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Changing Tehran: No Pain, No Gain

by HOSSEIN ASKARI in Washington, D.C.

13 Oct 2009 20:1219 Comments
moghimi20090412095153484.jpg[ comment ] Things rarely change in Washington. Frustrated by an adversary's policies, the reflex action of political moderates up and down Pennsylvania Avenue is for increased sanctions, and for conservatives, keeping the military option on the table. In the case of Iran, these cries are reaching a fever pitch. But the military option would be catastrophic and the track record of sanctions is nothing to crow about.

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

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19 Comments

Excellent idea. I would lose money but it would be worth it.

The title is correct. No pain, no gain. I hope the US is looking at this.

Behnoz / October 14, 2009 6:27 AM

What a LOUSY idea!

Yeah, let's make things harder on the Iranian-American diaspora and the people of Iran, so that Hossein Askari's radical political agenda might somehow be furthered.

What a bunch of nonsense. Come on, Tehran Bureau, can we have a little bit of political centrism here? Why give a platform to these anti-Iranian radicals?

Please, make an effort at balancing your political coverage, and spare us the raves from lunatics like Askari.

PS: If you'd like to give Askari a piece of your mind for suggesting that Iranian-Americans be subject to economic hardship in the name of his cause, send him an email.

Pirouz / October 14, 2009 6:29 AM

I think its time that us Iranians that have lived a good life give back. For once stop thinking about your pocket book and care about your country.

Care for NEDA and SHORAB.

Sean / October 14, 2009 6:55 AM

First of all Iranians are much to clever to be bullied into pulling their assets out of Iran where business is more profitable than arguably most other places in the world.

Then there is the question of how much money do expatriates have in Iran. Not enough to cripple the economy I would say.

And even if the economy collapses, Iran will be North Korea, with the regime surviving through its military arm and the people suffering.

You are either too stupid or a complete fool!

amir / October 14, 2009 2:11 PM

I am a Green and if this works to make this regime come down I am all for it.

No one knows what we are going through here.

Farnaz / October 14, 2009 6:22 PM

I am not that sure that further economical hardship on the populace would directly translate to an uprising. Perhaps we should be reminded the previous popular uprising in Iran was not based on any economical hardship. rather, it was after a period of affluence.

Secondly, from past experience we see this regime thrives on poverty of its people. By forcing the masses to be more concerned about feeding their families and making ends meet, their potency in facilitating a social uprising is effectively reduced. The regime's recent plans for removal of subsidies may point to this argument as well.

Taking advantage of this poverty, the regime also has thrived in recruiting mercenaries and oppressive elements from the poor and uneducated for repression of the people's movement.

Besides, this regime is quite adept in transferring any economical pressure onto the people completely!

I believe restricting the target of sanctions to the governmental personalities, their bank accounts in various countries (many exposes have been done on this), their int'l travel and such are more effective.

peyman / October 14, 2009 8:58 PM

I guess Iranians have to resort to personal attacks when they dont agree with something. How about getting mad a the people who are avoiding paying taxes and playing boths sides of the fence: having a green card and take advantage of all america has to offer and still not following the rules by investing in Iran.

You are a selfish sob Pirouz. You care about you and only you. Not about the Iranian people and democracy.

My family has investment in Iran and I would be hurt by this also but I think we should live with the pain if it makes Irans economy collapes and the mullahs would be further weakend.

Thanks Mr. Askari and dont listen to these fools that are only concerned about themselves and not Iran.

Azad / October 14, 2009 10:36 PM

Great idea Askari. I think the treasury should work on this.

I love how Iranians dont want to follow the rules. Ever.

Green Wave / October 14, 2009 10:39 PM

Its funny how people called Hossien Askari a pro IRI a few years ago when they posted comments on his writings about how the US and Iran should engage.

Now he has changed his thoughts since the horrible acts after the elections and now he is anti Iranian? What is the next label you will come up for him? You are out of line.

So which is it? I think it is comendable seeing someone with his knowledge come up with a solution to the crisis.

Also, for those of you disagree it means you are not willing to be honest and pay your taxes.

Banoo in Tehran / October 14, 2009 11:55 PM

GREAT IDEA! It is high time that expats learned that supporting the regime of liars, thieves and muderers does not pay.

The huge hike up in the Real Estate prices in Iran was at least partially due to expats investments. This has caused average Iranians unable to purchase even a modest apartment.

The regime's keeping the exchange rate artificially flat, in the face of 30% inflation, is in effect a BRIBE to these wealthy individuals.

To explain this more plainly, these expats have been benefiting and fueling the inflation and at the same time get a huge discount when they exchange their ill-gotten Rials into USD and transfer it abroad.

