Tehran must swap rhetoric for reality

08 August 2008
With deteriorating finances, Tehran will find it difficult to afford the additional wheat imports it needs.

President Mahmoud Ahmadinejad may have many failings as head of state, but his command of rhetoric is not one of them. Earlier this year, he described his plan to replace subsidies with cash payments to the poorest Iranians as “a great economic surgery”.

His turn of phrase was colourful and, following the latest economic news, actions to back it up are needed more than ever.

The government already has to contend with inflation of 21.5 per cent. Now, according to the UN, it will have to find the money for at least 2 million tonnes of imported wheat after the worst harvest in years.

With Iran’s government maintaining food subsidies until at least next spring, the bulk of the $660m import bill will be borne by the public finances. Iran can ill afford the expense.

Since becoming president in 2005, Ahmadinejad has presided over a swift deterioration in government finances. The budget was in surplus in 2004, but ratings agency Fitch Ratings estimates it will have a deficit of 3.2 per cent of gross domestic product in 2008, and 6.1 per cent in 2009.

In the run-up to the presidential election in the spring of 2009, Ahmadinejad needs to confront some of the economic taboos he previously helped to strengthen.

While he has said he will cut subsidies, there are pitifully few details of how and when he will do so. His plans to replace subsidies with direct aid to the most needy are undermined by the lack of information the government has on who those people might be.

His willingness to raise these issues is a positive sign, but there is little in his economic record to suggest he will succeed in solving Iran’s economic difficulties. Once again, his policies look to be more rhetoric than reality.

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