Armed with a key reform touted by economists but angrily opposed by many voters, Iraq's government is mired in controversy over its now-withdrawn plans to cancel the country's biggest social programme.

Ministers had decided last week to scrap the ration card programme, a food distribution system inaugurated by Saddam Hussein after Iraq was slapped with an embargo, a decision lauded by analysts who have long described it as inefficient and riven with corruption.

Faced with vociferous opposition from clerics, MPs and many of the country's citizens, however, the government backed down and now says it will now allow Iraqis to choose -- they can opt either for a monthly cash payment of 25,000 dinars, about $20, or the regular allocation of a handful of food items.

"This is ridiculous," said Kamal al-Basri, an economist with the Baghdad-based Iraqi Institute for Economic Reform (IIER). "This is a measure we have been waiting for since 2004."

"This is a very important economic reform and it should take place."

Basri complained of corruption and leakages in the ration card programme noting that the long process of getting food from government warehouses into the hands of citizens was "not straightforward."

"At every step, there are some leaks."

He added that it also "prevents the development of a private sector."

The programme was first implemented in 1991 with dozens of critical food items, serving as a way for Iraqis to survive as the country dealt with the international embargo.

It has since been scaled back, but Iraqis still receive flour, rice, sugar, cooking oil and baby milk at government-appointed shops.

Despite the reduction in the number of items, the programme still accounts for seven percent of the country's budget according to the United Nations, greater than both the health and education budgets.

It is this financial burden that troubles many who have advocated its reform.

A report by the International Monetary Fund in February 2010 described the system as "an inefficient generalised benefit that distorts private sector activity."

It called for high-earners to be barred from being able to claim the food, and said the number and the volume of goods should be reduced.

By comparison, a direct cash transfer into the hands of Iraqis would serve as "a way to empower people," according to one Western diplomat posted in Baghdad, who spoke on condition of anonymity.

But pointing to provincial elections next year and parliamentary polls due in 2014, the diplomat said it would be any major reform of Iraq's food distribution programme was unlikely in the coming years.

"No one will have the stomach to tackle this now, unless they want to make a big political issue out of it."

"It is toxic," the diplomat noted.

This despite some early evidence that indicates poor Iraqis would prefer a cash handout to an allocation of food that is often of low quality.

According to an IIER survey of 400 families in the poor Baghdad neighbourhoods of Sadr City and Hai al-Tareq, two-thirds of respondents said they would prefer to receive money rather than food.

Regardless, the diplomat noted, in a country where an estimated 23 percent of the population lives below the poverty line, according to figures compiled by the Planning Ministry, cancelling or even transforming a two-decade-old programme on which many voters depend has a "political cost".

For proof, one only needs to visit neighbourhoods like Camp Sara, a largely Christian area of east Baghdad, where many residents barely survive -- sidewalks are in disrepair, visitors can see young girls digging through garbage, and electrical wires dangle within arm's reach.

Since 1991, residents of Camp Sara have depended on the monthly allocation to at least provide them with the bare essentials, a list that though much less generous than in years past, still helps the poor eke out an existence.

So, if given a choice, Amira Ismail said she would cling to the ration card programme at all costs.

"My husband is a taxi driver," she said. "How will we make ends meet if the ration card is taken away? This would be a disaster."

"What will he do? Will he become a terrorist to make a living?"