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Ahmadinejad's import mania

by HAMID FAROKHNIA in Tehran

20 Feb 2010 22:388 Comments
n00010642-r-b-000.jpgAhmadinejad's import mania drives farmers to bankruptcy; industrial workers arbitrarily denied wages.

Over the last few months, as the economic downturn has picked up momentum, a new demand is increasingly being voiced by protesting workers across Iran: payment of back wages (see the three reports below).

It seems that managers at some state and private enterprises have devised a brilliant new scheme to respond to their companies' financial woes, which in certain cases appear grossly overstated: pay the workforce intermittently or not at all.

While in most countries, recessions usually result in mass unemployment, in Iran the government policy has been to contain potential labor unrest by avoiding large-scale layoffs. (Of course, all that is going to change once the draconian Subsidies Rationalization Law goes into effect after the Iranian New Year in late March.)

The root cause of the present industrial malaise is neither the international financial crisis nor the world economic slump--after all, Iran's economy is largely immune from global economic vicissitudes. The most important factor is the import craze that has characterized the past five years.

Ahmadinejad's import boom is buoyed by two key, interrelated factors: an artificially high exchange rate and a drastic reduction of tariffs on imported goods. The result is a spate of bankruptcies across large swaths of the Iranian economy, a precipitous fall in exports, and economic hardship for millions of laborers.

The actual rate of exchange for the rial should be at least four times lower than the present official rate. This means, instead of the official 9,200-1 rate, the actual ratio should be around 36,800 rials per dollar. It is not hard to see why this is so. According to a study published by the now-banned newspaper Sarmayeh last July 13, the change in the official rate of inflation from 1989 to 2008 was around 30.75%, whereas the corresponding change in the exchange rate was just 7.93%. This means that imported goods are much cheaper today in Iran than they really should be.

In general, the import boom is aimed at keeping inflation at bay--presumably you target the cheapest goods in the world for your imports. Secondly, as precedents over the past 31 years have demonstrated, a high flow of imports helps bolster the dominant faction du jour both financially and politically. Under Ahmadinejad, the import craze has taken on truly insane proportions.

Today, even women's traditional attire like chador comes from abroad, all government agencies have been instructed to use imported food staples for employees' meals, and many Chinese goods are cheaper in Iran than anywhere in the world outside China itself. No wonder domestic producers can no longer effectively compete with the flood of foreign goods.

Ahmadinejad has taken special pride in his myopic policy as some sort of cure-all for the problem of inflation. "Too bad we can't import houses for the Iranian consumer or the housing shortage would have been solved," he once told a conference of construction firms gleefully.

Iran must be the only country in the world where import is promoted and export discouraged as a matter of state policy. Last September 15, seven weeks before it was banned, Sarmayeh reported on what this has meant for various sectors of the economy. Below is a short sampling, followed by three stories from Iran Labor Report on workers' reactions to nonpayment of wages.

· Iran used to be a net exporter of rice; now it is a net importer. In the first five months of the current Persian calendar year, rice imports came to 654 metric tons, or $542 million worth. That is a whopping 311% increase over the corresponding period the previous year.

· Iran's production of sugar cane has dropped from 1.2 tons in 2006 to 0.5 tons at present. This came after the tariffs on sugar imports were reduced to zero.

· In the last Persian calendar year (March 20, 2008 to March 21, 2009), tariffs on imported cotton were eliminated, pushing hundreds of thousands of farmers to the edge of or into bankruptcy.

· Iran consumes roughly 110,000 metric tons of tea each year. While Iranian tea is among the best in the world, in the last Persian calendar year, 33,000 tons were imported legally and about twice that much illegally. This means only 10,000 tons of tea consumed in the country, about 9%, came from domestic sources, driving masses of farmers in the tea-producing provinces of Gilan and Mazandran to penury and financial ruin.

· While Iranian fruits have long been renowned for their quality and flavor, we are now seeing a huge surge in imported fruits. In 2008, 839 tons of fresh and dried fruits were imported from abroad. These included citrus, banana, and apple. Still none of the much-touted price decreases were observed in this market.

***************

Labor Struggles:

1. About 400 Avangan workers in the industrial city of Arak staged a protest on February 3 in front of the provincial governor's office. They were protesting lack of wage payments for the previous six months. One of the workers told the conservative Mehr news agency that the state officials had made many promises that had gone unfulfilled. He complained that the denial of their rightful income was taking a heavy toll on the workers and their families.

According to the Human Rights Advocates News Agency (HRANA), there were reports from Arak of sporadic skirmishes between police special forces units that had massed in the vicinity and the protesting workers. The workers chanted "Mahdi come to our aid," "Down with the dictator," and "Shame on the state broadcasting."

Arak is the site of a massive industrial zone close to Tehran where many large industrial complexes have been targets of privatization by Ahmadinejad and his cronies. Many of these industrial centers, such as Avangan, Wagon Pars, Arak Aluminium, Arak Machine Tools, Hepco, and Azar Ab are on the brink of bankruptcy thanks to the ineptitude of the new managers and Ahmadi's import mania.

2. Avand Plastic workers in the provincial city of Qazvin have not been paid wages in the last four months. This has led to protest actions.

