Middle East

Increased security as Iran's subsidy programme bites

Iranian woman shopping in Tehran - 2007
Image caption Iranians benefit from blanket subsidies on natural gas, electricity and many staple foods

Police have been deployed on the streets of Tehran as the government begins making dramatic cuts to a wide range of subsidies.

Iran's President Mahmoud Ahmadinejad has described the reforms as "the biggest economic plan in the past 50 years".

The changes - which started being rolled out last month - are expected to save billions of dollars in public money each year. Yet they will drive up food and energy prices for millions of Iranians.

Opposition figures have questioned the need for the overhaul as Iran deals with the effects of international economic sanctions over its nuclear programme.

Iranians - both rich and poor - have long benefited from blanket subsidies on natural gas, electricity, petrol, water and many staple foods.

Under the subsidy system they have enjoyed some of the lowest petrol prices in the world - paying as little as $0.40 (25p) per gallon ($0.10 per litre).

Yet the country - which has some of the world's biggest oil reserves - was recently forced to import refined fuel.

Long queues are now forming at petrol stations as motorists expect a 400% price hike.

Payouts promised

Over the past two decades successive governments promised a major overhaul of costly public spending, but none carried it out.

Blanket subsidies swallow a large share of the national budget and are criticised by economists for causing wastefulness. As much as one-third of bread made with subsidised flour is said to be simply thrown out.

Mr Ahmadinejad has promised that cash payouts to poorer families will soften the effects for them and suggested any problems will be the result of "economic seditionists".

He also issued a warning to anyone seeking to profit from the changes by putting up prices as changes are introduced.

"It is possible that Satan tempts some people in the country, for example a factory owner, to put up the price of his products," he told a crowd in north-eastern Iran.

Image caption President Ahmadinejad is said to be keeping the cuts' details secret

"Our agents will catch him and fine him."

Reports say that the full plan for cutting the subsidies has not been made public. Only the president and a few close aides reportedly know how far the subsidies will be lifted for commodities including fuel, bread, cooking oil and household items such as washing detergent.

Some opposition politicians and business people argue that poor handling of reforms could lead to massive inflation and civil unrest.

They point out that Iran is already suffering from sanctions recently imposed by the United Nations and the West.

"As a result of incorrect policies and the effects of international sanctions our economy is in crisis," wrote Ramin Sadeghian from Iran's Chamber of Commerce on a news website.

"The supply of cheap energy is the only thing that makes production possible and economical. If the subsidies are removed what advantages are left for our industries?"

Possible unrest

Mir Hossein Mousavi, who lost the June 2009 presidential election to Mr Ahmadinejad in a vote that the opposition says was rigged, agreed on the need to end inefficient subsidies.

However he said the government would not implement its policies well.

Image caption Introduction of petrol subsidies in 2007 provoked violent protests

"Most prominent and competent experts have been sidelined," he said on an opposition website.

He also blamed the Iranian president, Mahmoud Ahmadinejad, for sanctions weakening the national economy.

With no-one quite clear how much prices could rise, there have been hoarding runs on basics such as sugar and rice.

"An adventurist foreign policy has prompted the issuance of several international resolutions against our country within a short period of time that have negatively affected people's ability to earn a living," he was quoted as saying.

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