“The Great Surgery” of Iran's economy

A memorable event took place in Iran's economy in December of 2010. Iran's President Mahmoud Ahmadinejad announced the launch of a project on subsidy reform (elimination of targeted subsidies), and called it a 'great surgery' on the weakened Iranian economy.

In his TV speech, Ahmadinejad said that the elimination of subsidies in Iran will contribute to the provision of social justice in the country, the strength of the economy and the fight against corruption. This project has been being implemented for two years, and many events have happened since then.

Back in 2008, Iranian President Mahmoud Ahmadinejad presented a plan for the elimination of subsidies for the energy sector and the provision of social aid of $50-70 dollars per capita (the amount was then reduced to $37) for the 70 million people of Iran, but the parliament did not adopt this plan with the possibility of inflation on its mind.

In addition, in his speeches to parliament, Economy Minister Shamsaddin Husseini noted the importance of elimination of the then 50-billion-dollar subsidies for the energy sector.

Through the elimination of subsidies, Ahmadinejad's government hopes to reduce government spending. However, it can be said that government spending has not only not diminished, but rather rose during this period.

According to the Iranian agency ?LNA, in its latest October report, the Research Center of Iranian parliament stated that the potential production capacity of the country decreased by 50.2% compared to 2011, while the number of companies operating in the manufacturing sector fell by 40.3%.

According to information, despite the fact that Iranian Central Bank announced inflation of 26%, experts believe that inflation in the country currently stands at 30%. In 2011, liquidity levels rose from $253 billion to $326 billion. The unemployment rate in the agricultural sector increased to 20.3%, in manufacturing, up to 32.4%, and in service, up to 47.3%. All this, as well as a budget deficit of $ 23 billion, the direction of oil revenues to cover budget expenditures, the elimination subsidies for the industrial sector can be considered a 'gift' to the Iranian economy.

Perhaps, the Parliament's decision to halt the second phase of the subsidy reform plan was due to these reasons. However, Iranian Energy Minister Majid Namdz recently said that the state is implementing the second phase of subsidy reform. Namdz called this decision of the parliament unlawful.

Past experience shows that the new government usually forgets about ongoing projects of the former government, and gives preference to its own projects. Given that presidential elections will take place in Iran in June 2013, it can be said that the implementation of the subsidy reform's second phase of is under scrutiny.


Temkin Jafarov /Trend/