November 24, 2010

WHEN THE PRICE OF BREAD RISES GOVERNMENTS FALL:

Ahmadinejad's Days Are Numbered: Iranian lawmakers—including former supporters—have moved to impeach President Mahmoud Ahmadinejad for law violations that could land him in prison. Reza Aslan reports on the bombastic leader’s flagrant missteps. (Reza Aslan, 11/24/10, Daily Beast)

The latest row between the president and the parliament comes at a time in which Iran's economy, already reeling from the steady success of President Obama’s targeted sanctions policy, is bracing for what many predict will be catastrophic consequences of Ahmadinejad's plan to end government subsidies for fuel, food, energy, and basic goods like milk, cooking oil, and flour. For decades, Iran’s presidents—from Ali Akbar Hashemi Rafsanjani to Mohammad Khatami—have tried to amend the subsidies system, valued at about $100 billion a year. But they were repeatedly deterred by the threat of massive protests. After all, in a country that has been isolated from the outside world for three decades, government subsidies are the sole means of survival for millions of poor and middle-class Iranians. According to a study by the International Monetary Fund, a typical Iranian household making about $3,600 a year receives an average of $4,000 a year in subsidies.

Although the subsidies program has yet to be fully terminated, the cost of basic goods and services in Iran already has skyrocketed. According to the Los Angeles Times, the price of a kilo of ground beef has jumped from $6, when Ahmadinejad began his first term as president, to $14.50 today. Meanwhile, as I reported last month, the cost of electricity has soared by as much as 1,000 percent for some Iranian households.

The irony is that Ahmadinejad is unquestionably doing the sensible thing in pushing ahead with the removal of government subsidies. Subsidies account for approximately 30 percent of Iran’s entire annual budget. That is simply untenable for an economy that just last month saw the value of its currency drop by a staggering 13 percent against the dollar. Iran’s oil industry, its most lucrative source of revenue, is in shambles after the recent departure of four oil companies— Shell, Total, ENI, and Statoil. The carpet industry, once valued at $500 million, has disintegrated thanks to increased sanctions. The government claims that 22 percent of Iranians are unemployed (experts say the number is closer to 40 percent), three-quarters of them under the age of 30. Some 40 percent of Iranians live below the poverty line. Inflation is officially at 10 percent, though many economists believe it to be more like 24 percent. With the price of oil remaining stable and Iran’s international isolation increasing, the government simply cannot afford to keep paying out nearly a third of its entire budget in subsidies.

But while what Ahmadinejad is doing may be the right thing for the country, it is the way he is doing it—by virtual fiat—that has parliament up in arms.



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Posted by Orrin Judd at November 24, 2010 7:10 PM
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