News : Economy
- Published: Saturday, 22 March 2014
Source:New York Times- By THOMAS ERDBRINK
TEHRAN — Suffering in an economy dragged down by years of mismanagement and the effects of international sanctions, Iran’s increasingly impoverished middle class voted in huge numbers last summer for President Hassan Rouhani, who promised to reignite growth by restoring ties with the rest of the world.
But more than six months after Mr. Rouhani took office, hopes of a quick economic recovery are fading among ordinary Iranians, business owners and investors, while economists say the government is running out of cash. Although Mr. Rouhani has managed to stabilize the national currency, halt inflation and forge a temporary nuclear deal that provides some relief from sanctions, delivering on his promises of economic growth has proved far more difficult. On taking office, he discovered that the government’s finances were in far worse condition than his predecessor, Mahmoud Ahmadinejad, had ever let on. Now, with a lack of petrodollars and declining tax revenues, Mr. Rouhani has little option but to take steps that in the short-run will only increase the pain for the voters who put him into office.
Although Mr. Rouhani has managed to stabilize the national currency, halt inflation and forge a temporary nuclear deal that provides some relief from sanctions, delivering on his promises of economic growth has proved far more difficult. On taking office, he discovered that the government’s finances were in far worse condition than his predecessor, Mahmoud Ahmadinejad, had ever let on. Now, with a lack of petrodollars and declining tax revenues, Mr. Rouhani has little option but to take steps that in the short-run will only increase the pain for the voters who put him into office.
With the start of the Iranian new year, on Friday, the government will begin phasing out subsidies on energy, the start of a process that will send the prices of gasoline and electricity, and other utilities, soaring by nearly 90 percent, economists say.
The shortage of funds is also forcing the government to wind down a system of $12 monthly payments to nearly 60 million Iranians, with only the poorest eligible to reapply.
In return, Mr. Rouhani’s government can promise only a reduction in the inflation rate to 25 percent next year, from 42 percent last year and 32 percent currently.
That was hardly the payoff that Farshid Farshi, a sketch artist, was expecting when he voted for Mr. Rouhani in June. Mr. Farshi and his wife, a hairdresser, gathered up the head scarves they were selling illegally in one of Tehran’s central squares, Haft-e-Tir, recently, having spied the police up the road.
Business was bad anyway, he complained, tying up his merchandise in a bundle on the back of their motorcycle. The couple’s only daughter was hoping for a piano for her birthday, Mr. Farshi said. “But for now I only work more and more and have less and less. This seems to be our fate.”
Most people fear that prices will shoot up when subsidies are cut in the new year. “Already nobody is coming to the beauty salon” where she used to work, Mr. Farshi’s wife said, adding that she had been unemployed for the past year. “They are blow-drying their hair at home because they can’t afford to pay for it any longer.”
Close to the Farshis sat a farmer from eastern Iran, selling Tupperware containers, and a nurse selling electronic cigarettes and hair glitter. “Normally, we wouldn’t sell things on the streets, but we all have to make extra money,” said Mr. Farshi, adding that he also earns some money making black-and-white sketches of international celebrities like Leonardo DiCaprio and Albert Einstein.
Iran’s stock market, which rode high on optimism injected by the new government and the temporary nuclear deal, has been in decline, losing 14 percent since its peak in December. The national currency, the rial, after months of stability, has dropped about 4 percent against the dollar in the last month, to just over 30,000 rials to the dollar on the black market.
For the first time since the elections, the government was forced to sell dollars on the open market this month to support the rial, insiders say. Government spokesmen, trying to play down the significance of the rial’s fall, say the decline in the currency’s value is the result of a seasonal rise in demand for foreign currency tied to the New Year holiday.
Others are saying the markets are losing faith in the government’s ability to get the economy going. “We are once again witnessing investors taking their money out of stocks and instead speculating on gold and foreign currency,” one stock market expert, Hamid Mirmouni, told the Fararu website recently. “The government continues to waste time and money, investors are losing hope.”
Adding to the turmoil are the subsidy cuts — a step that most economists say is inevitable and necessary. Earlier, when gas prices were raised and rations imposed in 2007, protesters set fire to more than a dozen gas stations. The last time fuel subsidies were cut, in 2010, gasoline prices nearly quadrupled in Tehran.
Even those close to the Rouhani administration are saying they are hoping for a “miracle” to avoid the political damage from the cuts. “We are facing a black spring in Iran,” said Saeed Laylaz, an economist who advises Mr. Rouhani. He said he feared the government, like the Ahmadinejad administration, would resort to printing money to paper over the budget deficit, threatening a rise in inflation. “I am worried we might witness turmoil,” he said.
Iran’s supreme leader, Ayatollah Ali Khamenei, echoed such worries in a speech Tuesday to dozens of the country’s most influential leaders, politicians, clerics and military commanders. He urged the government to pay attention to the poor, calling for social justice, meaning an equal distribution of wealth.
“The Islamic system does not accept economic growth without social justice,” Ayatollah Khamenei said. “Any progress in the country’s economy must improve the situation of the, in the true sense of the word, deprived sectors of the population.”
While Mr. Rouhani is counting on improved international relations and the trade that might come of it to lift the economy, Ayatollah Khamenei has designed a parallel economic plan based mainly on self-sufficiency. In what he calls a “resistance economy,” the country would mostly rely on itself, striving for near self-sufficiency in “strategic and primary items,” the supreme leader said this week.
Dismissing skeptics, the ayatollah said, “The resistance economy will lead to welfare and improving the condition of the life of all of the people, especially the poor.”
One Tehran-based analyst, who spoke on the condition of anonymity to discuss the economic problems openly, said that over the past decades many different governments had tried to fix the economy, but all had found it politically difficult, if not impossible.
“Many of our problems are systemic,” he said. “There is no real solution other than muddling on.”
Back at the Haft-e-Tir square in central Tehran, the street vendors complained that nobody was buying. “I work as a nurse,” said a 27-year-old woman who would give only her first name, Fatima. “I’d rather make my money in a hospital, but it’s not enough,” she said, looking left and right for plainclothes police officers.
Mr. Laylaz, the economist, said that all the promises made by Mr. Rouhani were realistic, but that “real action” was needed. “We should completely liberalize our economy; there is no other choice,” he argued. “We need to attract investors at any costs. Our option is probable death, or certain death.”
MARCH 20, 2014
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