Iranians will face economic hardship when the government slashes food and fuel subsidies, a senior cleric has said, contradicting President Mahmoud Ahmadinejad's line that his policy will be painless.

The subsidy reform that Ahmadinejad has called 'the biggest economic plan in the past 50 years' aims to phase out the $100 billion the state pays every year to keep down the price of essential goods. It is due to be launched in the coming weeks.

Political analysts say the expected surge in household bills and prices for gasoline and food could reignite unrest which flared after Ahmadinejad's disputed re-election last year.

Poorer Iranians will receive direct payments to help them cope with price rises and Ahmadinejad has said the policy will reduce rather than increase poverty, asserting that 'people's lives will improve from the very beginning.'

But the cleric leading Friday prayers in Tehran -- a staunch ally of the president -- said people should prepare to tighten their belts in the Islamic Republic.

'We will have a semi-abstemious period ahead of us,' Ayatollah Ahmad Jannati told worshippers. 'The government should be careful to minimise the tensions and negative effects on poor people.'

Mistrust

On an evening television show, Ahmadinejad reiterated his optimism. 'There are no negative consequences with this plan and all is positive when two things happen,' he said.

As long as people receive the hardship payments and there is a spirit of cooperation, all will be fine, he said, adding: 'If an atmosphere of mistrust is created in this regard, then there will be problems.'

The subsidy phase-out -- already delayed for six months due to disagreements between Ahmadinejad and parliament -- was due to start in the second half of the Iranian year, which begins on Sept. 23. But the government has been vague on exactly when and where the cuts will be made.

A senior official said this week that gasoline subsidies would remain in place for at least another month, a delay that some analysts said could mean the government was getting cold feet.

Ahmadinejad said the exact timing of the subsidy cuts had not been announced in order to avoid hoarding and chaotic scenes at gas stations.

'If we announce beforehand when the plan is going to start, it might create problems for people,' he said during his interview on the Shabakeh Khabar (News Network) channel.

Authorities are stockpiling supplies of some items including food products and detergent in case of shortages, he said. 'The government has taken everything into consideration so when the plan starts, people will not be faced with problems.'

Iran is under international sanctions that were tightened over recent months as Washington led a campaign to press Tehran into reining in a nuclear energy programme seen by the West as a veiled effort to develop bombs. Iran says its nuclear ambitions are peaceful only.

Ahmadinejad has dismissed the sanctions as 'pathetic' and no more effective than a 'used handkerchief'. But a rival, former President Akbar Hashemi Rafsanjani, has warned the government not to play down the impact of what he said were the toughest sanctions Iran had ever faced. – Reuters