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What to Do About Iran's Subsidy Reforms?

The current Iranian program lacks financial stability.
EDITORS' NOTE: Reuters and other foreign media are subject to Iranian restrictions on their ability to film or take pictures in Tehran. 

An Iranian taxi driver (R) pays for fuel at a petrol station in northwestern Tehran December 19, 2010. The price of gasoline will rise four-fold in Iran in the coming days, state television announced late on Saturday, as the most politically sensitive part of President Mahmoud Ahmadinejad's subsidy cuts plan takes effect.  REUTERS/Morteza Nikoubazl (IRAN - Tags: POLITICS

Last week, Iranian officials stated that the government faced a monthly deficit of 10,000 billion rial (about $400 million at the official exchange rate) to pay direct cash handouts to Iranian citizens. It is a known fact that the Ahmadinejad government filled similar gaps by illegally using funds from the Oil Stabilization Fund and the National Development Fund, however, the new government has decided to choose one of the two legal routes that are available within legal provisions, i.e., either increasing fuel prices or reducing the number of recipients of cash handouts.

Comments by key officials in government and the Majles indicate that the latter route has more supporters. First, no one is prepared to be responsible for an inflationary price hike in the current inflationary environment and, second, there are better arguments for the reduction of the number of recipients. 

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