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How can Ahmadinejad help Lebanon with financial woes plaguing Iran?

Posted by Zand-Bon on Oct 20th, 2010 and filed under Feature Articles, Photos. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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Thousands of Hezbollah sympathizers welcomed the Iranian president in Lebanon, but at home, even his supporters are questioning his economic policies.

By Zvi Bar’el


October 20, 2010

On his trip to the southern Lebanese town of Bint Jbail last week, Iranian President Mahmoud Ahmadinejad was greeted by thousands of Hezbollah sympathizers who held up his picture and waved Iranian flags. But back home, especially after it was reported that Tehran would give Lebanon a $450 million long-term loan, both rivals and supporters of the Iranian president were up in arms.

How is it possible, they wanted to know, that Iran is going to help Lebanon while people stand in line in the streets of Tehran to fill reserve containers with gasoline in anticipation of the expected cut in government fuel subsidies. Ahmadinejad’s plan to eliminate within five years some $100 billion in annual subsidies on fuel, electricity and some basic consumer goods has already been severely criticized within Iran. In Friday sermons in the mosques, preachers have referred fearfully to the inflation that is expected in the wake of the cuts.

A television image of a meeting between Iranian President Mahmoud Ahmadinejad and Hezbollah chief Hassan Nasrallah in Beirut October 14, 2010. Photo by: Channel 2

Even radical conservatives are heeding the public complaints.

“The government must not do anything that will cause displeasure to the public,” Ayatollah Ahmad Jannati said in a sermon in Tehran on Friday. “I have said many times that the prices of water and electricity are too high and I have suggested that they should not be raised. But if there is no choice but to raise them, this must be explained to the public and the people must be convinced.”

No liberal reformist, Jannati heads Iran’s powerful Guardian Council, whose purpose is to examine the constitutionality of the legislation passed by parliament. He is considered close to Ahmadinejad and, until now at least, has been a staunch supporter. And when the government executed two demonstrators in January, Jannati declared that the executions should continue until all opposition to the election results was quashed. But even hard-line clerics like Jannati are reluctant to push the people too hard, fearing that Ahmadinejad’s economic reform will affect the stability of the regime.

At present, the price of gasoline is approximately 10 cents per liter, but it is expected to rise fourfold. This is Iran’s way of circumventing the effects of economic sanctions and lessening its dependence on imported gasoline and consumer goods from abroad. In order to offset the expected rise in prices, the Iranian government intends, at least in the first year, to give back part of the savings to the public in the form of grants for installing energy-saving devices.

Although the price of gasoline has not yet risen, Iranians are already anticipating rations. According to figures released by the International Atomic Energy Agency, imports of gasoline dropped by some 15 percent in July and are expected to drop even further in the coming months.

At the same time, the government has decided to impose a 3 percent value added tax, leading the merchants in the bazaars to declare a strike that lasted several days, to demand that the government rescind it. Reports from Iran say there have been long lines at ATMs because residents want to use their rials to buy dollars and gold, since they fear the Iranian currency will drop even further, beyond the 13 percent it has already slid.

Unauthorized money changers are reportedly offering dollars at prices much higher than those at the banks to those who do not wish to stand in line. The result is that, despite the huge reserves of foreign currency the government has, the public still wants to have dollars in its pockets. The rial’s instability has already led to a rise in prices. Iranians have to register in advance for new consignments of consumer goods like refrigerators and air conditioners, which have disappeared from the stores. Although inflation is under control and stands at around 10 percent, some fear that if the economic anxiety continues, it will shoot up, as it has in the past.

As is his habit, Ahmadinejad has promised that the sanctions will not affect the country and has blamed Western propaganda for the public’s jitters. He has promised that the weak sectors of the population will receive state protection and said there is a plan to help the needy on an individual basis, but this program has not yet been made public and the opposition press is demanding details from the president.

Criticism has come not only from the ranks of his traditional political opponents. Even a conservative like Mohsen Rezai, the former commander of the Revolutionary Guards who ran for parliament in the last election, is calling on the government to re-examine the plan for reforms, since it was implemented before the new sanctions against Iran. Instead of helping weak sectors of the population directly, Rizai said, the government should be creating new places of employment. However, it is unlikely that his suggestion will be accepted.

Ahmadinejad’s program does have the support of the supreme religious leader, Ayatollah Ali Khamenei, but he too is aware of the political ramifications if the poor of Iran are not able to pay their water and electricity bills.

A survey by the U.S. Congressional Research Service notes that Ahmadinejad’s five-year plan anticipates an investment of some $200 billion in the development of its oil fields and the construction of oil refineries. Of this sum, Iran requires foreign investments amounting to some $125 billion, while the rest will come from its own capital. The sanctions against Iran make it unlikely that it will achieve these targets, and that, combined with Ahmadinejad’s economic policy, portends a difficult economic period for Iran that could lead also to political upheaval.

All of this will not have an effect, in the short term, on Iran’s investment in Lebanon – or in Latin America, where it is currently putting out feelers – nor will donations to groups like Hamas or Islamic Jihad be affected, since they come from special funds of the Revolutionary Guards. All the same, for all the support Ahmadinejad enjoyed during his Lebanese visit, he will have to take a close look at affairs at home if he wants to ensure that the Iranian population does not desert him.

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