Ahmadinejad's Economic Surgery – Will the Patient Survive?

Wednesday, 15 October, 2008

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Sajjad Salek

Iranian president Mahmoud Ahmadinejad has big plans for the Iranian economy in his last year in office. The reforms he is planning are so extensive that some analysts are calling them a revolution, or economic surgery.



Ahmadinejad first announced he was considering economic change in an address to the nation to mark the start of the Iranian new year on March 20. Various advisers and associates subsequently alluded to the reforms, and finally, in mid July the president gave a TV interview in which he spoke at length, albeit in general terms, about the changes he had in mind.



The reform project has engendered heated debate among economists and the general public, and in recent weeks it has taken centre stage in the media.



There is less than a year left until the next presidential election, and Ahmadinejad’s reformist critics have accused him of trying to buy votes by reinvigorating the economy with an injection of new money.



“Ahmadinejad's main objective in altering the economic model is to win hearts and minds in the forthcoming election,” said Hossein Marashi, a member of the small Labour Party’s central committee who has close ties to former Iranian president Akbar Hashemi Rafsanjani, a conservative critic of the current head of state. “He’s prepared to hand out large subsidies to lower-income sections of society in order to secure a certain proportion of the vote.”



Officials involved in the project use more positive language to describe its aims in more different terms. Shamsuddin Hosseini, secretary of the government’s economic working group, who has been nominated to become the country’s next economy and finance minister, says the plan is to trim budgets in some areas so as to free up expenditure that will benefit the population.



The reform plan covers seven broad areas, all with the objective of diverting spending to social groups who need it most. This is to be achieved by cutting blanket subsidies on goods and services, with the funds saved being used to compensate lower-income consumers in the form of direct subsidies, allowing them to manage their personal budgets as they see fit.



Other key items in the seven-point plan include customs, tax and banking reforms, changes to the way goods and services are distributed, and boosting government reserves.



Although the reform package has been discussed in general terms, the government has yet to set out the details, and neither economists nor members of parliament have any idea how far plans have progressed.



"We haven't yet received a single document relating to this reform project,” said Ahmad Tavakkoli, who heads parliament’s research department. “As representatives of parliament, we are being left in the dark about the government’s plan, the expertise that went into it or how it is going to be implemented in such a way as to cost people as little as possible and prevent inflation."



The speaker of parliament, Ali Larijani, has asked the government to submit details of its economic project as soon as possible, according to a July 26 announcement.



The lack of information has sparked complaints from other members of parliament.



"Ahmadinejad has just mentioned the title of his economic revolution but we know nothing of the content," said Musa al-Reza Servati, a conservative who sits on parliament’s planning and budget commission.



In view of these concerns, parliament set up a special commission on July 9 to scrutinise the president's plans carefully. But more than a month later, the president had not accepted an invitation to sit on the commission, nor had his cabinet task force submitted any information to legislators.



Parliament was, understandably, not amused.



Morteza Tamaddon, an adviser to the president on the economic reform package, believes such concerns are being deliberately exaggerated. He argues that no one actually disputes the need for drastic action on the economy, and the main differences of opinion centre on what form the measures should take.



While recognising that some of the changes will inevitably lead to protests, Tammadon said, “There are some groups which don’t agree with Ahmadinejad and his government, so even if this project will have positive effects, they are once again trying to portray it as flimsy and downgrade its importance.”



The economic revolution the president has in mind has become a daily topic of conversation, with expressions of both hope and fear, depending on whether people take a favourable or hostile view of the plan.



Members of the public interviewed in Tehran people differed in their views of the president's plan, with some praising him for attending to the needs of the poor and others dismissing the scheme as just another unachievable project.



Opinions on either side of the divide reflect the information vacuum regarding the reform plan. Ignoring the broader ramifications of the seven-point plan, most of the debate comes down to whether people are for or against cutting subsidies and replacing them with direct payments paid into the bank accounts of those in most need.



Rahim, a taxi driver in Tehran, is upbeat, saying, “Ahmadinejad's aim is to elimininate subsidies for the wealthy and distribute then among the lower classes. This could reduce class disparities.”



Habib, a street trader in the city, is also putting his faith in the president. “Ahmadinejad wants to improve people’s financial situation, but his opponents prevent him from doing so,” he said.



Sudabeh, a housewife, spoke for many better-off city residents when she voiced concern about the possible impact of the reforms, "The government’s plan, entailing the elimination of subsidies, will lead to high inflation. I think this plan is going to create bigger economic problems for the middle classes."



Farrokh, who runs an accommodation agency, added, “Ahmadinejad has made people a number of promises in the last three years, but he hasn't delivered on any of them. His economic team is in such disarray that there’s no hope of improvement, whatever they propose or set up.”



In a recent internet poll conducted by the Noandish news website, 71 per cent of respondents said their did not believe the economic reforms would have positive effects for the Iranian population.



Economists in Iran are as much concerned about the plan’s execution as about its content. Liberal economists have welcomed the dropping of subsidies, but say too much ambiguity surrounds the way the plan will be implemented. Some sociologists have even expressed concerns that if the reforms are mishandled, they could spark popular unrest. Removing subsidies from natural gas and petrol could cause these fuels to jump in price to 50 and 12 times their current levels, respectively.



Ali Ghanbari, who sits on the academic board of Modarres University, warns that if the reforms are pursued too hastily and without adequate research, the Iran economy will inevitably suffer. In his view, “Proposing this with just one year of the [current] ninth government left to run has to do with PR and political reasons.”



Iranian families have already begun receiving application forms for the direct welfare payments proposed under Ahmadinejad’s scheme. As international sanctions place Iran under more pressure than ever, they are hopeful that their economic situation will get better, but simultaneously worry that the changes will hit them the hardest.



As they watch their president and his advisers on TV smiling and promising better days to come, their enthusiasm is tempered by warnings from economists that Ahmadinejad's economic surgery may cause a lot of bleeding.



Sajjad Salek is a journalist in Tehran.