The Future of Subsidy Reforms After Iran’s Presidential Election
The next president of Iran is likely to continue the subsidy reforms of the Ahmadinejad government, but with changes in pace and handout distribution, writes Bijan Khajehpour.
Iran’s subsidy reforms have been among the most significant, but also most controversial socioeconomic initiatives in recent years. Now that Iran is preparing for the post-Ahmadinejad era, it is appropriate to examine how the planned continuation of this program will be affected by the emergence of a new administration in the second half of 2013.
The subsidy reform plan
Iran introduced the first phase of its subsidy reform plan in December 2010 as a necessary campaign to ease the government's financial burden and to achieve a better distribution of wealth. In a diversion from its different original plan, the government adjusted fuel prices to bring in $40 billion in new revenue from price corrections (i.e., partial “shock therapy” as President Mahmoud Ahmadinejad had argued originally). The original redistribution plan was revised as follows: 80% directly to recipients (about 63 million citizens), 20% to affected industries (only partly realized) and nothing for the Treasury. The government’s handling of the financial aspects of the reforms was so bad that it officially asked higher-income segments of the population to “voluntarily” forgo receiving cash handouts.
Experts disagree on the actual impact of the plan on Iranians' purchasing power. Some argue that the plan partially improved the purchasing power of the lowest-income classes (the bottom 30%), but undermined everyone else. Others contend that the material and non-material costs imposed through these reforms have been too high, undermining the economic well-being of all social and income classes in the country.
