Iran’s $18 Payouts Mar Plan to Plug Missing Billions

Photographer: Jason Alden/Bloomberg

President Hassan Rouhani said, “People should know there is no other way.” He promised a “smooth increase in prices” to avoid any “shock to people’s lives.” Close

President Hassan Rouhani said, “People should know there is no other way.” He promised... Read More

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Photographer: Jason Alden/Bloomberg

President Hassan Rouhani said, “People should know there is no other way.” He promised a “smooth increase in prices” to avoid any “shock to people’s lives.”

Maliheh Kazemi agreed to forgo the $18 a month that Iran’s government provided to help pay the bills, in a gesture of support for the president she helped elect last year.

“I didn’t sign up for the payments this time because I want to help Hassan Rouhani’s government,” the 62-year-old Kazemi, who lives alone in Tehran, said. “They want to do things for the country. If more people don’t get the money, it will be freed for other projects.”

Kazemi’s decision is a small piece of good news for Rouhani in his battle to curb spending. The bad news is that most Iranians are unwilling, or financially unable, to take a similar leap of faith. Only 2.4 million people volunteered not to receive the benefit, less than a third of the number the president had targeted with the help of public appeals from sport stars and influential clerics.

“This is a serious slap for the government,” said Mahjoob Zweiri, a professor of Middle Eastern politics who focuses on Iran at Qatar University in Doha. The level of rejection will “start a new phase of competition” between politicians backing Rouhani and rival conservatives who will “seek to benefit from this,” he said.

The payments of $18, or 455,000 rials, were introduced by Rouhani’s predecessor Mahmoud Ahmadinejad in 2010 to ease the pain inflicted by the withdrawal of some food and energy subsidies as the nation struggled beneath the weight of global sanctions. Yet by allowing each of Iran’s 77 million people to claim the handout no matter their income, the policy helped fuel inflation while blowing a bigger hole in scarce finances.

$17 Billion Gap

Iran has doled out $54 billion in direct payments since the start of the program, Eshagh Jahangiri, the nation’s first vice president, said on March 30, according to the state-run Fars news agency. That’s $17 billion more than it saved through the subsidy cuts, he said.

In a televised speech in November, Rouhani said his government had inherited $67 billion in debt. He announced plans to rein in benefits and further increase utility tariffs and fuel prices. As the pledges are acted on, they threaten to erode his popularity in a nation where the average urban family earns $600 a month while in rural areas that falls to $339, according to Iran’s Statistical Centre.

Last night, Rouhani turned to state television again to defend his approach.

Recession Risk

“We had to introduce these changes,” he said, underlining that he’s “determined to implement the new phase of the subsidy plan in a way that administers the least pressure on people,” with a “smooth increase in prices.”

The state of an economy starved of oil revenues by years of sanctions imposed over the nation’s nuclear program presents Rouhani with a dilemma that may define his presidency at home.

“On the one hand there’s inflation, and on the other there is recession,” said Mousa Ghaninejad, an economist who lectures at Sharif University in Tehran. “Any action the government may take to exit recession could fuel inflation, and any move to cut down on inflation might extend the recession.”

Rouhani said yesterday that his government’s economic priority had been to end its dependence on central bank assistance to fund the cash payments and a low-cost housing project, and in turn lower inflation.

He likened the nation to a wounded body. Before it “could heal, we had to stop the bleeding,” he said.

Nuclear Deal

While increases in consumer prices have slowed, annual inflation stood at just below 20 percent in March, according to central bank data. The International Monetary Fund forecasts that Iran’s economy will grow 1.5 percent in the next 12 months after two years of contraction, as long as Rouhani’s attempts to end the nation’s isolation and overhaul the economy continue.

A temporary nuclear deal the government struck with world powers last year should bring as much as $7 billion in sanctions relief. Iran has already accessed more than half of the $4.2 billion in frozen oil revenue to be released as part of the accord, which expires in July.

Conservatives opposed to the nuclear concessions and Rouhani’s policy of detente are promoting a movie critical of the president. It highlights episodes of his decades-long political career and depicts him as having been duped by Western countries in his stint as a nuclear negotiator, according to local media.

Speaking on April 23, three days after registration for the $18 payments ended, Vice President for Planning and Strategic Supervision Mohammad Bagher Nobakht said the government had expected as many as 8 million Iranians to opt out.

Utility Prices

The 2.4 million people who did so will generate savings of $482 million, he said on state television. The Shargh newspaper cited Nobakht as saying that the government aims to save $19.3 billion in the year ending March 2015 by limiting the cash payments and increasing energy prices.

Electricity and water prices have risen 20 percent on average since March. On April 25, gasoline prices were raised by 75 percent and diesel by 66 percent, according to the Oil Ministry’s website.

“They make the handouts seem like a big deal,” said Morteza, a 32-year-old gardener and father of two from northern Mazandaran province, who declined to give his family name fearing reprisals for criticizing the government.

“They are fooling us, that amount doesn’t cover anything,” he said. “They have increased prices and our bills are now 10 times higher than the aid we get.”

Rouhani accepted during his campaign that tough decisions were needed, Zweiri of Qatar University said. “But now this is hitting hard, it’s coming to people’s door.”

To contact the reporter on this story: Ladane Nasseri in Dubai at lnasseri@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net Ben Holland, Mark Williams

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