduced this number to 50 percent, but the Parliament as a whole decided to leave the government free to decide the targeted groups to whom the subsidies will be distributed.

There is concern about the accuracy of the self-reported data collected last year about family income. There are hints that, at the end of the day, targeting may be abandoned, and instead some cash will be distributed among as many people as possible. The head of Welfare Ministry recently spoke of opening $36 million in bank accounts for cash to be deposited. What he did not speak about was the specific amount of cash to be deposited to each person. Others, however, have speculated that it will be around a measly $20 a month per individual; an amount not sufficient to cover the feared rise in inflation.

The government is faced with limited funds because major elements of Iran’s economy—including state-owned factories and plants, private industry, and agriculture—also rely on energy subsidies. The parliamentary bill has allocated at least half of saved money from subsidy cuts to go toward factories and agricultural enterprises. But the Parliament has little confidence in government implementation.

Finally, the timing of the plan is also a problem due to the events that have occurred since the June 12 election. The plan to give subsidies to the bottom 50 percent of the population pointedly leaves out a good chunk of the urban middle class of the society, precisely the same strata that has been unhappy with the political turn of events in Iran.

As such, at least part of the parliamentary hesitation to pass the legislation in its current format must have something to do with the unsettled political environment of the country and the fear that the implementation of a painful plan by a conservative government will not only be blamed on the Parliament, but may also spark more social unrest.

Farideh Farhi is an independent researcher and an affiliate graduate faculty of political science at the University of Hawai’i-Manoa.