Rouhani Struggles with Economy and “Culture War”

As hardline critics wage a bitter conflict with the Rouhani administration over its stated desire to open up cultural space inside Iran, the Government is also facing serious economic obstacles.

Betraying his concern, the Supreme Leader reasserted a “resistance economy” last month, and during a speech marking Nowruz, he declared a “Year of Economy and Culture with National Determination and Jihadi Management”.

By linking the economic question to the cultural issue, Supreme Leader demonstrated his anxiety about the level of support he commands among ordinary Iranians in the face of continuing difficulties. And by tying the two issues together as he sides with Rouhani’s hardline critics on culture, the Supreme Leader attempted to shift the blame for Iran’s struggling economy onto the Government.

Writing for Reuters, Parisa Hafezi cites “Looming fuel price rises in Iran” as “the first major test of…Rouhani’s ability to retain public support in the face of attacks from his hardline rivals”.

Hafezi continues:

(Rouhani) has promised more social freedoms and repaired some of the economic damage of the sanctions; the rial currency has stabilized and sky-high inflation has started to come down.

But this could be threatened if Rouhani’s government mishandles planned cuts in the massive state subsidies which keep domestic prices of gasoline and other fuels far below global levels.

For a number of years, Tehran has subsidised domestic purchases of oil, enabling Iranians to buy fuel at remarkably cheap prices compared to international markets. In the latter years of the Ahmadinejad Government, however, the impact of US-led sanctions made it difficult for the Islamic Republic to afford the high cost required by these popular, but expensive, subsidies.

Rouhani’s cash-strapped government wants to slash the subsidies to free up money for investment in Iran’s dilapidated infrastructure, reduce government borrowing from banks so they can lend to the private sector, and encourage energy efficiency.

Ahmadinejad first cut fuel subsidies in 2010 but this sent inflation soaring, and parliament blocked the second stage of his reform in 2012, complaining that the first stage had tripled prices of electricity and cooking gas.

In the afterglow of his election, Rouhani commands much greater support in parliament, which in February he was able to persuade to back subsidy reform in principle.

But the response of the public, which has struggled through a recession triggered by the sanctions, may not be as calm, since the benefits of subsidy reform may take months or years to emerge while the pain will be felt immediately.

As Hafezi reports, for some Iranians the already-high cost of living is a perennial burden that may only get worse once these subsidies are cut.

“We are buying cooking oil and rice because as soon as they start to cut fuel subsidies, the prices will go higher,” said government employee Ali Alami in the holy Shi’ite city of Qom.

“I like Mr. Rouhani and I believe in him. But that is not the issue. I cannot practically and financially support my family with my 8.8 million rials (about $350) monthly,” said retired government employee Asghar Abdolhoseini in Isfahan.

If the economy does not improve soon — or worse, declines — Rouhani will struggle to maintain his popularity in the face of the inevitable hardline backlash.

It is likely that the full extent of subsidy reforms will be delayed until after a nuclear deal, but even success in the talks will not guarantee an easier political future for Rouhani. If there is no upswing when sanctions are eased, conservative critics will accuse Rouhani of giving away too much on the nuclear issue and failing on the economy.

And that in turn will mean the President’s surrender in the “culture war”. As he expends political capital defending the economy as well as the nuclear talks, there will be none left to knock back the hardline portrayal of “openness” as aid to “sedition”.

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