May 20, 2022
by Warren L. Nelson
After nine months in office, President Raisi has finally adopted an economic policy, but that swiftly prompted protests in cities all across the country because food prices skyrocketed immediately.
One city where protests have not been reported is Tehran, where the streets were also quiet 2-1/2 years ago when protests over the tripling of the gasoline price erupted in many parts of the country.
The new Raisi economic policy is to completely end the Rohani policy of providing subsidized currency—at the rate of 42,000 rials per dollar—for imports of key goods, mainly food and pharmaceuticals, and then to make larger monthly payments to everyone but the richest 10 percent.
The whole concept of subsidized currency—in use since 2018—has long been assailed by economists as a poor policy that contorted the economy and simply made matters worse, mainly benefitting members of the elite who could manipulate the program to their own benefit.
And the Rohani Administration even spent its last year progressively dropping products from its list of goods eligible for the subsidy, which fell from 25 products to just seven by the time Raisi took office last August. So, the direction of the policy adopted by Raisi was not new. But it was a shock when the public figured out that all the subsidies had been ended all at once (around May 1) and without any advance announcement.
The government said it would protect the public by making direct payments to poorer citizens. But it didn’t announce the new welfare payment system until after the prices of major food products had doubled, tripled and quadrupled, which was a major political gaff that no one in the government seemed to have seen coming—a result of extreme political ineptitude.
Esfandiyar Batmanghelidj, an economist writing for the Bourse & Bazaar foundation in London, said, “Failing to communicate directly and clearly with the Iranian public about this major reform is its own kind of contempt, even if the reform itself is not contemptuous.”
And then the bottom fell out of the rial yet again.
The first protesters took to the streets in Khuzestan province on Wednesday, May 11. The next day, the rial blew past 300,000 to the dollar, according to the Bonbast website. It has so far reached a peak of 307,500. That is not a record. The worst showing for the rial was 322,000 to the dollar in October 2020 during a brief burst of weakness when the rial remained above 300,000 for just eight days. This time, the spell lasted for just xxx days before the price dropped back below 300,000.
The government wasn’t just being challenged by rising protests and a falling rial, the Tehran city bus drivers’ union picked May 16 to go out on strike with no advance notice. The next day the regime sent police buses with Pasdar drivers out into the capital to carry passengers for free in an effort to break the strike. The bus drivers were not striking over surging prices but over the pay issues that have driven its anger for years.
The government was clearly rattled. As if it didn’t have enough trouble with the nuclear talks immobilized, it then arrested two French tourists and accused them of having come to Iran in order to foment disorder. The French woman arrested is an officer of the French teachers’ union and it turned out the Iranian police had tracked her to meetings with leaders of Iran’s teachers’ union, which has been protesting for years over pay issues, with increasing intensity in recent months.
The Iranian government infuriated France when it said the couple had been fomenting disorder. The Iranian government didn’t say what exactly the French woman was doing, but it appeared that the French teachers’ union would have more to learn from Iran’s very experienced teacher protesters than the other way around.
As for the stunning jump in prices of basic foods containing flour, First Vice President Mohammad Mokhbar went on state television May 6 to explain the causes. He said there were three: 1) drought in many regions producing wheat; 2) the war between Russia and Ukraine, which produce a quarter of the world’s internationally traded wheat; and 3) hoarding in many parts of the world. He did not mention the government’s removal of the wheat subsidy! He also did not mention US sanctions.
The government next announced May 12 that with the new economic policy the government’s fixed prices for four major foods were being raised overnight—milk was up 50 percent; chicken and eggs up 100 percent; and cooking oil up 400 percent. The prices of the three basic bread types—sangak, barbarie and lavash—were not touched by the government. But bakers reported raising the prices of other types of bread that are not state-controlled by as much as 10-fold.
Panicked housewives cleared out grocery stores all over the country. Videos showed that some angry shoppers set fire to shops.
The protests are being reported from many cities, but usually smaller ones. Many of the protests have been seen in towns rarely heard about, like Hafshejan, Baba Heydar, Sough and Jouneqan. The country’s big cities have been silent.
