Iran Confronts an 'Economic Evolution'

A motorcyclist buys fuel in Tehran. To blunt the blow of gas prices quadrupling without the subsidies, the poor will get as much as $70 extra a month. (By Hasan Sarbakhshian -- Associated Press)

To show the benefits of the revolution, Ayatollah Ruhollah Khomeini promised oil money and free utilities to the "barefooted masses" who had toppled Shah Mohammad Reza Pahlavi. The Iran-Iraq war, international economic boycotts and internal corruption pushed the new government to do more for the poor, resulting in a system of state intervention to keep the prices of basic goods artificially low.

At the same time, wealthy merchants who had backed the revolutionaries because the shah had threatened to break up their monopolies formed lucrative alliances with some of the new leaders.

Ahmadinejad has succeeded in ousting several influential revolutionaries from Iran's small circle of decision-makers, but restructuring the economy would dismantle the system that provided the first generation of revolutionaries with power and money.

"The plan will hurt the bourgeois merchant sector, which has deep links with this group," said Ahmad Zeidabadi, a journalist with Shahrvand-e Emrooz, which published articles critical of the government until authorities closed the magazine in November.

Many merchants oppose Ahmadinejad's plan to broaden taxation.

"The government has the oil, is that not enough? When they want us to pay taxes, the officials should also be transparent on what they do with our money," said Mahmoud Askari, who owns a carpet shop at the Tehran bazaar.

In October, merchants of the country's biggest bazaars closed their stores to protest a 3 percent sales tax, a first step in the economic evolution plan, prompting the government to delay implementing the tax for a year.

"We showed them that we are serious about this. If they try again in a year, we will again close our shops," Askari said. "Life is hard enough without taxes."

But there are signs that Iran's wealthier consumers can withstand sudden shocks. In July 2007, the government instituted gasoline rationing, giving every car owner a monthly allotment of 30 gallons at 36 cents a gallon. Then officials set the price of unrationed gasoline at $1.44 a gallon. Rioters burned several gas stations, but the rationing system and the new prices stayed. Gasoline consumption is higher this year than in 2007.

To decide who is entitled to cash payments under the restructuring plan, the government has divided Iranian society into 10 levels, by income. People in the bottom seven groups will receive the direct payments, to a maximum of $70 a month each.

Those in the lower-middle class, the bulk of people in the capital, will receive less than that. Vatandoust and his wife filled out a form a few months ago so officials could determine the size of their monthly payments. Ahmadinejad has claimed that 65 million Iranians -- virtually the entire population of the country of about 70 million -- have filled in the forms, which he calls a "public referendum" on the plan. The voluntary questionnaires, however, did not give Iranians the option to vote in favor or against the plan.

Together, the Vatandousts bring home about $500 a month and expect to receive a monthly payment of $40 each. They say the cash will do little to offset what they fear will be stunning increases in their utility bills.

The Vatandousts' apartment, in a middle-class neighborhood in western Tehran, is crowded with furniture. "I apologize -- we were forced to move to a much smaller apartment when our landlord increased the rent by 50 percent last year," Vatandoust explained as he served fruit and tea. "We now live in a very tiny apartment, but the rent is the same as our old house before the increase."

Vatandoust opened a drawer and showed some of the family's utility bills. Their part of the monthly electricity bill was $5, while the government paid the rest, $35. "The same goes for water, gasoline and the telephone. If we have to pay all of those ourselves, our expenses will be seven times higher," he said.

Inflation is also on the mind of Iran's head of parliament, Ali Larijani, a leading opponent of Ahmadinejad. "The parliament will not pass any bill that will increase inflation," he told state television in late November. "And the economic evolution plan is bound to cause more inflation."

Ahmadinejad has urged lawmakers to stay with him. "I will remain and stand by the plan even if it means my government will fall," he said during a separate interview on state TV in October. "This reform will be a great economic victory."

Vatandoust may not wait. "If we get a visa, we will move directly to Germany," he said. "I have heard many promises the last three years, but our lives have only gotten more difficult."