Iranian president announces start to subsidy cuts

TEHRAN, Iran — Iran's president on Saturday announced the start of a plan to slash energy and food subsidies, part of government efforts to boost the country's ailing economy.

In an interview with state television, Mahmoud Ahmadinejad said the deep cuts to the subsidies "will start beginning Sunday," and vowed to fully cut all subsidies by the end of his term in 2013.

The cuts come as Iran remains deadlocked with the U.S. and its allies over Tehran's disputed nuclear program. The U.N. Security Council slapped a fourth round of sanctions on Iran last summer over its refusal to halt uranium enrichment, and there are signs those penalties are taking a toll on the nation's economy.

Still, Iran had planned to slash subsidies before the latest sanctions took effect, and Ahmadinejad and his allies have long insisted the country's oil-based economy could no longer afford the largesse. Tehran says it is paying some $100 billion in subsidies annually, although experts believe the amount is about $30 billion.

After the president announced the cuts, long lines of cars were seen at several gas stations in Tehran as Iranians rushed to fill their tanks at subsidized prices before the new ones took effect at midnight.

Under the new rationing system, each person with a fuel card has to pay 4,000 rials (40 cents) per liter of gas, up from 10 cents per liter. Fuel beyond a person's quota is now sold at 70 cents per liter, up from 40 cents.

When the government first imposed the rationing system in 2007, riots broke out in Tehran and angry protesters set dozens of gas stations on fire. On Saturday, thousands of police in riot gear were stationed at gas stations to protect them from possible rioters, while police were also seen patrolling streets and guarding banks. There were no reports of violence.

Ahmadinejad also said his government was paying $4 billion in bread subsidies. That, too, is now being gradually phased out.

Economists say the unpopular plan to slash subsidies could stoke inflation unofficially estimated to be over 20 percent. The cuts also are widely seen as placing added burdens on Iranians, whose country is already weighed down by sanctions.

The government says cutting subsidies, known as the Subsidy Smart Plan, will return part of the money obtained from increased prices to the people through cash payments. It has already paid nearly $15 billion into bank accounts of some 20 million families in the country as compensation ahead of the cuts.