Teaching Comparative Government and Politics

Friday, April 09, 2010

Difficult policy choices in Iran

Iran's government faces economic realities -- maybe. The politics are complex, but even though revolutionary leader Ayatollah Ruhollah Khomeini said, "Economics is for donkeys," present-day leaders have to step up and become donkeys, at least for a little while. How well will the leaders deal with basic economic issues?

Ayatollah Supports Bid to Sharply Cut Iran Subsidies
Iran’s supreme leader, Ayatollah Ali Khamenei, offered a crucial gesture of public support Monday for President Mahmoud Ahmadinejad’s effort to enact a sweeping economic reform plan that would sharply curtail the country’s long-established system of state subsidies.

After Mr. Ahmadinejad issued his latest call for Parliament to support his proposal, Ayatollah Khamenei, speaking at a meeting of cabinet ministers and other senior figures, urged all parties to help Mr. Ahmadinejad’s administration in “facilitating” passage of a subsidies reform bill.

Lawmakers approved $20 billion in subsidy cuts in January, fearing that deeper cuts would set off uncontrolled inflation — and public anger.

Slashing Iran’s state subsidies, which cost the government an estimated $100 billion a year and encourage overconsumption, has been a goal for decades. Mr. Ahmadinejad clearly hopes to succeed where attempts by previous presidents have sputtered or failed.

He has repeatedly demanded a broader bill to remove $40 billion in subsidies, and lashed out at Parliament for refusing to go along. But many economists say the government lacks the technical expertise to modify the subsidies in the right way, or even to identify those who would receive financial help under the proposed law.

Lawmakers across the political spectrum have warned of catastrophic price shocks if supports are eliminated.

For instance, the price of gasoline would instantly quadruple, and the resulting effects could result in similar increases for basic goods and an inflation rate of 60 percent or more, according to the Majlis Research Center, the research arm of Parliament, which is run by a conservative lawmaker, Ahmad Tavakoli…

Still, it is far from clear how the Parliament will proceed with the reform bill, which has provoked anxious debate across Iran for months. There are few precedents for such a broad legislative measure, and despite Ayatollah Khamenei’s open support and Mr. Larijani’s conciliatory words, it is far from clear that the issue will be resolved quickly.

See also: Iran Considers Cutting Subsidies, But At What Cost?

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