The protests are on nothing like the scale of previous outbursts, which have often hit more than a hundred cities. Kayhan London said the demonstrations had hit at least 40 cities, which it did not name. The New York-based Center for Human Rights in Iran (CHRI) said it had found protests in 22 cities, which it did name. Of that 22, five were in Chahar Mahal va Bakhtiari province, three in Lorestan province and two in Kohgiluyeh va Boyer Ahmad province—none of them exactly centers of political activity in Iran.
But there seems to be an odd story here. When student protests erupted in Tehran, the rest of the country largely sat them out, as happened in 1999. When the provinces erupted in anger, as happened in 2019, Tehran went about its business as usual. There is no evidence of any coordinated opposition to the regime.
The protests were sparked by the price hikes. But they swiftly turned into general opposition to the regime, as could be heard in the slogans being chanted in videos: “Death to Raisi” and “Death to Khamenehi.” Some were blatantly pro-monarchy: “God bless your soul, Reza Shah” and “King of Iran, return to Iran.” Others were more focused: “Let go of Syria, do something for us.”
In Washington, the State Department issued a three-sentence statement May 15: “Brave Iranian protesters are standing up for their rights. The Iranian people have a right to hold their government accountable. We support their rights to peaceful assembly and freedom of expression online and offline—without fear of violence and reprisal.” This continued the policy adopted in 2009 of supporting the right to protest without advocating the overthrow of the regime or endorsing any particular goal of the protesters. The US does not want to provide any evidence for the regime’s allegation that the Americans are working hard to topple the Islamic Republic.
Before Now Ruz, the Majlis approved the annual budget bill with language that authorized the president to halt the sale of subsidized rials, if he wished to do so—which he long ago said he wanted to do. Officials then hemmed and hawed about when sales would stop. And they never did announce the end of such sales. The public just realized it when they saw the jump in prices in the market.
In a television interview the evening of May 9 (the evening before the protests first erupted), President Raisi explained the government’s new economic program.
He said the government would end the monthly payment of 440,000 rials (about $1.50) to every person in the country, a payment started in 2010 by President Ahmadi-nejad, when 440,000 rials was worth about $44. Raisi said he was starting a new welfare system under which the poorest 60 percent of the populace would get 4 million rials ($14) a month, or less than a third of the value the monthly stipend when it began a dozen years ago. The next 30 percent of the populace will receive 3 million rials ($10) monthly. The wealthiest 10 percent are to receive nothing.
These are payments to individuals, so that a poor family of four would receive about $56 each month.
Djavad Salehi, an economist teaching at Virginia Tech, said his rough estimates indicated that the poorest four deciles of the Iranian population would come out ahead with the changes, the fifth decile would break even, and the richest five deciles would lose.
Raisi did not explain how the government would determine who was poor and deserved the highest payment and who was rich and deserved nothing. The original Ahmadi-nejad plan called for large payments to the poorest 10 percent of the population, with declining amounts payable to each richer decile and nothing paid to the richest 30 percent. But the government has never been able to figure out how to fit people into each decile so the same payment has been made to everyone.
The new program means the government must spend the equivalent of $10.5 billion a year. But some economists have said the old system of subsidized currency cost as much as $20 billion. No one has said where the other money saved from ending the currency subsidy system will go.
For the first three months, the cash handout will be deposited directly into each family’s checking account that was required to be set up to get the monthly payments since 2010. After that, the plan is to make the payments to credit cards that can only be used at bakeries for bread products, officials said.
That confused many. First, the main bread products consumed by the poor—lavash, barbarie and sangak–are sold at prices fixed by the government. So, there isn’t a problem there—at least if the government keeps the fixed prices. Second, the soaring prices impact goods other than those bakeries produce. In fact, the main complaints involve wheat-based pasta noodles, which for many of the poor have been substituted for the rice they can no longer afford.
Details of what is happening in the provinces have been sparse. The authorities have been shutting down the Internet in troubled areas so local residents cannot post video of protests in their cities. The videos are a good check on what is happening, because a videographer who pans a crowd shows whether a protest is being conducted by dozens, hundreds or thousands of people.
On some of the few videos that have been posted, gunfire can be heard in the background. Social media reports said five people were shot and killed in the first five days of the protests, suggesting that the government is not following past policy of restraining the police for several days in an effort to halt protests without shooting the people. The social media reports say the five killed were in four different cities in Khuzestan and Chahar Mahal va Bakhtiari provinces.
Protesters have been arrested in some cities, but there are no good numbers available.