Thursday, October 11, 2012

Majlis Suspends Subsidy Reform Program

The Iranian parliament, Majlis, voted today to suspend the subsidy reform program. The program was the centerpiece of President Ahmadinejad’s economic reform platform. The rapidly rising prices and the plummeting of the national currency, the rial, forced the MPs to face the economic crisis and suspend the program. The monthly cash payouts to Iranian citizens, blamed for the high inflation, will continue, however. 


Anonymous said...

If the monthly cash payouts will continue, then what was suspended exactly?!

Nader Uskowi said...

The plan, as its name suggests, was the most ambitious economic reform program ever undertaken in the country to cut all government subsidies of imported goods and local industries. Phase I of the program was partly implemented and some subsidies for food and energy products were cut. Simultaneously, the government began a monthly cash-handout program to soften the blow of the expected rising prices due to subsidy removals. This last part was controversial from the very beginning and a number of analysts, including this blogger, warned that billions of dollars in cash handouts would not only be a new type of subsidy instituted under the guise of subsidy reform, but more importantly it would lead to runaway inflation. Now the heart and the best part of the program, namely the elimination of government subsidies, have been suspended, but cash handouts remains in place! Keeping cash-payout alongside an array of already existing government subsidies in a smart economics and would make the inflation worse

Nader Uskowi said...

The last sentence should read as: Keeping cash-payout alongside an array of already existing government subsidies IS NOT smart economics and would make the inflation worse.

Anonymous said...

I seriously doubt price limits are being restored again. What product exactly?

This is BS written for the public.

Unknown said...

According to the international institute of sustainable development the Second phase of subsidy elimination would have resulted in an energy price increase of another 30 per cent and the amount of the monthly cash payments will rise from IRR455,000 to IRR735,000 rials per person (of course in light of the currency plung that would be a decreased in value). To accommodate the IRR280,000 increase in cash payments, the government has announced that the cash payment program will be more targeted, with 10 million citizens no longer eligible to receive payments under the scheme. Iranian media reported that, in March 2012, many citizens, including those belonging to low-income families, received a text message from the Subsidy Reform Organisation calling them to voluntarily withdraw from receiving cash payments due to their financial abilities (Vaez, 2012).

The criteria by which some citizens are expected to be eliminated from the cash payment scheme have not been clarified by the government.6 It is also unclear whether they will be ineligible to receive the additional payment of the second phase or will be eliminated from receiving cash payment altogether.

Please keep in mind that any elimination of payouts would increase the risk of revolt at this time, so the regime is probably going with short term objectives of staying in power, sacrificing the long term objectives behind the subsidy reform.