Ahmadinejad details stipend measure

Parliament vows to vote down the compensation plan for low-income residents amid inflation fears.

Iranians filling a car in Tehran. The oil-producing country has imposed gas rations of 120 litres per month because it lacks refiners.

TEHRAN // Mahmoud Ahmadinejad, Iran's president, has for the first time detailed how much those living on the lowest incomes will receive as compensation for a planned energy subsidy cut. This year, Mr Ahmadinejad promised there would be a monthly stipend for those on lower incomes, but had not said when it would start or how much it would be.

In a televised address on Tuesday night, Mr Ahmadinejad said those in the lowest income bracket would receive between 500,000 rials (Dh190) and 700,000 rials a month, while those in the bracket above would receive between 450,000 rials and 500,000 rials a month. He did not say how much people needed to earn to be in either group. Nor did he say when the cash would be handed out. Income and asset information has been collected for about 63 million people and the government will start dispensing the money after the data is checked, he said.

In a speech in the north-west town of Bojnord yesterday, he said the three top income brackets currently use 70 per cent of the energy subsidies. Saeed Laylaz, an economist and the editor of the Sarmayeh economic daily, said based on the figures offered by the president he estimated about US$35 billion (Dh128.45bn) would be dispensed this year to about 55 million people. Depending on international oil prices in the current Iranian fiscal year, the Iranian government is estimated to pay about $100bn in direct and indirect fuel and energy subsidies. An additional $10bn to $15bn would be paid for other items including bread, medicine, fertilisers and pesticides.

However, before Mr Ahmadinejad can make good on his promise to dispense the cash stipends, he needs to receive parliament's approval. But parliament has spoken out against the plan, which it fears will result in higher inflation. Iran's current annual inflation rate stands at 23.7 per cent, while the monthly rate topped 29 per cent to Sept 21, the central bank said yesterday. Ali Larijani, the parliament speaker, said last week the parliament would not endorse any government plans that could lead to higher inflation.

Gholamreza Mesbahi Moghaddam, the conservative chairman of parliament's economic committee, criticised Mr Ahmadinejad for promising cash payments before receiving parliament's approval and without guaranteeing there were the resources to follow through with it. "The good part, which is cash payment, is announced, while the bitter part, which is the higher costs of living for families [after subsidies are cut], is not mentioned," Mr Moghaddam said.

Other analysts said the government's plan was not financially feasible. "The government does not have the resources to make such payments and will have to increase the cost of energy very drastically," said Hossein Marashi, a member of the reformist Servants of Construction Party's central council. "They may even have to sell petrol at about 10,000 rials per litre [or 10 times the current price for rationed petrol], to provide the resources for the cash payment."

Cutting energy subsidies must be a gradual and carefully planned process, in order to prevent higher inflation, Mr Marashi said. Petrol was rationed in July 2007. Iranian car owners pay 1,000 rials per litre for up to 120 litres of rationed petrol, and for anything more they have to pay 4,000 rials a litre. If energy subsidies are cut, the sudden higher cost of energy, including the higher cost of fuel-generated electricity, will raise the prices of agricultural and manufactured goods and give rise to even higher inflation, critics of the government plan said.

"The biggest problem with this plan is that the source for making such payments is totally dependent on oil prices. If oil prices fall below the current price there will even be a budget deficit," said Mr Laylaz, the economist. The government already faces a budget deficit of about $30bn for the current year, Mr Moghaddam was quoted by Sarmayeh as saying, but Mr Laylaz and others estimate the budget deficit for the current year at about $43bn.

Some of Mr Ahmadinejad's critics accuse the president of making the announcement about the cash payment as part of his campaign for next year's presidential elections. "Promising payment of cash subsidies may be meant to attract votes but it can't be said to assure votes. The electorate will not trade votes with money," Mr Marashi said. [e-mail]