Something to be aware of is that almost all money transfers are done by private exchange agencies and not the banks. Curbing them would require tracing the transfers which are mostly done thru UAE and European banks and thru trading partners.

Nevertheless, requiring Iranian expats to declare their financial stake in I.R. would be enough to reverse the flow.

Maziar Irani / October 15, 2009 12:01 AM

Now this is one for the record books!! the idea is so stupid that it can be framed and paraded alongside the author as "the looney and his looney ideas"

The author is in the same bunch as the IRI dictators who will put people through anything just for politics and power.

Shame on you. Although I do not advise TB to censor anything but to publish such an anti Iranian article is a shame.

Anna / October 15, 2009 1:05 AM

Iranian-Americans' economic focus in Iran is mainly directed at real estate and fixed deposits, both intended to take advantage of high rial returns at fixed currency exchange rates.

The figure invested is not small, probably equal to the current foreign currency reserves of the country.

Rapid divestment will not only force depreciation of the rial and deprive the govt. banking system of cash reserves, but also cause a further slump in the real estate market and its associated industries.

This in turn will cause affluent Iranians living in the country to transfer more of their wealth abroad to protect its value.

Ironicall, the govt. and Iranian-Americans share a common interest in keeping the rial articially overpriced.

Iranian-Americans benefit by having their rial-denominated capital gains preserved by a favorable, stable exchange rate on the dollar, and the govt. fights off domestic inflation and rewards it faithful clients thru cheap foriegn imports from China, whose currency is also linked in value to the dollar.


Forced divestment would put an end to this shared interest.

Ali / October 15, 2009 2:27 AM

Brilliant idea. I am no economist but it makes sense that if prices are going down and the rial will be devalued that people are going to start selling. It has already started.

If the US govt says a peep about this the run will start I am sure of it. Iranians care about the $$$ first.

Salman / October 15, 2009 4:31 AM

Dear Readers,

I am a PHD student studying Economics in UK and this plan will work. If you understand anything about economics you will know that if implimented the run on the Rial will start.

Some advice: start pulling your money out of Iran while your Rial is worth something. Once this starts everyone will be trying to go out the same door.

Good luck.


Houshang Zamani / October 15, 2009 5:25 AM

I am appalled at your Iranian Americans that came to this country and use all of its benefits and not pay taxes and hide assets in Iran

Shame on you, either follow the rules or get out.

I am sorry to my Iranian friends that are law abiding but your countrymen that are not should be called out.

Hope for a free Iran soon. Americans are with you.

Robert / October 15, 2009 5:30 AM

The crux of the matter here is: would a weakened economy benefit or hurt the IRI regime?

Peyman says it will stregnthen the regime, which feeds on poverty to divert attention from politics. "When hunger comes in, politics goes out the window."

But he forgets that we are talking not about "business-as-usual" Iran, but an Iran in the throes of internal crisis. In the postelection radicalized climate, any destabilizing factor works to the benefit of the people.

So, capital flight in these conditions will help pull the rug out from under the mullah's feet. Then, Iranian-Americans can re-invest when conditions are stable again. In the meantime, to avoid taxes, they can invest in Europe or elsewhere outside the US.


Anonymous / October 15, 2009 10:33 AM

Very brave call. But we support what he is saying.

Sell, sell, sell

Mousavi Voter / October 16, 2009 4:31 AM

Thank you, Hossein, for this interesting analysis, which demonstrates some features which make it appear feasible.
Changing the regime in Iran seems to be the only means of avoiding dramatic escalation in the potential for nuclear attack by Iran, since Mahmoud "Landslide" Ahmadinejad has demonstrated such venomous and un-statesmanlike diatribes against Israel.
Sanctions will not work, since Russia and China consider the Middle East a "chess game" with Western entities, and use Iran (and other countries) to enhance their own influence and power.
Attack on Iran might buy time, but may solidify the hard-liners' control in Iran, making the situation even worse for all concerned, including the Iranian people.
My biggest concern is how this will increase the power and influence of the IRGC (Revolutionary Guard), since they control so much black market commerce, and would benefit from strangulation of the open market. Reduction of their influence is necessary to give power back to the Iranian people, but how that might be accomplished without regime change is not clear.
Don't let the hecklers bother you, by the way. Their bleating is evidence that you have struck a nerve.
I pray that the Iranian people get a representative government, again, and that Iran can re-join the community of nations in pursuit of mutual goals.

Roger / October 19, 2009 9:43 PM

Dear Hossein,

Dont worry about these hecklers they are also on other sites trying to start trouble.

Obviously you have stated something that would work and they are upset at that.

Keep up the great writing and the ideas of helping Iran.

One day there will be a free and secular Iran.

Thanks

Azita

Azita / October 22, 2009 4:48 AM