Iran’s Subsidies Reform Program: Hopes and Fears

In a few weeks the Iranian government will probably launch a long waiting economic plan according which most of the subsidies that are paid by the Iranian government in all the sectors of the economy will be lifted. Instead the government has planned to redistribute the money that is generated along the way to two thirds of the Iranian population who have monthly income below $130 per month.

While by many observers, this is a vital step towards more stable and prosperous economy, it might be accompanied by a disaster for the Iranian economy and the Iranian people.

Here is the problem: Since last year, Iranian economy has entered a recession (rokud) era similar to other parts of the world. But for two reasons the recession in Iran was worse than many other places.

• First, the Iranian economy has already suffered from new waves of heavy sanctions started in 2005.
  
• Second, Ahmadinejad's poor policy towards importing goods and food has made many Iranian domestic producers finding themselves at the edge.
  

Now as it has been argued, the sudden price increases in different sectors of the economy will cause two things at the same time.

• First, it causes Iranian producers great deal of harm to catch up with higher costs which may cause reduction in the Iranian domestic production. This reduction will eventually contribute to the recession that Iran is already in.
  
• Second, the increase in the prices will cause huge inflation (tavarom) for at least a few months.
  

RECCESION and INFLATION
at the same time is one of the worst things that might happen to an economy. This is called STAGFLATION which you could read more about that here.

From last year's presidential campaign the opposition leader Mir Hossein Mousavi and also Dr. Ali Reza Beheshti, Mousavi's consultant who is now in prison, have warned the Iranian government that the reform in the subsidies' system (Hadafmand Kardane Yaraneha), will cause "Bread-Protest" (Shuresh Nan).

The reason that Bread-Protest might happen is not just because of the stagflation situation that the Iranian government might face. It is because the Iranian government has planned to redistribute the money that is generated by this program to some groups of people. This redistribution of cash money will reinforce the stagflation through higher inflation (tavorm).

In conclusion, a sudden increase in the prices is probably a very bad idea which may harm the Iranian people.