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Ahmadinejad cuts Iranian subsidies, quadrupling the price of gas

President Ahmadinejad has made it a priority to cut subsidies on daily essentials such as gas, water, and flour that have cost Iran as much as $100 billion a year since 1979.

By Staff writer / December 20, 2010

A man pumps fuel into his car at a petrol station in north-western Tehran on Dec. 20. The price of gasoline will rise fourfold in Iran in the coming days, state television announced late on Saturday, as the most politically sensitive part of President Mahmoud Ahmadinejad's subsidy cuts plan takes effect.

Morteza Nikoubazl/Reuters


Iran began taking dramatic steps over the weekend to remove subsidies on fuel, food, and other essentials, in a politically risky move that overnight quadrupled the price of gas and increased the price of diesel ninefold.

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President Mahmoud Ahmadinejad said the ambitious plan was a critical step in dealing with Iran’s ailing economy – burdened by both mismanagement and four rounds of United Nations sanctions – and promised that the compensation scheme of $40 per person per month would benefit 60 percent of Iran’s population.

While many recognize the huge cost the subsidies have imposed on the economy – the government says it spends $100 billion every year, though experts suggest it could be one-third that – there has also been strong criticism, including from economists, politicians, and citizens.

RELATED: Why Iran's Ahmadinejad is pushing to cut popular government subsidies

Riot police were deployed at some gas stations in Tehran on Sunday to prevent a repeat of the 2007 violence and protests that came after fuel rationing was announced – stealthily, and late at night. So far there have been no reports of unrest due to the long-expected plan.

“I ask the people not to hoard gasoline because it carries many dangers. God forbid, accidents could happen,” Mr. Ahmadinejad said on live television, when announcing that the first phase of subsidy cuts would begin on Sunday.

The Iranian president invoked the Shiite Messiah, the Mahdi, when describing the compensation plan, noting that two months’ worth had already been deposited into personal bank accounts to be withdrawn from Sunday onward.

“This scheme will continue and will continue for decades, thanks to the divine wisdom, so no one can annul it,” Ahmadinejad claimed. “The people should not hurry in withdrawing this money [or] the market will be disturbed.”

'Ahmadinejad is the right person to do it'

Iran has provided costly state subsidies since the 1979 Islamic revolution. The effort to reduce them has long been a political hot potato. But Ahmadinejad, who has relatively strong backing among those most likely to be affected, has said he hopes to wean Iranians off the subsidies completely by the end of his term in 2013.

“Ahmadinejad is the right person to do it, because the brunt of this adjustment is going to be felt by people below the median income, especially when you get into bread, maybe even medicine,” says Djavad Salehi-Isfanhani, an economist at Virginia Tech and a fellow at the Brookings Institution, contacted in Tehran.

Such Iranians, often called the “pious poor,” have formed the backbone of the populist president’s support since Ahmadinejad was first elected in 2005. Many still support him, despite the disputed reelection in 2009, and the arch-conservative president has taken some unpopular decisions while at the same time enhancing the power of the president’s office.

“He said, ‘I am with the people, I am for the people,’ he kept saying that,” notes Mr. Salehi-Isfahani. “He was so emphatic about the fact that they thought about everything… ‘We know about the truck drivers who operate there,’ it was a confidence-building speech.”

37,000 clerics deployed to make the case

But experts are uncertain about the impact or success of the subsidy reforms, as well as of the ability of the government – which has shown “sheer incompetence” in some economic issues, says Salehi-Isfahani – to carry them out. Making the cash deposits in advance, however, was “very clever” because it helped counter the deep-seated belief that "the government is a thief,” he adds.


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