CONTENT PREVIEW
Country Risk

Iranian government’s recognition of economic grievances positive, but meaningful remedial action would increase risk to state stability

26 January 2018

Key Points

  • The Iranian government's actions come in the context of nationwide protests in late-December/early January, particularly involving peripheral and small cities and towns, over higher prices, state corruption and mismanagement of the economy, and likely fuelled by perceptions of state incompetence in response to recent natural disasters and environmental issues.
  • The bulk of the government’s actions are short-term oriented economic concessions, while the implementation of longer-term structural reforms, particularly in reducing the economic influence of the Islamic Revolution Guards Corps (IRGC), is problematic.
  • The actions reflect the government’s limited ability to address the underlying drivers of protests, indicating a high risk of recurrence for protests, while questionable IRGC compliance with reforms pose increased risk to state stability.

Event

A series of recent actions and announcements by Supreme Leader Ali Khamenei, President Hassan Rouhani and the parliament are intended to signal government responsiveness in addressing people’s economic and social grievances.Supreme Leader of Iran Ayatollah Ali Khamenei visits Kermanshah on 20 November 2017 following a 7.3 magnitude earthquake that occurred on 12 November. (Anadolu Agency, Getty Images)Supreme Leader of Iran Ayatollah Ali Khamenei visits Kermanshah on 20 November 2017 following a 7.3 magnitude earthquake that occurred on 12 November. (Anadolu Agency, Getty Images)

The protests have subsided, likely in response to a combination of government internet restrictions (used to mobilise protesters), lack of leadership, detention of 3,000–4,000 individuals, and high-level political commitment to addressing grievances.

Recent state actions and announcements include:

  • Moderating tone on subsidy cuts: welfare minister Ali Rabiei announced on 24 January that any cuts in cash-handout subsidies would be targeted to affect the better-off;
  • Additional fund disbursement: Khamenei issued a decree on 23 January, giving permission to the parliament to use USD4 billion from the National Development Fund (NDF) in the upcoming budget bill, including allocating USD2.5 billion for defence spending, USD150 million for fighting dust storms and pollution, and USD100 million for earthquake relief and reconstruction;
  • U-turn on fuel price raise: The parliamentary budget committee on 23 January rejected the government’s proposal to increase fuel prices in 2018–19;
  • Policy clarification on bankrupt credit institutions: Rouhani said on 22 January that the Central Bank had allocated USD3.3 billion for compensating nearly 98% of the two to three million depositors affected by bankrupt previously unregulated credit institutions;

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(350 of 1358 words)
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