The cutting of fuel subsidies by Rouhani's Government

[tajrish]

The subsidies are set to be removed by the end of midnight tonight (April 24th). It will be a true test for this Government and for the regime to see how people are going to react to the increased costs of nearly everything in the near future. In my opinion, this decision will be the beginning of the end for the IR.
Let's see how it will pan out.

http://news.yahoo.com/iranians-face-midnight-fuel-price-surge-subsidies-cut-171657304--business.html

By Michelle Moghtader



DUBAI (Reuters) - Iranians have rushed to gas stations to fill their cars before a price surge expected at midnight on Thursday, as President Hassan Rouhani pushes ahead with a policy to cut fuel subsidies.
The new prices of subsidized petrol, diesel and compressed natural gas (CNG) have not been announced, but the increases will test Rouhani's support among a population battered by soaring inflation that has been exacerbated by economic sanctions.
With memories of riots at the pumps when cheap fuel was rationed for the first time, in 2007, police are on the alert, but do not expect trouble, Interior Minister Abdolreza Rahmani Fazli said.
"We have been preparing for two months to implement these plans in provinces, cities and rural areas," state news agency IRNA quoted Rahmani Fazli as saying on Thursday
"Considering the planning, it is expected that the second phase of target subsidies will take place without any problems or displeasure from people."
Rouhani's predecessor, Mahmoud Ahmadinejad, last cut subsidies for fuel, food and utilities in December 2010.
There were no riots, but the impact on inflation - which shot up from a record low of 8.8 percent in August 2010 to around 40 percent by the end of his term, exacerbated by tightened Western sanctions - was a major cause of public resentment.
Rouhani, who secured a surprise election win last June, has taken Iran into substantive talks with world powers on Iran's nuclear program, hoping to get Europe and the United States to lift their sanctions.
He has also made fighting inflation a priority, but the subsidy cut is likely to reverse some of his progress on that front. Inflation currently stands at 35 percent.
"(In 2007) there was chaos everywhere all across Tehran," remembers a 34 year engineer speaking by telephone from the capital. "I guess people learned that they can still live with higher prices," he added.
"It's nice to pay very little for gasoline, but I am willing to pay the right price for the sake of having a better economy in long term."
EXPECT MORE
"Of course I don't want prices to go up, but the reality is that the prices have to become real," said a 30-year-old communication specialist in Tehran.
"But I expect more services from the government in return, such as health and transportation."
Rouhani's first attempt at implementing subsidy reform was a disaster.
In February, his government partially replaced cash subsidies with food handouts. Images of people waiting hours for a few bags of groceries tarnished Rouhani's image as a competent manager and left him vulnerable to attacks from hardliners.
The criticism was so widespread Rouhani issued a public apology on state TV.
Currently, motorists with the right to subsidized gasoline receive 60 liters a month at the price of 4,000 rials ($0.16) a liter, or $0.61 a gallon, using the central bank's official exchange rate.
Above that, motorists pay 7,000 rials ($0.28) a liter for gasoline, or $1.02 a gallon.
($1 = 24797.0000 Iranian Rials)

 

[ChaharMahal]

This price increase must have happened a long time ago.

2 years ago the Every dollar was traded for roughly 2200 tooman.

today it is 3000-3300 tooman.

It seems like they are keeping 60-70 Liter Ration. for the cheaper price.

In constant dollar terms even with this increase Gas will be cheaper than it was Two years ago.

 

[Bi-honar]

^^^ What exactly does "constant dollar terms" have to do with domestic gas prices in an oil exporting country?!!! Is the government paying the labor force in dollars or the oil in the ground says you have to pay me in dollars to extract me?

 

[Bi-honar]

This move is just the latest in the Economics is for Donkeys (i.e. Eghtesaade Akhundi) saga... You combat inflation by cutting subsidies and printing more money, raise employment by keeping the domestic currency over-valued, spend money producing enriched Uranium then spend even more money destroying it just so that you can earn a fraction of the money you were earning with no problems before! It never ends and the sheer stupidity of these policies are mind boggling, but Rohani motshakkerim!

 

[keyvan_pars]

بله مردم انقلاب کردن
چی فکر کردین
نفت مجانی برق مجانی همه چی مجانی
البته فقط برای آخوند ها و نمایندگان دین
بقیه باید جون خودشون رو بدن برای مبارزه با استکبار جهانی

 

[ChaharMahal]

^^^ What exactly does "constant dollar terms" have to do with domestic gas prices in an oil exporting country?!!! Is the government paying the labor force in dollars or the oil in the ground says you have to pay me in dollars to extract me?

in the ideal world the price should just float with the markets. but in absence of such a mechanism.

