A good time for goodbye to subsidies

Everybody acknowledges that Iran’s $50 billion subsidy program cannot continue forever but many don’t think that the time to undo past excesses is now.  Iran’s economy is in deep recession, external threats of sanctions and military strikes are on the rise, and internally the nation is in the grips of an unprecedented political crisis.  Yet this week the bill to reform the vast subsidy program became law and the Ahmadinejad government is getting ready to take the plunge. 

Off target in subsidy reform

This week the bill to target subsidies, intended mainly to reduce subsidies for energy products, left Iran’s parliament (majlis) for the Guardian Council.  The Council has the last word on matters legislative, and may well decide to kill the bill because the government does not want to implement it with the modifications added by the parliament.  President Ahmadinejad, known more for its populist inclinations than pro-market sentiments, has taken an unlikely position to reform Iran’s $60 billion subsidy program (more than 15% of national income) on energy, food, and a few other items.  But the dispute over who should control the revenues saved from the bill’s implementation (the subsidy fund, for short) threatens to derail this historic effort to wean Iranians off cheap energy.  If the bill survives the Guardian Council, it is sure to die in implementation.  Raising prices for basic commodities in the highly charged post-election political atmosphere of Iran is difficult enough, an unwillingness government is not likely to forge ahead with doing so. 

Reform of energy subsidies

At long last and after decades of talking about doing something about the subsidies, there is a bill before Iran’s majlis to target (but not remove) subsidies.  I could not locate the bill itself but my impression is that it only addresses energy subsidies and not other subsidies such as food and medicine.  So far only 5 of the bill’s 14 articles have been passed, but the government already has the mandate to raise prices on energy products over the next five years.  The bill has been criticized from both the Right and the Left, which leads me to think it must be a move in the right direction.

Seoul impressions

This is my first, and long overdue, visit to Korea.  I have wanted to see Korea up close for a long time because this country occupies a special place in my education as a development economist.  When I was in graduate school in the 1970s, Korea was a poor developing country, and behind Iran in income per capita.  Now its income per capita is more than twice that of Iran and in many respects a developed country–a world apart from where Iran is today.

The Revolution and the Rural Poor

A short article of mine with this tile  just came out in the latest issue of the Radical History Review (restricted access).  This is an unlikely outlet for me, but then to say anything positive about Iran these days sounds radical.  The problem that critics ignore is that, although policies matter greatly, all improvements in living standards, health and education are in the end the achievements of individuals, families, and communities.  A rural girls who studies at night derives hope somewhere from a society that says to her you belong and if you work hard we will treat you fairly, but without parents who encourage her, she will probably not go to school.

The 2008/09 recession in historical perspective

A few clarifications about my last post:  The fall in family income and expenditures is not the same as a recession.  In theory, other components of Gross Domestic Expenditures (GDE) can increase so the economy can expand as private consumption falls.  I suspect that GDE per capita did not decline as fast as the SCI numbers that I reported in my last post indicate.  However, as I wrote in a recent oped that dealt with the sanctions question, it is unlikely that other factors kept the GDE from declining, thus averting recession.

New survey data show precipitous drop in incomes

For the last few days I have been staring with disbelief at the results of the most recent Household expenditures and Income Survey from the Statistical Center of Iran.  The drops in expenditures and incomes are much larger than I had expected.  Too bad that the release of the Central Bank national accounts data have been delayed.  They wold settle my questions about the recession last year because besides personal consumption, they would provide data on investment and public expenditures. 

Rural incomes and expenditures rose by 2.8% and 10%, and urban by 13% and 15%.  Taking into account an inflation rate of 25.4%, we aer talking about 20 and 10 declines in average incomes of rural and urban households, respectively.  This level of decline did not happen in the worst years of the war with Iraq. The government was not short of cash, so why such a large drop?

I will have to get back to staring at the numbers until someone enlightens me!

Conference on the Iranian Economy

This weekend I attended a very interesting conference entitled Iranian Economy at a Crossroads: Domestic and Global Challenges.  The conference was organized by Jeff Nugent, Hashem Pesaran, and Hadi Salehi Esfahani.  In attendance were Iranian and non-Iranian economists, economists and non-economist, young and old economists, and economists living inside and outside Iran.  This is the second in a series of conferences on the Iranian economy that I have attended.  The first was at the University of Illinois and was organized by  Hadi Esfahani.  That one was more focused on economics than this one, in which one interesting paper was presented by the famed Iran anthropologist, Bill Beeman.  There was mention of the next one being a year from now at the University of Chicago.  I notice a  rising level of interest in economic research on Iran, a sign that more data is becoming available, more people are writing on Iran (mostly young economists), and more people are interested in learning about Iran’s economy, the latter perhaps caused by the rising threat of new sanctions against Iran.  Let us hope that the flow of data and conferences will continue in the future but the sanctions won’t.

Signs of the economy slowing–anyone in charge?

The recently published unemployment data for spring 2009 (1388) indicate that economic slowdown continued in the second quarter of 2009.  Without the national accounts data for 1387, due any day, it is difficult to be certain about the severity of the current economic slump, but unemployment and inflation data and  the continuing political crisis in Tehran are reasons to be concerned about the economy. 

Unemployment rising

The latest unemployment figures from the Statistical Center of Iran (SCI) show that in the winter 1387 quarter (2009-Q1) unemployment rose to 12.5%, from 11.9% in winter 1386. This is not a large increase but it does undermine the claim made by Mr. Ahmadinejad during the election debates that unemployment is on its way down. Unemployment is usually highest in winter, but last year the fall-to-winter increase was particularly fast: the unemployment rate rose by 3 percentage points in three months, from 9.5% to 12.5%.