IRAN'S FALTERING ECONOMY
By Dr. Michael Rubin
As Ahmadinejad increases subsidies and spending, inflation has become Iran's chief domestic issue. While the government acknowledges an inflation rate of 18 percent, parliamentarians and central bank officials say the real rate is closer to 25 or 30 percent.
Inflation has hit certain commodities hard. This past Winter, bread prices increased between 200 and 700 percent across northern Iran. To alleviate prices, the government shipped bread from Tehran to the northern provinces, sparking shortages and bread lines in Tehran. As a brutal winter dumped record snow across northern Iran, the Revolutionary Guards deployed to northern Iran to counter potential unrest amidst gasoline, kerosene, and electricity shortages.
Inflation continues. According to the National Bank, rice prices rose 90 percent this spring. The price of other basic foodstuffs has increased 30 percent. On May 19, 2008, the head of the Butcher's Guild complained that declining purchasing power was undercutting the public's ability to eat meat, once a staple of Iranian cooking.
Politicians are distancing themselves from their President. Parliamentarian Hossein-Ali Shahriari, an ideological ally of Ahmadinejad, quipped, "The economic team of the government is the main reason behind rising prices." Former President Ali Akbar Hashemi Rafsanjani quipped, "You can't improve the economy by raising beggars."
Ahmadinejad has remained stubborn in the face of accelerating inflation. He has ordered the Central Bank to lower interest rates to ten percent and clashed with the Director of the Bank after he refused. Sarmayeh, Iran's main financial daily, ridiculed Ahmadinejad's new Finance Minister after he denied any relationship between interest rates and inflation. As the Central Bank issues 100,000 rial notes for the first time, the government's only proposed solution is to knock zeros off Iran's currency. Ahmadinejad refuses to accept responsibility and instead, in a number of speeches in April and May, 2008, has blamed shadowy mafias and conspiring competitors.
Austerity measures have failed, due to lack of fiscal discipline. Upon questioning, Oil Minister Gholam-Hoseyn Nowzari acknowledged that the Iranian government spent $4 billion above budgetary limits to import gasoline, obviating the self-sufficiency sought by rationing.
Privatization schemes have also languished. While announcements of impending factory privatizations are many, sales are few. The reformist daily Aftab-e Yazd observed, "The misguided policies of the government hit us harder than the sanctions of the foreigners."
As tempers rise, however, Ahmadinejad calls on Iranians to have faith. During the Islamic Revolution, Ayatollah Khomeini famously quipped, "You can't have a revolution over the price of a watermelon." As the Islamic Revolution nears its 30 year anniversary, Ahmadinejad may test that proposition.
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Dr. Michael Rubin, a Ph.D. in History (Yale University) and a specialist in Middle Eastern politics, Islamic culture and Islamist ideology, is Editor of the Middle East Quarterly, a senior lecturer at the Naval Postgraduate School, and a resident scholar at the American Enterprise Institute for Public Policy Research. Dr Rubin is author of Into the Shadows: Radical Vigilantes in Khatami's Iran (Washington Institute for Near East Policy, 2001) and is co-author, with Dr. Patrick Clawson, of Eternal Iran: Continuity and Chaos (Palgrave Macmillan, 2005). Dr. Rubin served as political advisor to the Coalition Provisional Authority in Baghdad (2003-2004); staff advisor on Iran and Iraq in the Office of the U.S. Secretary of Defense (2002-2004); visiting lecturer in the Departments of History and International Relations at Hebrew University of Jerusalem (2001-2002); visiting lecturer at the Universities of Sulaymani, Salahuddin, and Duhok in Iraqi Kurdistan (2000-2001); Soref Fellow at the Washington Institute for Near East Policy (1999-2000); and visiting lecturer in the Department of History at Yale University (1999-2000). He has been a fellow at the Council on Foreign Relations, the Leonard Davis Institute at Hebrew University, and the Carnegie Council on Ethics and International Affairs.
The foregoing article by Dr. Rubin was originally published in the Euro-Atlantic Quarterly, July, 2008, and can be found on the Internet website maintained by the Middle East Forum, a foreign policy think tank which seeks to define and promote American interests in the Middle East, defining U.S. interests to include fighting radical Islam, working for Palestinian Arab acceptance of the State of Israel, improving the management of U.S. efforts to promote constitutional democracy in the Middle East, reducing America's energy dependence on the Middle East, more robustly asserting U.S. interests vis-à-vis Saudi Arabia, and countering the Iranian threat. (Article URL: http://www.meforum.org/article/1978)
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