Eidali Karimi, chief of Qazvin Workers House, told the ILNA news agency that the management of Avand Plastic refused to pay the workers their due. This is at a time, according to Karimi, when the factory had a daily revenue of US$4,000 on the sale of 20,000 cans.

Despite a monthly revenue of US$120,000, management claimed that it lacked the requisite funds to pay the workers. There are a total of 35 workers at the plant -- 20 full-time and 15 part-time. A worker at the company with twenty years of experience earns no more than $400 per month.

Aside from not having been paid for months, workers at Avand Plastic faced the additional problem of their insurance cards not being renewed, while retiring workers have been denied their retirement benefits.

3. According to the group Etahadieh Kargaran Azad Iran, workers at the Safa Pipe factory in the south of Tehran prepared to strike on January 28 after not having been paid for two-and-a-half months. The strike was called off when the management of the company, which employs 1,300 workers, promised that payment would take place on January 30. As might have been expected, the promise was not honored.

The workers finally walked off their jobs on February 1, bringing the production line to a complete halt. The head of the company's financial department promised the workers that they would be paid by the evening of that same day. The workers then went back on the job. Again, however, the promised payment failed to materialize.

In the early morning hours of February 2, the strike resumed. The factory management met with the workers at noon and made a verbal promise of payment on February 3. For their part, the workers declared that they would walk out again if the wages were not paid. As of this writing, a partial payment has been made to the labor force, but it represents only a small portion of the arrears and further strike action looms on the horizon. At the same time that Safa Pipe's workers have not been paid their back wages, the company's management has been engaged in intense negotiations for the purchase of Tabriz Motogen and Iran Pump factories.

Hamid Farokhnia, who is using a pen name, covers labor for Tehran Bureau and is a staff writer at the Iran Labor Report.

Copyright © 2010 Tehran Bureau

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8 Comments

The Shah did the same in 1979; imported Chinese rice for pennies, and bankrupted millions of farmers/migrant workers...who flodded Tehran streets.

His Finance Minister (later Prime Minister Amuzegar) shut down Govt. spending [huge part of economy) and froze public works, and began mass layoffs.

Playing shell games with money leads to collapse.

Persian Proverb: "Coming events cast long shadows"

Shah / February 20, 2010 8:56 PM

Factual article, but the title is misleading. The cause is the super inflation coupled with fixed exchange rate.

"The actual rate of exchange for the rial should be at least four times lower than the present official rate. This means, instead of the official 9,200-1 rate, the actual ratio should be around 36,800 rials per dollar. It is not hard to see why this is so. According to a study published by the now-banned newspaper Sarmayeh last July 13, the change in the official rate of inflation from 1989 to 2008 was around 30.75%, whereas the corresponding change in the exchange rate was just 7.93%. This means that imported goods are much cheaper today in Iran than they really should be."

Maziar Irani / February 20, 2010 10:38 PM

A great article, although I was interested to know where the data has been made available? It would be quite fascinating to see the shifts...

Ashkan / February 21, 2010 1:35 AM


These developments are one more reason why it is a horrible idea for the U.S. government to encourage economic sanctions against Iran. It would have zero influence on Ahmadinejad's regime, the corrupt oligarchic elite that rules Iran, and those who are politically connected.

Economic sanctions would, however, create even more hardship for the Iranian people who are already in dire straits from the policies of Ahmadinejad and his regime. The Iranian people deserve the moral and political support of all nations as the people of Iran struggle to establish their political and economic rights.

Terrie Colleen Hampton / February 21, 2010 7:43 AM

well, there must be some follow ups of Ahmadi's "policy of searching for assistance".
Take a look at the announcements of any politician, after they visited Iran to strengthen economic ties.
All of them suddenly "woke up" in a mission to support the peaceful atomic program.
Seems the world is full of friends. But the world is rather full of salesmen....
Its time to calculate costs again, brother Ahmadi.

Lews / February 21, 2010 8:17 PM

Net exporter of rice?? That statement sound very suspicious. Iran used to only produce rice in the Caspian region, and only in recent years managed to produce some around Isfahan. But in the last 100 years the rice consumption had increased dramatically as middle class has grown. 100 years ago most families ate rice once a year on the new year ONLY.
So I'd really be interested to see a link to a document that shows Iran was ever an exporter of rice, and not importing at the same time. It's possible the they exported some of a certain variety, but a net exporter sounds very unlikely.

Roya / February 23, 2010 2:25 AM

As roya indicated, lots of data in your article is unsubstatiated. There is no doubt that the Irainin rial is very over-valued, but, the pace of economic growth both agricultural and industrial since 1990 particularly has been considerable, with Middle Eastern standards, and of course I give credit to the Iranian people not the regime, but sound political recomendations should be based on factual data, and economic analysis.

Mehrdad
Ph.D economist
thanks,

mehrdad / February 27, 2010 9:06 PM

The IRGC structure will make it very easy to confiscate these assets when the revolution comes.

A De-Privatization of the Bonyads/IRGC with discounted share distribution compensation to original founders, will produce a brain funnel of all exiles and repatriation of intelectual capital.

This revolution will be based on technology and private equity recapitalization....woe to the clerics with their hyper inflationary currency and abacuss.

The economically illterate mullahs will be penniless, if alive.

SHah / February 28, 2010 3:49 AM