Iran to replace subsidies with cash

Iran plans to open bank accounts for 36 million people to give them cash in compensation for higher food and energy prices when subsidies are ended.

Iran plans to open bank accounts for 36 million people, about half its population, to give them cash in compensation for higher food and energy prices when subsidies are phased out, according to local media reports. Parliament last month backed government proposals to end subsidies on basic goods ranging from gasoline to wheat and rice, a key plank of the president Mahmoud Ahmadinejad's plans to reform the major oil producer's economy.

Subsidies have put a heavy burden on the budget but critics say removing them, even over a planned five-year period, will hurt the poor by pushing up inflation, now about 10 per cent. Some Iranian analysts and MPs have said there may be social unrest if subsidies are scrapped. The introduction of a petrol rationing plan in mid-2007 sparked riots in Tehran. The government says hefty fuel subsidies benefit mainly the wealthy and that low-income families will be compensated.

The business daily Sarmayeh said the cash compensation would total up to 170,000 rials (Dh63) per person and would cover 70 per cent of the population, including children. Social welfare minister Nadali Olfatpour said his ministry has been told to open bank accounts for 36 million people in five social brackets, the daily Jam-e Jam said. "Iran Statistics Centre will be putting at our disposal the information relating to the brackets and there will be subsidies allocated for the first five social brackets which includes around eight million families," Mr Olfatpour said.

Parliament's approval of the subsidy plan was a further sign that Mr Ahmadinejad was consolidating his position after the huge protests provoked by his disputed re-election in June. But higher consumer prices could prove unpopular among Iranians, many of whom are struggling to make ends meet. Sarmayeh reported that a family of four with a monthly income of about US$400 (Dh1,469) would receive $68 under the plan, but that this would only cover the expected increase in gas and electricity prices.

"We will wire the money into your account ... it is not necessary to go and buy whatever you need on the first day," it quoted Mr Ahmadinejad as saying. Analysts say a cut in energy subsidies would reduce demand for gasoline and make Iran less vulnerable to any new sanctions on gasoline imports imposed over its disputed nuclear programme Iran is the world's fifth-largest oil exporter but has too little refining capacity to meet its gasoline needs, forcing it to import large volumes.

"Sanctions ... may increase the cost of trade but we are trying to find new ways to bypass such restrictions," ISNA news agency quoted the economy minister Shamseddin Hosseini as saying. The subsidy bill needs to be approved by the hardline watchdog body, the Guardian Council, to become law. * Reuters