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IRAN: New Budget May Add to Uncertainties, Political Strains

Analysis by Farideh Farhi*

HONOLULU, Hawaii, Mar 19 2010 (IPS) - Iran’s 347-billion-dollar budget for the 2010-11 fiscal year, finally approved by the Guardian Council in Tehran Tuesday – just days before its scheduled implementation on the Iranian New Year Mar. 21 – appears likely to add to the tensions and uncertainty that have bedeviled the country since the disputed June 2009 elections.

While the budget is smaller than President Mahmoud Ahmadinejad’s original proposal, it marks a substantial increase from last year’s 280-billion-dollar budget.

Final approval came after much wrangling between the Parliament and Ahmadinejad’s government. But no one is happy with the final compromise, raising serious doubts about its full implementation in the coming year. Tehran will likely face growing external economic pressure to halt its nuclear programme, not to mention simmering domestic political discontent generated by the rise of the Green Movement.

Ahmadinejad is unhappy with the compromise because the Parliament, despite his unprecedented personal lobbying efforts, rejected his request to credit 40 billion dollars worth of revenues generated from increasing the prices of previously subsidised goods and services. It agreed only to half that sum.

At the same time, lawmakers are unhappy with the final deal because they felt they were not given sufficient time and information to deal adequately with the new budget. The government not only submitted 45 days late, but it also reduced the number of line items that the budget contained, leaving important details unanswered.

No less than 80 deputies out of the 290-member Parliament did not even bother to show up for the final vote, suggesting either unprecedented indifference or, more likely, lack of confidence not only in the budget itself, but also the process.

The budget process in Iran normally constitutes the most contentious interaction between the executive and legislative branches. And in discussing this year’s budget, a notable number of deputies, as members of the Combined Committee dealing with the budget, actively challenged the government’s numbers.

Two leading conservatives who also happen to be economists, Elias Naderan and Ahmad Tavakoli, actually called for the wholesale rejection of the budget because of its lack of transparency and questionable sources of revenues. They complained, for example, that the budget appeared to be based in part on increases in tax revenues and the sale of government properties for which there was no documented explanation.

They also questioned the projected income from the sale of approximately eight billion Euros worth of Eurobonds in an environment in which economic and financial sanctions against Iran are on the rise.

But the budget ultimately passed with only one major correction – the halving of projected revenues that were supposed to be generated from the cuts in price supports.

Parliament’s insistence in reducing the government’s proposed number was based partly on principle and partly on fear.

On principle, the parliament objected to the fact that the proposed budget legislation, which the government introduced only after the approval of its Targeted Subsidies Legislation in February, contradicted the latter’s mandate to limit the revenues resulting from price increases to between 10 billion dollars and 20 billion dollars in its first year of implementation.

It took a whole year for the subsidies legislation – which is intended to reform Iran’s bloated price support system that reportedly costs the government as much as 100 billion dollars a year – to become law, due to parliamentary wrangling with the executive branch. As passed, the legislation called for the prices of 16 goods and services – mainly food, utilities, and fuel – to be gradually liberalised over a five-year period.

Ahmadinejad’s desire for higher prices was not without economic logic. Shock therapy, he argued, was the only way to change consumption patterns; in particular, to reduce gasoline consumption of which Iranians are, on a per capita basis, one of the world’s biggest consumers.

The higher revenues generated by the proposed price adjustments would then permit the government to give the overwhelming majority of people who have signed up for cash subsidies sufficient support to offset the burden caused by higher prices during the period of structural adjustment, according to the government.

The Parliament, however, feared that the impact of injecting 40 billion dollars worth of cash into the economy would, as the Parliament Research Centre estimated, add another 68 percent to Iran’s already high inflation rate – estimated at 15.8 percent for 2009 – thus adding to the economic woes of working- and middle-class Iranians.

In the end, the Parliament opted for what Speaker Ali Larijani called “balance”. But that “balance” may have consequences for the implementation of the subsidies plan, as various members of the government have expressed doubt that the plan can be implemented without higher revenues.

Ahmadinejad himself on Friday went as far as to suggest that the Parliament’s plan is impossible to implement, instead calling for a referendum in which people decide.

Some government backers in the Parliament, such as the hard-line deputy, Ruhollah Hosseinian, have suggested that Ahmadinejad simply refrain from implementing the subsidies plan, a possibility that was rejected in no uncertain terms, however, by Deputy Speaker Mohammad-reza Bahanor, even though the latter admitted that there was no mechanism by which Parliament could hold the executive accountable if it followed Hosseinian’s advice.

All of this wrangling has served only to fuel rumours and speculation about the impending price increases for gasoline, diesel fuel and even electricity, creating an uncertain and testy economic environment not only for consumers, but also for the management of private and state-run enterprises that have been highly dependent on subsidies.

Adding to the uncertainty are contradictory statements about gasoline rationing. On the one hand, the government has announced that it is reducing monthly rations from 80 to 60 litres per car. But, with an additional 80-litre ration for the New Year holidays, it has placed a total 260 litres of gasoline on car owners’ ration cards – hence averaging more than 80 liters a month – for at least the next three months. That is two months later than the timetable set for the subsidies legislation to go into effect.

The government’s apparent complacency regarding the reduction of gasoline rations suggests that it is not as worried about the impact of the U.S. government’s growing pressure on Iran’s foreign suppliers of gasoline to halt exports to Tehran as many in the West believe. The U.S. Congress is currently trying to rush through legislation that would impose tough sanctions on foreign companies that export refined oil products to Iran.

In fact, trade figures just released suggest that the government has been stocking up on gasoline, with imports this year registering a nearly 150 percent increase in comparison to last year.

What is at issue at this point is not the economic squeeze that may be coming from the outside, but the extent to which disagreements on economic policy will be a new source of domestic contention, adding to the political impasse and woes that have gripped the country since the last year’s election.

*Farideh Farhi is an Independent Scholar and Affiliate of the Graduate Faculty of Political Science at the University of Hawai’i at Manoa.