How Rouhani’s ’Rational’ Approach Could Pave the Way for Return of Ahmadinejad

Recently released data by the Statistical Center of Iran reveal a significant rise in poverty and inequality during the first two years of Hassan Rouhani’s presidency. Could Rouhani’s ’rational’ approach lead to the return of Ahmadinejad and Co?

How has Iranians’ quality of life changed two and a half years into Hassan Rouhani’s presidency? What are the outcomes of ‘the return of rationality’ to political and economic policymaking in Rouhani’s cabinet, the Eleventh Administration?

To prove its ‘brilliant’ record, the government of Hassan Rouhani has persistently touted figures that show a sharp drop in inflation rate during the past two years. However, inflation rate is a partial index: it only shows at what rate the prices have increased, and not how citizens’ quality of life has improved. Hypothetically, if incomes grow as much as or more than the expenditures, the quality of life will improve, regardless of the rate of inflation. A high rate of inflation can hurt the economy, but low inflation does not necessarily mean an improvement in quality of life for the people.

Poverty Spread Everywhere Except Tehran

Statistics on income and expenditure of households are better economic indices to explain the quality of life for the Iranians. The recently released data by the state-run Statistical Center of Iran (SCI) can show if, and how, households’ income has increased in comparison to the rise of expenditures and inflation rate. (In a piece published two weeks ago in Al-Monitor, Iranian economist Djavad Salehi-Isfahani has analyzed the data.)

Figures on income and expenditure of households during the recent years reveal how poverty and class difference have aggravated during the first two years of Hassan Rouhani’s administration. Except for Tehran, per capita consumption in rural and urban areas has dropped by 13.8% and 5.4% respectively. In Tehran, this index has increased by 8.5%. In other words, save Tehran, the quality of life has significantly dropped across the country, and the decline in inflation rate has not helped to make citizens’ life better. That is, only the average Tehrani citizens have experienced improvement in quality of their lives. In rural areas, the decline in per capita consumption correlates with a significant rise in poverty rate . More than one million Iranians resident in rural areas have dropped below the poverty line during the last two years.

One point not to be missed in this set of data is the drop in poverty rate in rural and most urban areas during the last three years of Mahmoud Ahmadinejad’s presidency. Considering the recession which inflicted Iran’s economy during the second term of Ahmadinejad, the main cause of the decline in poverty rate was most probably the cash handouts that increased income and reduced poverty in poorer regions. In Rouhani’s administration however, double-digit inflation and government’s decision to not increase the amount of cash handouts, or cash subsidies, has gradually led to devaluation of the cash handout and re-triggered a rise in the level of poverty especially in rural areas. Data provided by SCI do not give a detailed picture on the variation of household income and expenditure in metropolitan areas like Tehran. Knowing the general trend across the country, one can safely guess that the internal trend in Tehran follows a similar pattern, that is, poorer parts of the city have seen their level of welfare worsen due to devaluation of the cash handouts. Residents of middle and wealthier parts of Tehran have been the only groups who have enjoyed the drop in inflation rate during the recent years.

Along with rise of poverty, class difference has also worsened in the first two years of Rouhani’s presidency. The Gini index, the most common tool to measure inequality, has been on the rise, demonstrating a rise in the level of inequality. The Gini index dropped from 41.5 to 37.4 during the last two years of Mahmoud Ahmadinejad’s presidency, mainly due to payment of cash handouts. However, the trend reversed during the first two years of Eleventh Administration, rebouncing to 38.8, which reveals a yawning gap in distribution of income in the society.

All this does not imply a defense of Mahmoud Ahmadinejad’s  economic conduct. There is no doubt that Iran was pushed to the brink of political and economic collapse during his presidency. However, economic policies influence different social groups in different ways. This ‘asymmetry’ will have strong political ramifications in the future and it’s what we need to talk about.

Return of rationality, in whose favor?

Why has the so-called return of ‘rationality’ to economic policies brought such discrepant outcomes for different social groups? Why did Ahmadinejad’s ‘irrational’ policy of delivering cash handouts cut poverty to half, despite its catastrophic planning and execution; but Hassan Rouhani’s rationality has doubled the rate of poverty in poorer parts of the country?

At the heart of the problem lies the matter of ‘priority’, and much less of rationality. Since the beginning of its tenure, the Eleventh Administration ran a full-force campaign to portray cash handouts as the root cause of all economic woes of the country, including inflation and budget deficit. Cash handouts were continuously called a liability. Although many Iranian economists believed that inflation mainly stemmed from the the foreign exchange ‘shock’ of 2013 [devaluation of Iran’s Rial to one third] and the Maskan-e Mehr mega project [construction of cheap housing for lower income families], but the entire blame was placed on the shoulders of cash handouts. The government has refused to increase the level of cash handouts, hoping that its liability would be mitigated by the gradual increase of inflation rate. Millions of the poorest households that enjoyed the cash handouts were viewed as collateral damage, and no efforts were made to compensate for the gradual devaluation of the cash handouts through smart handouts or non-cash handouts.

Did the Eleventh Administration have any other choice? The government’s revenues and expenditures are a function of its budget policies and priorities. The more the government’s tax and non-tax revenues, the more it can earmark for public spending items such as cash handouts. Hassan Rouhani’s government has been following a policy of economic austerity by devaluing cash handouts and adding fuel price, while at the same time it pressures the parliament to retain the massive subsidies allocated to privately-owned petrochemical companies. Cabinet ministers are interestingly concerned about the stock market index, so much so that four of them wrote an open letter to the president, calling for payment of governmental subsidies to prevent a fall in stock market values. The government’s hassle to finance auto loans and put an end to the public boycott against [low-quality] domestically-manufactured automobiles, or the multibillion-dollar contract to purchase Airbus planes for Homa, Iran’s flagship air carrier which is going to be privatized in short, show where the priorities of the government lie. The falling of the most vulnerable strata of the society under the poverty line is apparently not a primary concern of the administration. The government and its supporters among the economists and media, call the Eleventh Administration’s policies ‘a return to rationality’. In their belief, cash handouts, whose efficient execution has significantly alleviated poverty in countries such as Brazil, is a waste of public money. Subsidies for high-quality public education and public healthcare are also rejected for being irrational. Apparently, the only sectors where government investment appears to be rational are the stock market, automobile industry and petrochemical facilities.

What the government policymakers view as a rational approach is at best a defective policy, to use the mainstream economic discourse, and a declaration of war against the lower classes, if viewed through a prism of social justice. Cutting investment in human resources by not funding public education and health and turning towards stock exchange market and the petrochemical industry is a blow to the future of the country’s development and its future generations. Pushing millions of citizens, including children, below the poverty line cannot boost economic growth. It only brings up a generation deprived of high-quality nutrition, healthcare and education.

The government’s policies will not merely end in poverty and lack of economic development. Having succeeded in removing the international sanctions, government officials may think that their seat is unshakable. But in the upcoming years, when citizens whose only share of the nuclear deal and rational policies was poverty and misery return to change the stage, the government may find itself defenseless, just as Mohammad Khatami’s administration did ten years ago. Hassan Rouhani’s cabinet of “Prudence and Hope” rose to power on the wave of frustration with Mahmoud Ahmadinejad. In a few years, when hope gives place to disillusionment and frustration created by untamed poverty and injustice, no one should be surprised with the return of Ahmadinejad as ‘the patron of the poor’. The same poor people who the government views as collateral damage.

Ramin Moslemian

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