Lobe Log

Iran’s Presidential Election Puts Populism to the Test

Economic issues are paramount on the minds of Iranian voters as they ponder the long list of candidates registered for president: who among them is likely to survive the vetting by the Guardian Council, and, of those, who offers the best plan to get Iran’s economy out of the rut it has been in for the last several years?

Since the last election in 2009, the economy has stopped growing, more people are unemployed, prices have skyrocketed, and the currency has lost more than half of its value. Not all of these are the fault of outgoing President Ahmadinejad — sanctions have tightened considerably since he started his second term in 2009. But for the last several months the economic debate in Iran has been dominated by both his conservative and reformist critics who charge that his populist policies have brought economic ruin.

Three large programs define this populist legacy of redistribution. The first was a large $40 billion lending program for small enterprises, known as the “quick-returns projects”, which started in 2006 and was already widely considered a colossal failure before the 2009 election. The 2011 census revealed zero net jobs added to the economy since the program’s inception. Meanwhile, the public banks that were forced to lend to these projects have been left with huge unpaid loans. This large expansion of credit that failed to bring much additional output spurred the inflationary spiral that would later define the Ahmadinejad presidency.

The low-cost housing scheme, known as Maskan Mehr, also turned out to be highly inflationary because it relied on public lending to low-income people, forcing the banks to increase their borrowing from the Central Bank by about $40 billion and adding even more to liquidity.

The third, and most controversial, is the subsidy reform program, which redistributed some $70 billion worth of energy subsidies — most of which benefited people in middle- and upper-income groups — more equitably by replacing them with cash transfers. It also proved inflationary because the amount of cash distributed exceeded the cost of the energy subsidies that had been removed by an estimated $15 billion per year. The last two programs are still ongoing and have come under sharp attack, from both reformists and conservatives.

There seems to be a widespread perception among Iranian voters that Mr. Ahmadinejad has failed to deliver on his promise, first made in the 2005 elections, to “bring the oil money to the dinner table.” But this does not mean that the public is ready to give up on redistribution. If there is a program that promises them what they are looking for – redistribution without inflation – they will support it. But such a program is not currently to be found among the plans of any of the declared candidates.

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