 The Labyrinth of Iran's Economy Washington Prism - Tehran Two years have passed since Mahmoud Ahmadinejad was elected president of Iran. The recently released economic report card by the government states that since 2005 Iran’s dependency on oil as its main source of revenue has decreased by almost 13 percent. Mr. Ahmadinejad claims that inflation is down to 12.4 percent, which is a percentage point lower than the figure announced in 2005 when he took over the presidency. However, the nation’s Central Bank announced that the inflation rate is running at 13.4 percent and has predicted an additional 4 percent increase by March 2008. Both of these figures are far off from figures which range between 17-20 percent which is what most experts believe to be a more realistic assessment. Unemployment is also believed to be far more than what the Government claims, reaching (or surpassing) the 20% mark. Additionally Iranian economists have been openly voicing their concerns. On June 11the Iranian Students News Agency (ISNA) reported that 57 prominent Iranian economists had written an open letter warning President Mahmoud Ahmadinejad of the dire consequences of his economic policies which are fueling inflation and further hurting the lower income families. Recently, the Iranian president gave a heated speech at his hometown of Garmsaar in Northern Iran, where in support of his policies he deferred blame by attacking ”scrupulous characters” tied to the previous regimes of stealing the nation’s wealth. However, as it has been the case throughout his presidency, he did not identify who those people or institutions are and why his government could not stop the endemic corruption strangling the Iranian society. It is believed that his recent speech on this recurrent issue was to point an accusing finger at previous leaders, particularly former President Ali Akbar Hashemi-Rafsanjani, who has been criticized for manipulating Iran’s economy through his varied and vast interests and investing his family’s fortunes in foreign markets. Despite extraordinary economic difficulties, the deprived classes still believe in Ahmadinejad’s mantra as the champion of the poor and the nation’s best hope in fighting economic corruption, although recent events have thrown into question the depth of support by his constituents. In the past three months there has been a 70 percent increase in real-estate prices on top of an already sharp increase just prior to the Iranian New Year (March 2007). These sharp and un-regulated spikes in pricing which is expected to continue throughout the year have had a noticeable impact on the nation’s economy. The heavy flow of investment in real estate coupled with the absence of growth in other economic sectors has resulted in this drastic increase. In what has become a predictable reaction, Mr. Ahmadinejad’s government does not take responsibility for this astonishing spike in real-estate pricing which has also contributed to young couples’ inability to find affordable housing, but blames this “head-spinning” increase on the evil plan of the “real estate mafia.” Today, if an employee of Ahmadinejad’s government wants to buy one kilogram of oranges it would cost 900 tomans (97 cents), apples cost 800 tomans (86 cents), one kilogram of potatoes would be 500 tomans (53 cents), one kilogram of cucumbers would cost 350 tomans (37 cents), and a kilogram of red meat would be 7500 tomans ($8.08). The total cost would equal most of the employee’s monthly expense. And it is probably safe to assume that he would never be able to afford strawberries, which at the going rate costs 8500 tomans per kilogram ($9.16). Worst of all is the puzzling situation of gasoline. There has been much confusion among millions of car owners who are required to get a share card for subsidized gasoline. Additionally, taxi rates have increased and people still to do not know how the government will cope with Iran’s massive consumption of gasoline. (After a year long debate by the hard-line dominated Iranian Parliament or Majlis, and over the objections of Mr. Ahmadinejad the government with only a 3 hour notice announced that by midnight of June 27, 2007 there would be fuel rationing for private vehicles. The government said that the restrictions are expected to last for four months- with the possibility of a 2 month extension. The sudden and unexpected announcement caused 2 days of rioting all over the country with the heaviest of damages occurring in the capitol city of Tehran.) The harsh reality of Iran’s economic confusion is that fixing or even managing this unorganized and divided system will take more than populist plans and grand ambitions. This is an economy where major investments and revenues are controlled mostly by the central government. Neither the Osulgarayan (the right wing party currently dominating the Iranian Majlis) nor the Reformist parties have a full control of the nation’s economy. All economic power houses, such as the secretive charitable foundations have their own political agenda, and usually divide the wealth among themselves. The Islamic coalition, which is made up of the traditional investors known as the “Bazaar,” control foreign trade and are striving for control of every trade office across the nation. Oil and mining industries are dominant forces in the economy. The government of Mr. Ahmadinejad belongs to a right wing faction that is not in complete harmony with the larger Osulgarayan party. The government believes that this division is the reason for their inability to utilize resources effectively. Iran’s economic corruption has been going on for the past two decades. Successive Iranian governments have suffered from nepotism and favoritism at the expense of knowledgeable and well trained upper management, which in turn has led to accusations of incompetence and inefficiency by the regime as a whole (recently a 28 year old ally of president Ahmadinejad was appointed as the head of Iran’s leading car manufacturer, Pars Khodrow). Possible solutions to this problem would be for the government to transfer resources to the people and to strictly adhere to Article 44 of the Iranian Constitution which encourages privatization by stating that the economy is made up of three sectors: state, cooperatives and private. However, the article has not been strictly adhered to and as a result the majority of the economy is in the private hands of a few with connections to the regime. Some of the obstacles in implementing Article 44 and a move towards rapid privatization are an absence of an organization in charge of the implementation of the rules, shortage of legal basis and a lack of necessary resolve and experience in privatization. The other part of the economy is in the hands of the private charitable trusts, known as Bonyads, and the military establishment. The power of these groups is uncontestable as they have direct ties to high-level decision makers in the country. So far, the press and citizens have only a limited understanding of the extent of their power and influence they exert in Iran’s economy since these foundations only report to the regime’s Supreme Leader, Ayatollah Ali Khamenei.
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