Saturday, May 13, 2006

Iran's Economy Struggling, Sanctions or No

Ali Akbar Dareini, SeattlePI:
Iran increasingly finds itself in economic limbo as the international community debates how to respond to Tehran's refusal to stop enriching uranium. Although the U.N. Security Council remains deadlocked over enforcing its demand with the threat of sanctions, Iranian businessmen complain that already trade is sluggish, investment opportunities have been lost and foreign capital has been withdrawn. They blame the nuclear crisis.

"The market is stagnant. Buyers can't pay for the material they've purchased and their checks often bounce because of lack of funds," said Amir Jazayeri, an iron trader.

He said that since President Mahmoud Ahmadinejad came to power last August, his business has slowed from its levels during the reign of Iran's previous moderate leader, Mohammad Khatami.

"It was not brisk business during Khatami's era, but the market was not so bad. There has been a clear economic recession since tensions rose over Iran's nuclear activities beginning last summer. It has gotten worse in the past two months," Jazayeri said.

Iran has been under U.S. sanctions since the 1979 Islamic revolution and the seizure of hostages at the U.S. Embassy in Tehran, but it was able to expand trade with other countries, diversify its economy and become self-reliant in many industries.

Tehran also is benefiting from the surge in oil prices, seeing its oil revenues rise nearly 50 percent to $45 billion during the 12 months that ended March 20.

Still, the economy staggers under the weight of high unemployment, double digit inflation and interest rates of 25 percent to 30 percent on personal loans. Prices for key consumer needs - food in particular - have risen recently by as much as 20 percent.

"Prices of some basic products that we need have increased, like meat and milk. We've been promised an increase in our pension, but we haven't received anything yet," said Firoozeh Kadijani, a 60-year-old retired teacher.

Official statistics say unemployment is about 16 percent, but some analysts estimate it is above 30 percent. Many Iranians earn less than $3,000 a year, and outside studies say as many as 40 percent of the population lives in poverty. READ MORE

The European Union sought to settle the nuclear dispute by offering economic help if Iran gave up uranium enrichment and agreed to international controls to ensure it does not build atomic weapons, but Iranian leaders rejected the offer. They also say they don't fear U.N. sanctions.

"If sanctions are imposed, we are capable of managing the country according to our past experiences. We could run the country with no dollars in oil revenue as we did in the 1990s," Finance Minister Davood Danesh-Jafari said in March.

Others say Iran already is paying a stiff penalty. And, said economist Bahman Arman, "If the U.N. Security Council imposes sanctions on Iran, we should expect greater economic recession."

He said Iranian companies are cutting back on investment and other spending.

"All businessmen are just holding down, waiting to see what will happen next. Everybody is waiting to see what the U.N. Security Council will decide," he said.

Arman said not all of Iran's economic problems stem from worries about possible sanctions.

"Wrong economic policies on the part of the government have also contributed to economic recession," he said. "The government is backing small industries, not big industries. Ahmadinejad's economic policies have caused greater inflation, too."

Ahmadinejad came to office promising to increase wages for the working class, boost retiree pensions and distribute Iran's oil wealth, but he has not delivered.

"He has failed to fulfill his promise of social justice," Arman said.