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by Kimia Sanati

The State of Iran 2006

(IPS) TEHRAN -- While President Mahmud Ahmadinejad is busy running a high voltage campaign against the United States and its policies, back home citizens are wondering if he will ever make good on an election promise to crack down on the corrupt and distribute Iran's vast oil revenues more equitably.

"My whole family voted for Ahmadinejad because he promised to improve our lives. He said he was going to fight corruption and create jobs. He said oil money belonged to the people. I haven't seen any of the oil money in my house yet, but I have to deal with the ever increasing prices anyway," says Ahmad (second name suppressed), a 67-year-old pensioner. "I'm running a family of three on Rls. 2,000,000 (less than $220) a month and the price of the cheapest cut of meat is six dollars per kg. Thank god I'm not paying rent or we wouldn't have anything to eat."

"Dissatisfaction with the administration of President Ahmadinejad is not yet widespread, but it is growing fast. The hard line government that outran reformists on a plank to check inflation, uplift living standards, create employment, and take the bite from the corrupt and the rich and give it to the impoverished, has not only failed to deliver those promises, but has clearly moved in the opposite direction in economic experts' view," a political analyst in Tehran told IPS.

"Iran is the 30th largest economy of the world. The per capita income in 2006 is estimated to rise to $3,465 or $700 more than the previous year. But according to Social Security Organization figures, 30 percent of the population is still living under relative poverty line. The top 20 percent of the population is holding 50 percent of the national income and 80 percent of the total wealth, so it's quite natural that economic improvement means a great deal to the president's most ardent supporters, the impoverished," the analyst said.

"Results of an opinion poll reported by Mehr News Agency in September show that, in May, 61 percent of those asked found his team successful in the nuclear issue, 44 percent in managing inflation and only 37 percent in fighting corruption," he added.

"The report doesn't mention percentages but says those asked consider unemployment and inflation the administration's most urgent problems. It seems Ahmadinejad has concentrated his efforts more in foreign policy rather than in the more challenging economic arena. His administration seems to have failed for the time being to deliver the economic promises abundantly made at election time and the results of wrong and hasty economic decisions, like forcing government and private banks to lower their interest rates, are now beginning to show in people's reluctance to make long term deposits in banks, for example," he told IPS.

Fourteen months ago when Ahmadinejad took office he talked of "taking oil revenues to people's dinner tables," charging that governments run by his predecessors had ignored poverty and the poor, something his team would remedy.

Economic indicators now show a huge decrease in the stock market value and private banks claim they are on the brink of bankruptcy resulting from lowered interest rates. The inflation rate is said to be just above 12 percent now, and is forecast to rise to 14ž15 percent economists say. There is a huge budget deficit, amounting to eight billion dollars. Even Iran's top judiciary has warned about capital drain. The highly subsidized, oil revenue-dependent Iranian economy is struggling with inflationary stagnation, they believe.

"It's still too early to make a good assessment of the government's economic performance, but some of the contradictions resulting from lack of a clear economic theory are already becoming evident. Single digit interest and inflation rates that Ahmadinejad promized to achieve quickly is one example. They can't be both achieved at the same time. Lower interest rates meant to bring growth to the national economy can in countries like Iran and the U.S. lead to higher inflation. In our case, the economic growth rate wasn't accelerated by lowering interest rates and when prices started to go up, the panicky government had to back down and resort to controlling and manipulating prices," Saeed Leylaz, economic analyst in Tehran, told IPS.

"Moreover, the government sector is growing fast and the private sector is losing ground. The government has been granting huge contracts by the order of the president and without holding tenders to military bodies. Islamic Revolutionary Guards Corps has over the past few months been granted eight billion dollars worth of government contracts alone," he said.

"On the other hand, the government's slogans and its domestic and foreign policies have scared away investment. The stock market has lost 50 percent of its total value compared to its peak time," Leylaz added.

The huge amount of subsidies paid by the government is widening the gap between the rich and the poor, economists warn. "The Iranian economy will be injected with around 50 billion dollars worth of subsidies this year. But it will do little to help the poor. Fuel subsidies comprise one-third of the total subsidies paid by the government and more than half the fuel subsidies, for example, will find their way into the pockets of the top 10 percent of the population who have and use cars, meaning that the top 10 percent are getting one-sixth of all subsidies. The populist government believes in paying subsidies to overcome poverty and deprivation but they should try instead to achieve economic growth and create jobs," Laylaz said.

The parliament closed the budget on oil revenues of 40 dollars per barrel (pb) for the current Iranian year (Mar. 21, 2006 to Mar. 20, 2007). The high oil prices, up to more than 50 dollars pb and even topping the 70 dollar mark for a while from around 8 dollars pb in 1998, has given the hard line government courage to spend, economists say. The extra money is supposed to go to the Oil Stabilization Fund, set up by the reformist government a few years ago.

Only to pay fuel subsidies in the first half of the current Iranian year, the government has drawn 2.5 billion dollars from the fund and is seeking the approval of Parliament for 3.5 billion dollars more for the next six months. "The government is expected to draw a total of at least 14 billion dollars till March and there is a danger the fund will run dry by then," a political observer who asked not to be named told IPS.

"The government drew five times more from the Oil Stabilization Fund than the same period last year in the first five months of this year (beginning Mar. 21), but you can't see any growth. Parliament is not politically strong enough to stop the government and will give it the go ahead. We are now five times more dependent on oil revenues than we were in 1998. The real results of what is being done now will become only too evident in 2008. The government will have enough forex resources to mask its mismanagement," Laylaz said.

"Oil revenues are used to import things to control inflation. Imports are expected to amount to 60 billion dollars this year. Apart from items like meat and fruits, lowered tariffs are being applied to import of construction material like cement and steel, too, to bring down the soaring real estate prices and rent. But even so, the government has yet not been able to lower inflation. Even hard line members of parliament and the hard line ÔKeyhan' newspaper are now crying out against rising prices," the political observer said.

"Ahmad Tavakkoli and Mahmoud Khoshchehreh, both hard line MPs and former Ahmadinejad allies, have now turned into government critics. They, too, are accusing the government of following a populist approach. There may come a time when the Islamic Republic may not be able to cope with the highly increased expectations it originally created, the dismal outcome of which will be political upheaval," he added.

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Albion Monitor   October 3, 2006   (

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