10 January 2016By Amir Taheri
''You haven't been paying the teachers for months and now you have stopped
paying the salaries of the military as well''. This is how Islamic Majlis
member Bahram Biravand addressed President Hasan Rouhani the other day.
The subtext of the statement is that while you can send teachers to prison
when they protest about not receiving their salaries, it would be hard to do
the same with the military- the regime needs security forces for its
protection.
Biravand is not the only one to sound the alarm about the prospects of the
Iranian economy. Earlier this month, over 100 Majlis members signed a letter
to Rouhani warning about ''the deepest recession in Iran's recent history'' and
the threat of social unrest. Before the parliamentarians joined the chorus of
complaint, four cabinet ministers including the minister of economy had also
written to Rouhani to inform him about the rough patch ahead. The ministers
later claimed they didn't want their letter to be leaked. However, it was
obvious that at least one of them had done the leaking.
Bad news often comes in series, and this week we had the International
Monetary Fund's annual report on the Iranian economy. The IMF trashed
Rouhani's Panglossian claim that 2016 will see a 3.5 per cent economic growth
rate for Iran. Instead it forecasts either a negative rate of half per cent or
a positive one of the same, which would be statistically insignificant.
According to estimates by the Ministry of Labor, the Iranian job market is
losing an average of 1000 jobs a day. The IMF report confirms this by
forecasting a jump in unemployment rates from 11.9 this year to 12.5 in 2016.
Perhaps the only positive news that the IMF report contains concerns the price
of oil which is supposed to average at $52 per barrel. However, the current
price hovers around $35 with a prospect of further decline. Even then, much
depends on whether or not the embargo on Iranian oil exports will be relaxed.
This year Iranian exports averaged around 1.24 million barrels a day. In 2016
this might increase to 1.81 million, provided there is enough demand.
The IMF also warns against the threat of spiraling inflation , largely because
of the government's decision to do a bit of ''quantitative easing'' of its own,
which means printing money in the same way President Barack Obama has done in
the US. The problem is that the Islamic Republic is not the same as the United
States. The Americans can print government bonds at virtually no interest rate
and be sure that someone, usually the cash-rich Chinese, will buy them. The
Islamic Republic, however, has had to shelve plans for a government bond
destined for the international capital market because no major Western bank
agreed to underwrite even a part of it.
Iran's income from oil exports shows a drop of over $20 billion in 2015 from
the $55.4 forecast to $35.3 billion.
In theory, Iran's foreign currency reserves appear healthy at $142 billion
according to the IMF. The problem is that because of sanctions related to the
nuclear issue much of that income remains frozen in bank accounts that Tehran
cannot use. A good part of those reserves were built up under President
Mahmoud Ahmadinejad as a result of sanctions. Good old Mahmoud was a very rich
man; only he couldn't spend his own money.
Obama has tried to help Rouhani, whom he regards as a moderate capable of
curbing the powers of the ''Supreme Guide'', by allowing the release of around
$8 billion of Iranian frozen assets since the Geneva talks on the nuclear
issue in 2014.
However, even if all of Iran's frozen cash is released, and there is dispute
over how much is involved, the economy would continue to suffer from deep
structural defects that no amount of money could correct.
When the mullahs seized power in 1979 they went on a nationalization spree
inspired by their erstwhile Communist allies who regarded the Soviet Union as
the ideal model of human society. Within weeks, they nationalized almost
everything, destroying a capitalist and managerial elite formed over almost a
century.
The result was chaos. So, under an 8-point decree issued by Ayatollah
Khomeini, the chief mullah of the regime at the time, they tried to back-pedal
by allowing some former owners and managers to return in exchange for fat
bribes in the name of ''helping the Imam fund'' or other projects to ''help the
musatzafeen (the dispossessed)''. However, having fled to exile, many owners
and managers didn't return. That allowed the mullahs and their bazaar partners
to seize whatever they could. In 1988, the government estimated the number of
private businesses seized from their owners at over 75,000.
In the meantime, various religious foundations transformed themselves into
businesses, each securing a niche in the market. The overall picture became
more confusing when the military and security forces also joined the banquet,
setting up their own companies and securing monopolies over sectors of the
economy and foreign trade. For example, the largest construction conglomerate
in the country belongs to the Islamic Revolutionary Guard which was headed by
Rouhani for almost a decade. The Commander-in-Chief of the IRGC sits on the
board of directors of 23 companies.
At one of his more aggressive moments, Ahmadinejad even claimed that the IRGC
ran the black-market in Iran and paid no taxes on over 200 companies it
controlled. While no one knows what is going on in the so-called
''foundations'', including the biggest of them working in the area of Imam Reza
in Mash'had, large segments of Iranian foreign trade are controlled by
powerful mullahs. One has a monopoly on sugar imports, another on much of the
trade with China.
Ahmadinejad tried to democratize corruption by privatizing state-owned
businesses worth $30 billion at half the price. The result was a bonanza for
influential figures within the military security networks, leaving the
''average Islamic citizen'' only the crumbs
While there is no doubt that Rouhani has made many mistakes, for example
increasing the military budget by 21 per cent to garner political support, it
would be unfair to blame him for the mess that the Iranian economy is in. He
has inherited an un-reformable system, a peculiar cocktail of socialist and
anarchistic economics. The cash that Obama plans to release may save the
system for a while. In the long run, however, Iran cannot build a modern
economy with a system based on rentier mentality, corruption and kleptocracy.
Amir Taheri was born in Ahvaz, southwest Iran, and educated in Tehran, London
and Paris. He was Executive Editor-in-Chief of the daily Kayhan in Iran
(1972-79). In 1980-84, he was Middle East Editor for the Sunday Times. In
1984-92, he served as member of the Executive Board of the International Press
Institute (IPI). Between 1980 and 2004, he was a contributor to the
International Herald Tribune. He has written for the Wall Street Journal, the
New York Post, the New York Times, the London Times, the French magazine
Politique Internationale, and the German weekly Focus. Between 1989 and 2005, he
was editorial writer for the German daily Die Welt. Taheri has published 11
books, some of which have been translated into 20 languages. He has been a
columnist for Asharq Alawsat since 1987. Taheri's latest book "The Persian
Night" is published by Encounter Books in London and New York.
©
EsinIslam.Com
Add Comments