Iran Analysis: Will Ahmadinejad Succeed on Subsidy Cuts?

Ashura is so day-before-yesterday.

I fretted that my snap analysis on Friday morning of „Non-Events, Non-Millions, and Non-Victories“ might be premature: perhaps the regime would still turn out the masses in a religious celebration which also offered political legitimacy. But no. There were no significant crowds after Friday Prayers, no effusive declarations for the Supreme Leader or the Leader.

Indeed, there was almost no coverage of Ashura at all. The pages and screens of Iran’s state media are devoted to the foreign menace of a Terrorism, Terrorism, Terrorism directed by the „West“ and Israel. The Supreme Leader — by message, not by personal appearance — led the campaign on Friday with a message for the funeral of victims of Wednesday’s suicide bombing in Chabahar in southeastern Iran.

On then to the next possible big event. Tonight Mahmoud Ahmaidinejad will go on national television to address the Iranian public about his proposed subsidy cuts. 

Those cuts are now one of the centres of political debate in Iran. Perhaps more importantly, they are the possible catalyst for further discontent over the economy.

Ahmadinejad’s plan was supposed to be implemented in September. It was delayed until October, with the declaration that support payments, to cushion the blow of price rises, would be tried out in three provinces. Then the start date became November, with no news beyond the pilot scheme (or indeed of the scheme itself). And then the calendar turned to December.

On Friday, as we realised that there would be no post-Ashura boom for the regime, three EA correspondents chatted about the current situation. A colleague opened:

My general line is that Ahmadinejad will be able to manage the situation in his usual style: he will make sure some of the savings are passed onto the poorest, blame the West for the situation, and clamp down on any protests on the streets. Given that the Majlis were pushing for the end to subsidies, there’s not much they can do to attack him. The subsidies will be cut gradually to try and minimise the damage, but the critical factor is whether we see large-scale industrial strikes.

Inflation will rise substantially, unemployment will be unaffected, but the government will have a substantial amount of revenue to play with. Again, difficult to say exactly how much economic pressure the government is under.

I put in this reponse

I think Ahmadinejad is in a mess on this one. If his strategy on subsidy cuts was a general political move, he would be OK with the tactics you outline. But he’s in a real economic mess, with the sanctions adding to his woes, and his enemies in Parliament are looking at this to target him. They don’t have to challenge the decision in principle, just say that he’s screwed up implementation.

The revenue position is also uncertain given wobbles in manufacturing and exports. Throw in the energy pinch, and there is an economic squeeze. High oil price may ease this a bit, but I’m getting lot of stories from Iran of discontent.

It was Mr Tehrani, however, who brought us to agreement:

The fear of popular reaction-unrest and the very thin legitimacy of the entire system (Supreme Leader, Majlis, Government) has made everyone acquiesce to the haphazard way through which Ahmadinejad and his government are cutting the subsidies: no clear and pre-announced plan, random and rather drastic rises in household bills, constant rise in petrol prices, etc. The aim is to have society give up on reacting to a chaotic and gradual scrap in subsidies, rather than an immediate and timely one.

On the political level, there will still be friction between Majlis and government over the aim in savings from the subsidy cuts. Ahmadinejad was aiming for a savings much higher than what the Majlis was willing to give him and, of course, there is the issue of the ways that Ahmadinejad will spend the money he has saved. I doubt that [Speaker of Parliament Ali] Larijani and Co. will give him a free rein over that.



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