Changing Tehran: No Pain, No Gain
by HOSSEIN ASKARI in Washington, D.C.
13 Oct 2009 20:12
So what could work? Well, additional financial sanctions by the Treasury could squeeze Iran -- cutting off all Iranian bank access to the international financial system -- but this would require the cooperation of the Europeans, and also of China, Russia, Dubai and Malaysia, countries that could front for Iran.
There is a targeted US initiative -- with no need to make concessions to China and Russia -- that could alter Iran's objectionable policies, improve its human rights and make its nuclear enrichment less dangerous. A little insight into Iran's economic conditions provides an answer.
Iran's foreign exchange reserves are being rapidly depleted because of lower oil prices and capital flight. Over the summer, because of political uncertainties and a sick economy, it was estimated at $250 million per day to Dubai alone. The last official figure for Iran's foreign currency reserves in July of 2008 placed it at a little over $80 billion. My estimate is that it now stands in the $40 to $50 billion range because of declining oil prices and rapid capital outflows. The regime is worried, and as recently as early August an Ahmadinejad loyalist was put in charge of foreign exchange transactions at the central bank to monitor the outflow of funds as the wealthy rush to get their money out of the country. More ominous for the regime, even cabdrivers say that they are changing rials into dollar bills!
Given these realities, by announcing the enforcement of a number of existing laws, the US Treasury could motivate Iranians, as well as expatriates residing in the US and worldwide, to liquidate their assets and to withdraw their money from Iran. These existing US laws include the payment of taxes by all US citizens and permanent residents (holders of green cards) on all foreign sources of income (including interest income and profits) and the prohibition of investments in Iran (requiring a license from the US Treasury's Office Of Foreign Asset Control).
The US Treasury could make an announcement, saying that it would appear that Iranian Americans and permanent residents (estimated to number more than two million) are honestly unaware of these US laws and the Treasury would give individuals an amnesty, say for six months, and from prosecution and from loss of permanent resident status, if holdings are declared, taxes paid and funds repatriated.
Why would this hurt the regime in Tehran? Many Iranian Americans and permanent residents in the US have quietly transferred money to Iran (giving dollars to individuals in the US and receiving rials in Iran, a practice that is facilitated through international trade with third countries). They have made such transfers to make lucrative bank deposits in Iran; with 3-year interest rates in the range of 15 to 24 percent and an essentially stable exchange rate (fluctuating in about a 20 percent band over the period); thus possibly earning on average about 15 percent more in annual interest, even when converted back into dollars, than on deposits in the US.
They have invested in real estate, which has been booming by more than 1,500 percent in Tehran in the last ten years. They have invested in business and have worked in Iran. Some have even fronted for the regime and received cash payments or real estate in Iran for their services. Some of these investments and transactions are illegal under US law and require a license from the US Treasury. These individuals should have paid taxes on all income and profits. Thousands of Iranian Americans and permanent residents find themselves in this predicament. The US announcement will cause a panic, not only in the US community but also in Iran, because Iranians would fear the consequences of a rush to sell and subsequent fund outflow on the value of assets in Iran and on the exchange rate of the rial. Iranian Americans, permanent Iranian residents in the US, Iranians residing in other countries and even Iranians in Iran would sell and try to take their money out before everything crashes.
The rush to take money out of Iran would put a squeeze on Iran's foreign exchange reserves as everyone tries to take their money out of Iran. The regime, already sensitive about supporting the value of the rial (for prestige, support of businessmen and the wealthy, and to keep a lid on inflation), would have no choice but to pre-empt this by instituting foreign exchange controls blocking the outflow of funds from Iran; the black market exchange rate would become multiples of the official rate; import costs for unsubsidized non-essentials would soar; and inflation would skyrocket.
More importantly, these rapid financial developments -- collapse of asset prices and currency controls -- would turn ordinary citizens, and especially those with vast assets, the wealthy, regime loyalists, and prominent bazaar merchants against the regime as their enormous wealth is decimated in terms of dollars. The ensuing inflation, already more than 25 percent, would fuel dissatisfaction among average citizens who are already struggling for survival.
Some may question the workability of the above on the grounds that the US government does not know who has transferred money to or invested in Iran. The US does not need this information to ignite panic among these individuals. Although there are rewards for information resulting in the successful recuperation of taxes, even the slightest chance of being exposed would be enough to push some investors into a panic mode. The Treasury could even play up one or two cases in the media to further ignite a panic. This is how panics do their work.
These are initiatives that the US Treasury can adopt in 24 hours. The US would need no backing from the UN or from any other country. At this stage, to get the backing of the Iranian people, these initiatives should be targeted towards improving the regime's human rights record, not the nuclear enrichment issue, which Iranians largely support. Iran's nuclear program could be better addressed with a weakened regime, or with a new regime in Tehran.
A number of human rights advocates and anti-regime activists have argued against new sanctions, or any form of pressure, that might increase the burden on ordinary Iranians. While their concerns are understandable, they should recall the experience of South Africa. Unfortunately, there's unlikely to be any gain without pain.
Yes, brave Iranians may suffer even more for a few months and Iranians living abroad may take a financial hit, but this would be a small price to pay if conditions truly improve in Iran. The illegitimate and oppressive regime will be forced to change its criminal human rights abuses or the regime collapses altogether, and in this latter case even the nuclear issue would become more manageable. Now that's an outcome worth pursuing.
This is not the time to snuggle up to the mullahs. It's the time to support the aspirations of Iranians who are risking their lives for a free and pluralistic society. It is through such a stand that President Obama can inject meaning and commitment into his Cairo speech, which was designed to bridge the divide with the Muslim masses, not with their dictators.
Copyright © 2009 Tehran Bureau