Iran's Government Subsidies Are Incentives for Poor Voters
Cash handouts as part of Iranian President Mahmoud Ahmadinejad’s subsidy reform programs have a constituency among Iran’s lower classes.
In the run-up to the Iranian Guardian Council’s announcement of "vetted" presidential candidates, it is useful to look into a crucial matter on the minds of many voters. The future of cash payments to households as part of the subsidy reforms is set to be a major campaign issue.
Late last month, in a little-noticed announcement, the Central Bank of Iran declared that it would only provide a bottom-rate foreign exchange to importers of wheat, barley, corn and soybeans. Most other importers were referred to its trade room, where currency is sold for twice the price. Predictably, the cost of many goods immediately jumped amid protests from parliament.
In the past, I have argued that the Ahmadinejad administration intends to fund increased spending amid declining oil revenues by devaluing the rial and raising the projected price-per-barrel in its budget. But for now, the valuation of the rial remains opaque. The government’s proposed doubling of the dollar rate in its budget bill was rejected by parliament. Lawmakers included a clause in the law compelling agreement on another exchange rate without finalizing it.
According to Vienna-based consulting firm Atieh International, “It is clear that the rial will be devalued … but not before the election, to avoid negative economic and psychological consequences.” So why did the government push for action that raised consumer prices ahead of the election? There are three main reasons.
