Teaching Comparative Government and Politics

Monday, October 18, 2010

Don't pass on the cost increases

The Iranian government, facing fewer economic options, is removing some price controls, offering cash subsidies to some of the poor, and putting heavy pressure on businesses not to raise prices. The bazaaris (merchants), some of the key supporters of the revolution, are not happy.

Iranian Officials Warn of Unrest Tied to Subsidy Cuts

After suppressing the political protests that followed last year’s disputed presidential election, Iran’s security forces are now on the alert for a new kind of domestic threat — strikes and civil unrest provoked by planned cuts in fuel subsidies.

Top police officials have issued a series of warnings this month against the threat of an overflow of tensions following the cuts, which some fear could set off a chain reaction of price increases and economic hardships in a country already stricken by high inflation and widespread unemployment…

Unrest in currency markets coincided with a strike by gold traders at the Tehran bazaar and in a number of cities across the country in reaction to plans to introduce a 3 percent tax on gold transactions. Iran’s influential bazaar merchants have expressed fear that such a tax could herald further government skimming of their profits.

It was the second time this year that bazaar merchants have gone on strike to protest an administration intent on reducing dependence on oil money for government revenue.

In July, large parts of the Tehran bazaar went on strike for 12 days in protest of proposed income-tax increases…

In a sign that Iranian authorities would take a more measured yet still decisive approach to possible disturbances, last Thursday, Tehran’s chief prosecutor said the judiciary would prosecute those who “disturb public order” by closing the bazaar or engaging in speculation. His comments echoed an earlier warning from the Tehran provincial governor, Morteza Tamadon, that the government would be tough on merchants trying to pass on price increases to consumers…

Officials have, over the past several days, announced large-scale stockpiling of essential food products, which, it is hoped, the government will be able to distribute in the event of sudden price increases. Low-income consumers have been promised coupons for cooking oil and rice in a further move intended to allay fears.

But cash reimbursements intended to compensate families faced with higher prices have not yet been made, despite assurances late last month that such reimbursements would be credited to bank accounts well before the onset of price increases. Iranian press reports have estimated that the value of these payments could be as little as $24 per month, meaning that a family of four would receive less than one-third of the government help provided under the current subsidy regime.

I.M.F. analysts say that energy prices could shoot up 4 to 20 times current levels as a result of removing price supports. Government critics have expressed fears that such a “price shock” could reignite inflation which, according to Iran’s Central Bank, fell below 10 percent in May after spending years in double digits.

On Thursday, a labor leader in the unemployment-ravaged western Iranian province of Hamedan warned of protests if the government did not improve the situation of workers in anticipation of the removal of subsidies...