Well we have had two years of 40+% inflation.

So if the price of Gas does not increase inline with everything else it creates major imbalances.

plus cheap gas is is the kind of subsidy that government is subsidizing unproductive behavior of richer members of society.

if you are upper middle class in Iran you have two cars which combined nets you 120 Liters of Government Rated Gas.
which means you are getting 36,000 Toomans of subsidy that the poor member of society is not receiving.

 

[Bi-honar]

Well we have had two years of 40+% inflation.
So if the price of Gas does not increase inline with everything else it creates major imbalances.

plus cheap gas is is the kind of subsidy that government is subsidizing unproductive behavior of richer members of society.
if you are upper middle class in Iran you have two cars which combined nets you 120 Liters of Government Rated Gas.
which means you are getting 36,000 Toomans of subsidy that the poor member of society is not receiving.

You keep missing the point. Inflation doesn't set the price of gas, the price of gas sets inflation and this is particularly true in an oil producing oil exporting country like Iran. Cutting subsidies will increase inflation when it's already at 30%+. This is all economics 101 and beside the point that a modern non-Akhundist economy (i.e. one that is not run by monkeys) should not have been so dependent on subsidies in the 1st place. This is all a result of Eghtesaade Akhundi, as was Rohani's food hand-out program which turned out to be a disaster. It's just one stupid monkey/donkey move after another, but I guess if you, an educated Iranian living outside the country is struggling with these simple economic concepts and constantly try to justify them, we can't expect much better from the uninformed masses inside the country.

 

[Zed e' Engelab]

May I please say it louder !!!!

, but I guess if you, an educated Iranian living outside the country is struggling with these simple economic concepts and constantly try to justify them, we can't expect much better from the uninformed masses inside the country.

 

[ChaharMahal]

You keep missing the point. Inflation doesn't set the price of gas, the price of gas sets inflation and this is particularly true in an oil producing oil exporting country like Iran. Cutting subsidies will increase inflation when it's already at 30%+. This is all economics 101 and beside the point that a modern non-Akhundist economy (i.e. one that is not run by monkeys) should not have been so dependent on subsidies in the 1st place. This is all a result of Eghtesaade Akhundi, as was Rohani's food hand-out program which turned out to be a disaster. It's just one stupid monkey/donkey move after another, but I guess if you, an educated Iranian living outside the country is struggling with these simple economic concepts and constantly try to justify them, we can't expect much better from the uninformed masses inside the country.

There you go again putting yourself on the "I am educated" pedestal.

surely if you are well versed in Economic 101. Long Term, you would know that cutting any non-targeted subsidies (of any kind) is inevitable.

Of Course raising the Fuel prices by 40% will put inflationary pressure on the economy.

But it is certainly It is not a 1-1 to Correlation and raising fuel prices forces industry, people and government entities to be more efficient and change patterns of energy utility.

But what is the alternative? go back to Gasoline 5 tooman/Liter that was present in Iran 1990-1991 period?

Is a tough pill to swallow? sure it is. but you must take it at some point. Surely the solution is not to indefinitely delay it.

Currently every year Iran is subsiding Gasoline and Diesel consumption in Pakistan, Afghanistan, Turkey to the tune of billions of dollars. Simply because It is very worthwhile to smuggle Cheap Iranian Fuels across the border.

 

[Flint]

This price increase must have happened a long time ago.

2 years ago the Every dollar was traded for roughly 2200 tooman.

today it is 3000-3300 tooman.

It seems like they are keeping 60-70 Liter Ration. for the cheaper price.

In constant dollar terms even with this increase Gas will be cheaper than it was Two years ago.

Can people also get paid in your so called "constant dollar" terms? Why is it the they have to pay for gas in constant dollars but when it comes to their paycheck it is in constant Rial terms? Instead of raising the price of gas why not lower dollar exchange? I guess that is a little harder.

 

[Flint]

But what is the alternative? go back to Gasoline 5 tooman/Liter that was present in Iran 1990-1991 period?

The alternative is the 1000 toman dollar.Why don't you call for that instead of the no brainer.

 

[ChaharMahal]

The alternative is the 1000 toman dollar.Why don't you call for that instead of the no brainer.

That which you call no brainier is an economic catastrophe.

If It was up-to me Dollar would be 10,000 Toomans so It would agains worthwhile to produce something in Iran.

 

[Bache Tehroon]

This all stems from Rial's artificially high value. Toman should be at least 1/6000 of a US dollar for anything to make sense in Iran's economy. Otherwise, everything is a clusterfuck of unsolvable problems.

