The Buzz

Will Iran's New Parliament Be Better for Rouhani?

Iranian president Hassan Rouhani is hoping results from Iran’s second round of parliamentary elections on April 29 produce a better political landscape as he looks toward his re-election campaign a year from now.

He needs the good news. The more conservative outgoing parliament pointedly made his life more difficult in this month’s battles over the current budget. That was on top of managing the expectations of the slow-motion impact of sanctions relief from the JCPOA, as well as pressure from reformers who think he is not going far enough. Will the results, as Rouhani claims, enable his administration “to act on the promises it has made to the people?”

That remains to be seen. The elections appear to have given the Rouhani-aligned moderates and reformists a plurality in the new parliament, though they will likely be shy of an actual majority. This is still something of a victory for the president and his allies, such as former president Ali Akbar Hashemi Rafsanjani, considering how few actual reformist candidates were allowed to run in the first place. The results mean, though, that Rouhani will still be restrained as he attempts to get the Islamic Republic’s financial house in order.

First, there are the frustrations with JCPOA implementation. Rouhani and his administration certainly know that the challenge of convincing international banks and firms to conduct business in Iran is mostly of Iran’s own creation. The Iranian negotiators were aware that US sanctions on Iran for support for terrorism and human rights violations would remain. Some German banks report that even though Iranian banks are connected up to SWIFT; the US restrictions on dollar-clearing transactions still make it very difficult for Iran to move money through the system. Rouhani’s own team has also acknowledged the difficulties with bringing the Islamic Republic’s banking practices up to international anticorruption and transparency standards.

Another major burden parliament left Rouhani is unresolved subsidy reforms, essential for any of his economic restructuring. To be fair, this particular headache was bestowed by his predecessor. The Islamic Republic had indirectly subsidized the prices for fuel and many basic food stuffs for years, creating significant economic distortions. Populist-minded former President Mahmoud Ahmadinejad attempted to fix the problem in 2010 by switching the program to simply giving cash to every Iranian household, with the expectation those payments would be reduced over time. That was a time of high oil prices, however, and by Rouhani’s administration the subsidies were crippling the budget. On May 1, the Guardian Council rejected parliament’s budget, objecting to some aspects of subsidy allocation among other issues. Parliament is set to re-review the budget on May 8.

As anyone who deals with entitlement reform knows, reducing direct benefit payments is politically radioactive no matter the financial logic. The government’s first attempt—persuading upper-income households to voluntarily give up their payments—failed as badly as one would expect. A more modest proposal at reducing benefits in this year’s budget was met with a clever retaliatory move by parliament: eliminating the payments for the upper 30 percent of households (nearly twenty-four million individuals) or those making over $990 a month. Rouhani’s opponents could be seen simultaneously as being more fiscally responsible than the president while sticking it to his electoral base of wealthy and upper-middle-class families.

Vice President and key Rouhani economic advisor Mohammad Bagher Nobakht railed against the decision, noting that a monthly income of $990 does not suffice for many Iranians facing everyday demands, including “renting a house” or “educating children.”