Economy, Domestic Economy

Subsidy Reform a Big Controversy

Subsidy Reform a Big ControversySubsidy Reform a Big Controversy

The lopsided implementation of the subsidy reform plan has exacerbated the widening rift between the country’s social classes, IRNA reported.

“As it was anticipated by the CBI in 2012, the plan has fuelled the already rising inflation rate and the value of the cash payment has plummeted from $45 to nearly $18 as a result,” the report read.

“The salaries of laborers and government officials could not catch up with the increasing inflation pace during the past two years,” the report added.

The so-called Subsidy Reform Plan, which has been described as the most important undertaking in Iran’s recent economic history, was launched in December 2010 by the previous government of Mahmoud Ahmadinejad in an effort to curb wasteful consumption and save billions of dollars from the government’s annual budget. The move was lauded by many international organizations such as the international monetary fund.

The main goal of the Subsidy Reform Plan was to replace subsidies on food and energy with targeted social assistance, in accordance with the Five Year Economy Development Plan which aims to move towards free market prices in a 5-year period.

According to the plan’s initial outline, the amount saved by the government through the subsidies cut was supposed to be distributed as follows: 50% was to go to the poorest strata of Iranian society; 20% to the government to compensate for increased costs or as safety net; and the remaining 30% was earmarked for improving the efficiency of public and industrial sections.

However, the previous administration widened the payment scheme to include almost all Iranians in a move that was interpreted by the Iranian economists and political elites as a mere “game of politics” aimed at attracting potential voters.  As a result of such mishandling, domestic industries suffered the most with a steep rise in energy costs that crippled their ability to compete with cheap imports.

“Four years on since the plan was implemented, the country’s manufacturing sector has not yet benefited. On the contrary, the significant rise in the prices of essential commodities has led to an increasing social inequality in the country, making the poor bear the brunt of the controversial policy.”