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Rouhani’s food subsidy scheme backfires | ASHARQ AL-AWSAT English Archive 2005 -2017
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Customers shop at a vegetable store in Tehran, Iran on January 6, 2012.
(Reuters/Raheb Homavandi)

Customers shop at a vegetable store in Tehran, Iran on January 6, 2012. (Reuters/Raheb Homavandi)

Customers shop at a vegetable store in Tehran, Iran, on January 6, 2012. (Reuters/Raheb Homavandi)

Tehran, Asharq Al-Awsat—A new food subsidies scheme introduced by President Hassan Rouhani to ease the financial burden on ordinary Iranians buckling under the country’s crippling economic conditions has caused controversy in the Islamic Republic.

Complaints about the quality of the food handed out and of long, chaotic lines outside distribution centers, with scuffles breaking out between people and one death reported, have drawn criticism among Iranians and in the media.

Iran’s prosecutor-general, Gholam-Hossein Mohseni-Eje’i, described the scenes as “contradicting dignity,” and a number of lawmakers, including Speaker of Parliament Ali Larijani, have now asked the government to reconsider the scheme.

Introduced as part of a plan to phase out and replace former President Mahmoud Ahmedinejad’s cash handout system, the new scheme allows government employees, retired government workers, and citizens with a monthly income below 5 million rials (approximately 200 US dollars) to receive up to two baskets of subsidized food by the end of the Iranian calendar year in March. The baskets, provided by the Imam Khomeini Relief Committee and State Welfare Organization, contain rice, cheese, eggs, chicken and cooking oil.

Iran’s economy has been crippled by oil and trade sanctions imposed by the US and the EU, which have resulted in an official annual inflation rate just under 40 percent, with unofficial estimates placing this much higher. Coupled with a steady contraction in GDP—1.9 percent in 2012 and 5.4 percent in 2013—and rising unemployment, the economic troubles have put even ordinary produce out of the reach of a significant portion of the country’s population.

Former President Ahmadinejad’s cash scheme was also introduced to help put such products within the reach of Iranians from low-income households, but the handouts bled public funds, resulting in a budget deficit of 28 billion US dollars in the financial year ending this March.

A group of lawmakers have now written a critical letter to President Rouhani and have begun to gather signatures to impeach the Minister of Industry, Mines and Trade, Mohammad-Reza Nematzadeh.

Speaking to Asharq al-Awsat, Saeed Leylaz, a veteran economist, also criticized the new scheme: “The Rouhani administration has made many efforts to curb inflation and it has been to some extent successful. But distributing food baskets is not effective for curtailing inflation. It is a failed plan,” he said.

He added that the method was also “unpleasant,” and said the government must find other ways, though he hoped food prices would eventually decline “and then the government would no longer need to distribute such baskets.”

Iran’s currency, the rial, has made a slight recovery since losing more than half of its value over the previous year, following a nuclear deal signed with the P5+1—the five permanent members of the UN security council plus Germany—in Geneva, Switzerland last November.

That deal promised the gradual lifting of sanctions in return for Iran halting its proposed nuclear program, as well as allowing it access to frozen funds totaling 4.2 billion US dollars, the first installment of which Iran said it began to receive earlier this month.

But it appears that in the short term, the ordinary Iranians receiving the food baskets will not be reaping any of these benefits.

One man waiting to receive the handout told Asharq Al-Awsat he expects waiting in the relief lines to become a monthly ritual for some Iranians, now that the cash handouts will be scrapped.

Another woman standing in the long lines complained about the quality of the food, saying she thought it had come from supplies rejected for use by government employees. There have been some reports of people selling the food ion the black market below normal retail prices.

Whether this is just a sign of the quality of the food or one pointing to a preference on the street for the old system is not known. That system, designed to act as an aid for ordinary Iranians in the face of rising prices, actually ended up contributing to the very phenomenon. Ahmedinejad’s cash handouts, which flushed the Iranian market with readily available cash, contributed to Iran’s spiraling inflation problems. Rouhani may thus have no choice but to carry on with the plan to phase it out, but his solution, at least thus far, may not endear him to ordinary Iranians—nor to the conservative establishment his reformist agenda is currently brushing up against.