Our International Editor, Lindsey Hilsum, says that – while the world is interested in worms burrowing into the computers controlling nuclear plants – the plight of the poor in the coming winter is top of the political agenda inside Iran.
How are Iranians going to get through the winter? The world outside is interested in worms burrowing into the computers controlling nuclear plants, but most Iranians have more immediate things on their minds.
President Ahmadinejad’s government is in the process of lifting subsidies on electricity, fuel, water, milk, bread and other essential items. Some Iranians report that their electricity bills have risen 1000 per cent in one month.
Whenever he’s on tour around the country, President Ahmadinejad dishes out cash to supplicants. It’s garnered him support in rural areas, and amongst the poor. But, although a new programme of handouts is meant to cushion the neediest from the impact of subsidy reform, no-one really knows how this bold policy change will play out.
Subsidies, many of which date back to the 1950s, are believed to cost the Iranian exchequer up to US$40 billion a year in lost revenues and cash. There’s no doubt that they distort the economy. The President apparently believes they also favour the middle class, so he hopes that by compensating the poor in cash, he will make Iran more equal. But it’s a risky strategy.
“Subsidy reform is Ahmadinejad’s baby,” said a western diplomat. “If the plan goes wrong, or there’s extreme hardship, he’ll get the chop, because they’ll need a scapegoat.”
The policy is still wreathed in mystery. To prevent hoarding, the government will announce the lifting of subsidy on any particular commodity the night before price rises. Inflation, currently about 15%, will shoot up. Inefficient factories, already struggling to compete with cheap Chinese imports and dependent on cheap fuel and water, may be driven out of business. Unemployment, officially at 14.6 per cent and believed to be higher, is likely to increase.
If the policy works, it will primarily hurt the middle class, who tend to dislike Ahmadinejad anyway. But if it backfires, and the poor suffer the most, then he may lose the support he has, and we could see more unrest on the streets of Tehran.