While Iran's leaders are generally wary of revolution — having come to power on one — President Mahmoud Ahmadinejad is pushing his own economic revolution. He rightly notes that extraordinary sums spent on subsidies distort the economy and must end if it is to return to solid footing. The problem is that such reform risks a political backlash.
The Tehran government spends tens of billions of dollars annually to keep food and fuel prices low. It can afford those exorbitant sums because of its vast oil wealth, but it weakens the economy. Inflation was officially tagged at 9 percent last month, but some economists think it could reach 50 percent this year. Subsidies distort production. Unemployment is 14 percent, but some estimate the figure tops 22 percent. Most worrisome for the government is that about 75 percent of the unemployed are under age 30. Artificially low prices discourage much-needed investment in the energy sector.
The government has announced that it will end the subsidies to ensure that "the country's riches are correctly used." To cushion the blow it will provide cash payments to the country's poorest families. Beyond that, few details of the program have been released as Tehran tries to dampen speculation and avoid giving the opposition a rallying point. Newspapers have reportedly been ordered to avoid reporting on hardships that follow price increases. Taking no chances, however, the security forces have warned that protests will not be tolerated. "Economic sedition" is the new charge brandished against those who complain.