With Dollar at 6000 toman or more, many people in Iran will suffer to the point of going hungry, but that's exactly what needs to happen before anything gets fixed. And I'm not talking about a political revolution. I'm talking pure economics.

 

[feyenoord]

The subsidies are set to be removed by the end of midnight tonight (April 24th). It will be a true test for this Government and for the regime to see how people are going to react to the increased costs of nearly everything in the near future. In my opinion, this decision will be the beginning of the end for the IR.
Let's see how it will pan out.

Khoda az dahanet beshnave. But this is what we have heard over the past 35 years. I personally am 30 years old but I have heard with almost every decision for so long. I hope you are right this time. But this kind of pre-mature populist sentiments have been the killer of any productive action against IR. And the establishment of regime is just sitting there making laughing at us.

 

[Bache Tehroon]

A mere 300 toman increase in the price of gasoline cannot be and IS NOT the end of Islamic Republic! This is a simple 30% increase in the price of a consumer item that was only 1/200th of its current price not that long ago. Iran's economy will absorb this within a month if not less.

 

[Mr Thick]

Nothing will happen and the people will take it up the ass like a champ.

 

[Bi-honar]

There you go again putting yourself on the "I am educated" pedestal.

surely if you are well versed in Economic 101. Long Term, you would know that cutting any non-targeted subsidies (of any kind) is inevitable.

Of Course raising the Fuel prices by 40% will put inflationary pressure on the economy.

But it is certainly It is not a 1-1 to Correlation and raising fuel prices forces industry, people and government entities to be more efficient and change patterns of energy utility.

But what is the alternative? go back to Gasoline 5 tooman/Liter that was present in Iran 1990-1991 period?

Is a tough pill to swallow? sure it is. but you must take it at some point. Surely the solution is not to indefinitely delay it.

Currently every year Iran is subsiding Gasoline and Diesel consumption in Pakistan, Afghanistan, Turkey to the tune of billions of dollars. Simply because It is very worthwhile to smuggle Cheap Iranian Fuels across the border.

Really bro, I'm not talking German. For the number of times I have already said it, I don't know why you don't understand what I'm saying. Here's as simple as I can make it:

Subsidies are bad > Removing subsidies when inflation is 30-40% is even worse > Having removed them when inflation was 8% was not ideal, but it was better. We are now at the highest end of the inflationary curve in Iran in the past two decades, therefore this is the WORST TIME to remove them.

Similarly,

Artificially high Rials are bad because they discourage domestic production and exports > Keeping them artificially high while unemployment is high and export revenues are low is even worse. A floating currency is good > Letting it float at this point will also raise inflation as Soroosh already mentioned and that's also bad.

All this sums up to an economic death spiral created by Akhundist/Donkey Economics which outside those circles is called Stagflation - high inflation and a stagnant economy. That's economists' worst nightmare and nothing that can be fixed without a looming socio-economic disaster.

 

[keyvan_pars]

nothing is the beginning of the end of anything.

Don't be going fooling yourselves about IR. Nothing will happen and the country will become another item in the list of many others like whose elite own everything and the armed forces and the majority scratch a living.

 

[parham79]

Khoda az dahanet beshnave. But this is what we have heard over the past 35 years. I personally am 30 years old but I have heard with almost every decision for so long. I hope you are right this time. But this kind of pre-mature populist sentiments have been the killer of any productive action against IR. And the establishment of regime is just sitting there making laughing at us.

This is the sad truth. The status or the mentality by the people is look what happened in 2009 and the chances of bringing the system down without a strong leadership is zero. There is no leadership that wants to bring the system down inside and the outside so called opposition cant even agree on something as basic thing as meeting. That's the mentality in iran so unless we see a tottal economy collapse and the labour strikes, army revolt and a massive regime people joining the people it is highly unlikely.

 

[Flint]

This all stems from Rial's artificially high value. Toman should be at least 1/6000 of a US dollar for anything to make sense in Iran's economy. Otherwise, everything is a clusterfuck of unsolvable problems.

With Dollar at 6000 toman or more, many people in Iran will suffer to the point of going hungry, but that's exactly what needs to happen before anything gets fixed. And I'm not talking about a political revolution. I'm talking pure economics.

How does devaluing toman any more than it is now help anything? 5 years ago one $ was about 1000 toman. It is now triple that. What problem did it solve? If your theory were correct we'd have seen something by now. A cheap Rial can only help non-oil exports but those exports play a minor role in Iran's economy.