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Standoff in Iran over subsidy cuts

President Ahmadinejad wants to slash government subsidies for food and fuel by $40 billion and take control of the savings. Rivals in parliament have agreed to half that amount.

March 23, 2010|By Meris Lutz

Reporting from Beirut — Conservative rivals of Iranian President Mahmoud Ahmadinejad stood firm Monday in their fight to prevent him from rapidly cutting government subsidies for basic staples and taking control of the billions in savings.

Parliament Speaker Ali Larijani said lawmakers would not revise their decision to cut subsidies by $20 billion, half of what Ahmadinejad demanded.

At issue is not just who controls the money saved but also whose supporters gain or lose a slice of government subsidies. Critics suspect the president wants to use the savings to bolster his popularity with new giveaways and low-interest loans to mostly low-income loyalists while better-off citizens see their subsidies reduced.

Over the weekend, Ahmadinejad proposed holding a nationwide referendum on whether to cut an additional $20 billion on top of the $20 billion approved by lawmakers, an idea mocked by his rivals in parliament, who suggested instead holding a televised debate.

The battle over subsidies has been going on for months. Iran's oil-dependent economy is reeling from the effects of runaway inflation, the global financial slowdown and low commodity prices. Iran now faces the threat of new sanctions over its nuclear program.

Larijani told the semiofficial Mehr news agency that the president's drive to rapidly cut subsidies for gasoline, electricity and cooking fuel, as well as foodstuffs such as bread and sugar, was risky and "should take place gradually rather than suddenly."

But analysts say Ahmadinejad cannot afford to alienate his base, won over with costly development projects in rural areas, low-interest loans and populist giveaway programs that have also added to inflation.

His supporters say the proposed cuts would hurt mostly middle-class and wealthy Iranians, and that any money saved could be used to help the poor. The president has warned he might not implement the budget unless he gets the full $40 billion in cuts, even though parliament and the powerful Guardian Council, which vets all laws, have signed off on the smaller package. The fiscal year began Saturday.

So far, supreme leader Ayatollah Ali Khamenei has stayed above the fray, emphasizing the importance of government cooperation. "All state bodies should help the government," he said in a speech Sunday marking the Persian New Year.

Lutz is a special correspondent.

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