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Police in Iran streets as subsidies are cut

Police in Iran streets as subsidies are cut

December 19th, 2010 by NASSER KARIMI, Associated Press in News

TEHRAN, Iran (AP) - The Iranian government sent squads of riot police to man the major intersections of the capital as a controversial plan to cut food and energy subsidies and quadruple the price of gasoline went into effect Sunday.

Eye witnesses reported a heavy police presence in the squares and junctions of Tehran as well as some western neighborhoods of the city, though so far the city has been quiet.

In 2007, angry protesters set dozens of gas stations on fire after the government imposed a new system of gasoline rationing to cut down on access to the country's heavily subsidized fuel.

Iranian President Mahmoud Ahmadinejad said late Saturday that the cuts in essential subsidies were the "biggest surgery" to the nation's economy in half a century. He said poor people would enjoy a life with higher standards after the cuts and the saved money would result in a flourishing economy for Iran.

Ahmad Bakhshayesh, a Tehran University professor in politics said it was too soon to gauge the public reaction to the cuts, though popular unrest might yet still erupt.

"We have to wait and see how inflation will affect their lives," he told the Associated Press.

After the president announced the cuts late Saturday, long lines of cars were seen at several gas stations in Tehran as Iranians rushed to fill their tanks at subsidized prices before the new ones took effect at midnight.

The cuts come as the Iranian economy is straining under four rounds of U.N. sanctions over its controversial nuclear program.

Still, Iran had planned to slash subsidies before the latest sanctions took effect, and Ahmadinejad and his allies have long insisted the country's oil-based economy could no longer afford the largesse.

Tehran says it is paying some $100 billion in subsidies annually, although experts believe the amount is about $30 billion.

Economic analyst Saeed Leilaz said the cuts were in theory a positive move since it would reduce energy consumption, which is currently costing the country a quarter of its Gross National Product.

"However it is being implemented in an incomplete fashion because it's not accompanied by a greater liberalization of the economy," he said, adding that the cuts would probably not have much positive effect.

Under the new rationing system, each person receives 60 liters of subsidized fuel a month costing 40 cents a liter ($1.50 a gallon) - up from the just 10 cents a liter. Further purchases of fuel would run 70 cents a liter ($2.69 a gallon), up from just 40 cents.

Under the old system, Iran had some of the cheapest gasoline in the world.

Ahmadinejad also said his government was paying $4 billion in bread subsidies, which will also gradually be phased out.

Economists say the unpopular plan to slash subsidies could stoke inflation already estimated to be over 20 percent. The cuts also are widely seen as placing added burdens on Iranians.

The government says cutting subsidies, known as the Subsidy Smart Plan, will return part of the money obtained from increased prices to the people through cash payments. It has already paid nearly $15 billion into bank accounts of some 20 million families in the country as compensation ahead of the cuts.

Every family member would now receive $80 for to help them over the next two months, and Ahmadinejad suggested the money would be available by Sunday.

The new prices for electricity, water, flour and bread are expected to be announced later on Sunday.