Fears of unrest over price rises in Iran

President promises plan will end poverty and unemployment in three years, but critics warn the move could trigger inflation and looting.

TEHRAN // Critics of the government's recently approved subsidy reform plan warn that it will probably cause Iran's high inflation rate to skyrocket and may lead to social unrest at a time when the country is in the midst of a political crisis.

"The rate of inflation may increase by as much as 60 per cent. In such circumstances the implementation of the plan will immediately cause an inflation rate shock and pressure on the deprived classes, which makes the possibility of vast social unrest or the 'movement of the poor' a serious issue," the conservative news portal Ayandeh, which is close to Mohsen Rezaie, a defeated conservative candidate for president last June, said in an analysis by an unnamed writer.

"The emergence of a movement of the poor and vast social unrest is of a different nature than election related protests. The members of the movement of the poor will loot shops and banks instead of setting fire to trash bins and chanting political slogans," the analysis said. Access to Ayandeh was blocked by authorities last week, like many other news portals and websites that are critical of the government.

The legislation is aimed at implementing a highly controversial energy and food subsidy reform plan that the president says will eradicate unemployment and poverty within three years. "I have assured legislators that by implementation of the plan through a smooth mechanism within three years there won't remain even one single jobless or poor person in Iran," the president, Mahmoud Ahmadinejad, told people in the south-western province of Khuzistan on Wednesday.

The six jurists of the powerful 12-member Guardian Council, who screen parliamentary legislation for compatibility with the constitution and Islamic laws, approved the legislation on Wednesday. Implementation of the reform plan will begin within the next three months as stipulated by the parliamentary bill, which has now become law, the economy minister, Shamseddin Hosseini, was quoted by the semi-official Fars News Agency as saying.

Two weeks ago, the parliament ratified the bill proposed by Mr Ahmadinejad's government after a compromise was reached on who would control expenditures of the money saved, which the president insisted had made its implementation a more difficult task. The plan, to be implemented over a span of five years as decided by parliament, will allow the government to cut off huge energy and food subsidies, estimated at $100 billion (Dh367bn) this year, and to pay cash compensation to lower-income families.

About $20bn of the subsidies paid for petrol, gas, electricity, water and bread are scheduled to be scrapped within the first year of the implementation of the reform, according to the new law. Of the $20bn that will be saved by the government, parliament has allowed only 20 per cent to be dispensed in cash. The rest should be used for improvement of agriculture, manufacturing and to compensate for the higher costs of energy the government itself will face.

The amount of compensation to be paid to each family member in low-income households has been estimated at $10 per month. The implementation of the plan, which will cause commodities to be produced at much higher prices because of increased energy and other costs, is also expected to reduce exports as keeping competitive prices in international markets may become difficult, if not impossible. A poll taken from the members of Iran's chamber of commerce that was published by the conservative Khabaronline news portal on Tuesday shows that 82 per cent of the members believe that the rate of inflation will grow considerably and the increase in the end price of commodities will give rise to a decline in non-oil exports.

The chamber of commerce, known as the private sector's parliament, offers advice on economic matters to the government, parliament and the judiciary. The wait for the Guardian Council's approval of the subsidy reform legislation caused considerable delay in the government's submission of its annual budget bill for the next fiscal year - starting March 21 - to parliament despite a parliamentary deadline of December 6.

The situation became even more complicated after the government missed a parliamentary deadline of July for submitting the country's five-year development plan. The five-year plan is used as the framework for structuring the annual budget and has to be approved by the parliament before the budget bill. Mr Ahmadinejad submitted the budget bill to parliament last Sunday. The delay has caused much concern among legislators, many of whom believe parliament now has insufficient time to examine the budget bill in the days remaining until the end of the fiscal year.