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.
While the decision carries political risks — the middle class will bear the brunt of the adjustment and this group is already smarting over the alleged theft of the presidential election last year — the cash payments to the poor should consolidate support for the government among the lower classes. That will give Mr. Ahmadinejad and his supporters a boost when the country holds a presidential election in 2013. It is a gamble, but the president seems to enjoy the fight.
The lessons of last year — when the United States and several Western countries expressed to no avail their concern about alleged irregularities in the presidential election — suggest that Iran remains the master of its fate. But there is another factor: the economic squeeze that is being applied to compel Tehran’s compliance with international nuclear obligations. Iran is being forced to recognize economic reality. Hopefully political realities will intrude as well.