As Iran continues to spar with the international community over its nuclear program, President Mahmoud Ahmadinejad has engineered passage of a budget that vastly expands state spending, seeking a quick fix for the country's persistent economic problems. Several political and economic experts contend that the massive spending increase will end up adding to Iran's domestic woes by fueling inflation.
The International Atomic Energy Agency is mulling whether to pass the Iranian nuclear issue over to the United Nations Security Council for debate a development that could possibly culminate in the imposition of sanctions against Tehran. [For background see the Eurasia Insight archive]. On March 8, Iranian officials vowed to retaliate against the United States if Washington pressed ahead with its effort to secure Security Council sanctions.
Ahmadinejad's budget, approved by parliament on March 3, is designed to give his administration increased room for political maneuver by using Iran's oil profits to buy a period of relative domestic harmony, some Tehran political observers say. Iranians have become increasingly disgruntled in recent years because of persistently high unemployment, couple by negligible economic growth. At $214 billion, the budget is roughly 25 percent larger than the 2005 fiscal year budget. Iran's fiscal year begins March 21.
The budget contains a huge increase for public works. Billions of dollars will be devoted to housing construction, for example. In addition, the budget provides funds for the completion of thousands of projects started during the previous administration of Mohammad Khatami, including industrial parks and dams. At the same time, the budget contains costs for health care and education, and actually reduces subsidies for imports of gasoline.
Ahmadinejad has also ensured that key supporters will be well taken care of. The budget lavishes funds on Iran's security agencies and the Guardians Council, an unelected religious oversight body dominated by conservative clerics. While it is not unusual for the government to reward its friends, experts say the Ahmadinejad budget is noteworthy because it flouts Iran's economic doctrine. Both the government's economic blueprint for the period from 2005-2010 and a 20-year strategic development plan call for vigorous efforts to reduce the size of government and to curb subsidies to state-owned entities. The Ahmadinejad budget will do just the opposite. For example, it envisions a whopping 31 percent spending increase on state enterprises over last year's fiscal plan. The state sector is estimated to account for about 75 percent of Iran's economy.
The economic blueprints also urged restraint in the government's use of foreign cash reserves that are generated by oil sales. But the 2006 budget calls on the government to use up to $40 billion of its reserves to meet the fiscal year's spending needs. Meanwhile, economic observers worry that the Central Bank might resort to the reckless practice of printing money in order to cover any potential budgetary shortfalls. As it stands, several estimates say inflation in Iran could climb to 30 percent in 2006. The inflation rate is currently estimated at 13.5 percent.
The threat of inflation does not seem to concern top members of Ahmadinejad's administration, however. Farhad Rahbar, one of the country's vice-presidents as well as the head of the Planning and Management Organization said; "Inflation is not our worry; we are mainly concerned with addressing the problems of unemployment and growth."
Beyond the inflation risk, the spending increase leaves Iran vulnerable to other forms of economic upheaval. Any downward movement in the price of oil, for instance, would cause havoc, as would the imposition of UN sanctions.
The president's budget met initial resistance in parliament, but Ahmadinejad administration members either cajoled or bullied most opponents into submission. One tactic used by the administration was a threat to expose opponents' allegedly corrupt practices. Three days before the parliamentary vote on the budget, a commentary was published in the pro-government newspaper Kayhan contained a not-so-subtle warning to administration rivals: "In the last two decades, members of an organized clique within the state have penetrated the Oil Ministry, Ministry of Foreign Affairs [and] banks. ... They make use of their well-oiled network to spread their tentacles and fight against all positive changes."
Editor's note:
Kamal Nazer Yasin is a pseudonym for a freelance journalist specializing in Iranian affairs.
