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Iranian president announces start to subsidy cuts

| December 19, 2010 8:00 PM

TEHRAN, Iran (AP) - Iran's president on Saturday announced the start of a plan to slash energy and food subsidies, part of government efforts to boost the country's ailing economy.

In an interview with state television, Mahmoud Ahmadinejad said the deep cuts to the subsidies "will start beginning Sunday," and vowed to fully cut all subsidies by the end of his term in 2013.

The cuts come as Iran remains deadlocked with the U.S. and its allies over Tehran's disputed nuclear program. The U.N. Security Council slapped a fourth round of sanctions on Iran last summer over its refusal to halt uranium enrichment, and there are signs those penalties are taking a toll on the nation's economy.

Still, Iran had planned to slash subsidies before the latest sanctions took effect, and Ahmadinejad and his allies have long insisted the country's oil-based economy could no longer afford the largesse. Tehran says it is paying some $100 billion in subsidies annually, although experts believe the amount is about $30 billion.

After the president announced the cuts, long lines of cars were seen at several gas stations in Tehran as Iranians rushed to fill their tanks at subsidized prices before the new ones took effect at midnight.

Under the new rationing system, each person with a fuel card has to pay 4,000 rials (40 cents) per liter of gas, up from 10 cents per liter. Fuel beyond a person's quota is now sold at 70 cents per liter, up from 40 cents.

When the government first imposed the rationing system in 2007, riots broke out in Tehran and angry protesters set dozens of gas stations on fire. On Saturday, thousands of police in riot gear were stationed at gas stations to protect them from possible rioters, while police were also seen patrolling streets and guarding banks. There were no reports of violence.

Ahmadinejad also said his government was paying $4 billion in bread subsidies. That, too, is now being gradually phased out.

Economists say the unpopular plan to slash subsidies could stoke inflation unofficially estimated to be over 20 percent. The cuts also are widely seen as placing added burdens on Iranians, whose country is already weighed down by sanctions.

The government says cutting subsidies, known as the Subsidy Smart Plan, will return part of the money obtained from increased prices to the people through cash payments. It has already paid nearly $15 billion into bank accounts of some 20 million families in the country as compensation ahead of the cuts.

Every family member received a sum of 810,000 rials ($80) for two months, and Ahmadinejad suggested that they could withdraw the money as of Sunday. Still, he urged people not to rush to the banks to withdraw the funds.

"Should they get the money and go shopping, it will disrupt the market and people themselves will be harmed," he said.

Ahmadinejad, who rode to power in 2005 on the support of Iran's poor and working class, also vowed sweeping changes to the economic system by the end of his second term in 2013.

"By the end of the term, we want to see the Subsidy Smart Plan (fully) implemented, the housing problem resolved, unemployment tackled, and reform the taxation and customs and banking system," he said.

Turning to Iran's nuclear dispute with the West, Ahmadinejad offered a positive assessment of talks with six world powers in Geneva early this month over Tehran's nuclear program.

"I carefully studied the minutes of the talks. I saw positive points," he said. "The time has come to turn the policy of confrontation to one of cooperation."

Ahmadinejad has staunchly defended Iran's right to nuclear development, and his remarks Saturday could indicate that Tehran is willing to discuss international concerns over its nuclear program.

The U.S. and some of its allies accuse Iran of using its civilian nuclear program as a cover to develop nuclear weapons. Iran denies the charges, saying its nuclear program is merely geared toward generating electricity and producing medical isotopes for patients.

The U.S. wants Tehran to fully open all facilities to international inspection and to give up uranium enrichment, a key element that could give it a pathway to a bomb. Iran says it has a right to enrich uranium to produce nuclear fuel.

The talks in Geneva concluded with the parties agreeing to reconvene early next year in Istanbul.

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