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'Dark future' forecast for Iran's economy

Opposition leaders say the government's subsidy reform programme is being badly implemented and at the wrong time as the country struggles to cope with international sanctions.

As Iranians struggle to cope with rising food and fuel prices caused by the government's removal of long-standing subsidies, there have been sporadic work stoppages and a stark warning from Iran's opposition leaders that the economy faces a "dark future".

The mood among ordinary Iranians is one of anxiety, uncertainty and mounting, if impotent, anger. They are already feeling the impact of tough targeted international sanctions imposed because of their country's disputed nuclear programme.

If successful, the wide-ranging subsidy reform programme would make Iran more self-sufficient and resistent to sanctions.

The leaders of Iran's opposition "green" movement acknowledge that the heavily-subsidised economy need reforming. But, in a scathing public attack, Mir Hossein Mousavi and Mehdi Karrubi proclaimed that President Mahmoud Ahmadinejad's government is implementing the programme badly and at the wrong time.

"Enforcing this plan while Iran is facing tough international sanctions and its economy is in recession with an unemployment rate of over 30 per cent and wild inflation, is a burden on medium and low-income families," the two men said in a joint statement on Wednesday.

Petrol prices have at least quadrupled and the cost of bread has more than doubled since Mr Ahmadinejad launched his plan to cut subsidies on Sunday. As winter bites, Iranians also expect to see their electricity bills triple in coming weeks while heating gas is due to rise more than five-fold.

Forcing through the long-awaited subsidy reform plan is a risky political game for the populist president who portrays himself as a champion of the poor but is now spearheading a policy advocated by the International Monetary Fund and many western economists.

The authorities have beefed up security around the country to stave off possible civil unrest. Protesters torched several petrol stations when the government first implemented a system for rationing subsidised fuel in 2007.

The cuts are now far more swingeing but, despite growing frustration, there has been no agitation on the streets. This, analysts suggest, is because of a pervasive climate of fear and intimidation spawned by last year's harsh crackdown on the unrest ignited by Mr Ahmadinejad's disputed re-election.

Monday saw the first sign of public discontent when thousands of truck owners across the country refused to carry cargoes because the government will not allow them to increase their charges to offset a huge hike in diesel fuel prices yesterday, Yesterday many companies and factories were still said to be having difficulty in finding truckers willing to ferry their cargoes.

"But this is far from organised and it can't be called a strike," said a senior analyst in Tehran who requested anonymity. "In the absence of unions a nationwide strike is unlikely and even if there was one, it would be dealt with harshly."

Successive Iranian governments over the past 20 years promised a major overhaul of the costly subsidies system, but none carried it out. The authorities say subsidies gobble up some US$100 billion (Dh367bn) a year - a large share of the national budget - and encourage wastefulness.

But Mr Mousavi and Mr Karrubi insisted the way Mr Ahmadinejad's government is slashing subsidies will only bring the country more hardship.

"Factories, which are failing to pay the average salary to workers, face closure everyday," they said. "The lack of security for investments and healthy competition… promises a dark future for the country's economy. This gets worse when the government has no ears for the views of experts."

Both men challenged Mr Ahmadinejad for the presidency in the disputed June 2009 elections.

Undaunted, the Iranian president has trumpeted the subsidy reform programme as the "biggest surgery" in Iran's economy in half a century, claiming it will benefit the majority of Iranians by redistributing wealth.

Some observers suspect that he views the plan as a means to raise new revenues to buy off the loyalty of low-income families and bolster his power base.

To offset rising prices, the government has begun to pay part of the expected savings from subsidy removals in the form of direct cash payments to people who qualify. That amount is currently US$40 (Dh146) a month, and Mr Ahmadinejad has promised to double this compensation next year.

"The lowest income people - 20 per cent of the population - are going to feel a little better off, at least for a while," the senior analyst in Iran said in a telephone interview. "The urban lower and middle class, which supported the opposition, is going to get hit worst by the subsidy reforms, irrespective of whether individuals back the government or not."

The authorities are trying to stifle all criticism of the plan. On Sunday, an economist, Fariborz Raisdana, who called the programme unfair in an interview with the BBC's Persian service, was arrested.

Yesterday, the ultra-conservative and conspiratorially minded hardline daily, Kayhan, claimed that 300 websites were spreading propaganda against the subsidy cuts to spread fear and trigger an economic crisis.

Mr Ahmadinejad has accused foreign media - which he said "do not want Iran to progress" - of spreading unfounded rumours that the subsidy cuts will hit the middle and lower classes.

Published: December 24, 2010 04:00 AM


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