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Iranian Government Spending Fueling Inflation


Mahmoud Ahmadinejad ran in last years presidential election in Iran as a populist. His pledge to redistribute proceeds from Iran's oil revenues to poor citizens resounded with voters, and Ahmadinejad beat out better-known rivals to win the election. But, questions have arisen about the Ahmadinejad government's economic policies.

For 62 years, Abol Fazl has minded a small spice stall at Tehran's teeming central bazaar. Using an ancient Russian-made scale, he weighs out heaps of ruby-red dried pomegranate seeds and small packages of precious saffron.

Life has gotten better under President Ahmadinejad, he says. He has kept his promises.

But the promises that President Ahmadinejad is trying to keep are taking Iran down a controversial economic path, one that worries many experts and businessmen here.

Mohammad Atrianfar, editor of the reformist newspaper Shargh and an associate of former President Ali Akbar Hashemi Rafsanjani, says prices have risen from one year ago. He says the governments policies are a disaster that will only raise inflation more.

The cornerstone of President Ahmadinejad's populist economic policy is to directly redistribute Iran's oil wealth to the poor. Iran's economy is almost entirely dependent on oil, and oil prices have risen dramatically.

To carry out his pledges, he has been dipping into the Oil Stabilization Fund, which is supposed to be used for emergencies, to pay for his economic populism. Government spending has increased by 25 percent.

But inflation is running as high as 15 percent by some independent accounts, although the government claims it has brought it down to around 10 percent. Recently a group of prominent Iranian economists issued a public letter warning that the Ahmadinejad policies portend disaster for Iran.

A gold dealer in the bazaar, Ali Reza Jawaharian, wonders why taxes have gone up if Iran is taking in more oil revenue.

"The tax rate goes up year by year, and the government, in my opinion, can help people and reduce the tax rate because when the business does not work, why should the people pay these taxes," he said.

Many people seem not to hold President Ahmadinejad personally responsible for the inflation and high prices, seeking to blame bureaucrats or previous administrations. A clothing seller in the bazaar, Mahmood Abdulahi, says the president should shoulder only 40 percent of the responsibility.

People are also worried about the possibility of economic sanctions against Iran over the nuclear issue. Gold dealers in the bazaar say they have many customers who are converting assets into gold as a hedge against further economic upheaval.

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