Vol. 73/No. 2      January 19, 2009

President Mahmoud Ahmadinejad is calling for slashing government subsidies for fuel and other basic necessities to compensate for the sharp decline in oil revenues. Ahmadinejad had previously said Iran would be immune to the world economic crisis.

Oil, which accounts for 80 percent of Iran’s foreign exchange revenues, dropped below $40 a barrel in late December, down from $147 last July. The Iranian stock market lost 18 percent of its value between October and December.

Compounding these challenges are the extensive sanctions imposed on Iran by the United Nations and by the U.S. government on the pretext that Tehran continues to pursue enrichment of uranium. The United Nations imposed sanctions in December 2006 instructing countries to cease trade in materials or technology that could aid Iran’s nuclear or missile program and to freeze the assets of several Iranian companies and individuals. U.S. sanctions prohibit nearly all trade with Iran.

Iran’s current inflation rate is between 25 and 30 percent, the highest in the Middle East, according to the Central Bank of Iran.

While the official unemployment rate is about 10 percent, this figure does not appear to include the many workers unable to find full-time jobs, which would make the actual jobless rate far higher. The Fars news agency reported December 21, for example, that 400,000 rural women workers have lost their jobs due to drought conditions.

The Tehran daily Sarmaye (Capital) reported December 31 that unlike previous years at this time, the textile industry is dormant this year. It reported that many textile factories are shutting down or are working way below capacity.

Ahmadinejad submitted a bill to parliament December 30 that would eliminate subsidies for heating oil, gas, electricity, and water over the next three years. Many of these subsidies, established after the 1979 revolution that overturned the U.S.-backed shah, are substantial. Gasoline, for example, costs just 36 cents a gallon.

Basic foods are also subsidized. Milk is 20 cents a quart. Prices of food went up at least 35 percent last September alone, according to the Wall Street Journal.

Some 60 percent of the money the government saves by eliminating subsidies is supposed to be paid out in monthly cash handouts to low- and middle-income families. The bill also projects expanding public transit, job creation, and development of non-oil exports.

When Ahmadinejad first proposed these measures last year, he also called for stricter enforcement of sales taxes. In July 2008 the government had announced plans to institute a 3 percent sales tax. Merchants reacted in September by launching strikes and demonstrations in several cities. Ahmadinejad retreated, postponing the tax for a year.

Similarly, when the government restricted subsidized gasoline purchases to 30 gallons a month in 2007, spontaneous protests erupted in Tehran during which demonstrators burned gas stations.

Iranian Central Bank deputy director Ramin Pashaifam warned that eliminating energy subsidies would increase inflation. Parliament member Emad Hosseini said Ahmadinejad’s bill “will cause widespread unemployment, bankrupt big industries, and reduce the purchasing power of the people,” according to the Associated Press.

Ahmadinejad argues the subsidies have only helped the rich and says his new plan would “apply justice and eradicate discrimination.”

Presidential elections are coming next June and several capitalist candidates are already in the running. Ahmadinejad has not announced, but is expected to seek a second term.

With the economic crisis intensifying and the potential for political instability growing, some bourgeois forces that have been bitter rivals in the past are exploring the possibility of a joint slate, the Arab American News reported December 26. According to the paper, “The moderate conservatives, led by former President Akbar Hashemi Rafsanjani, and reformists, led by former President Mohammed Khatami, are trying to agree on a ‘national unity candidate’ to run against Ahmadinejad. Rafsanjani is now supporting Khatami as the candidate …”

Khatami was president of Iran from 1997 to 2005. Initially he was popular with working people who saw him as someone who would open up political space and end restrictions on democratic rights, but he failed to deliver on that front and economic conditions for the toilers steadily worsened.

Urban and rural poor, in protest against well-heeled, established politicians, voted for Ahmadinejad in 2005. He campaigned with populist promises to fight government corruption and use the country’s oil wealth to increase wages and social benefits for working people and grant zero-percent loans to farmers.
 
 
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