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Iran's Growing Gray Market

by CORRESPONDENT in Tehran

30 Dec 2010 21:4713 Comments

Off-the-books economy grows in response to disappearing subsidies.

alcoholblackmarket.jpg[ dispatch ] A week and a half has passed since apprehensive Tehranis turned up their TVs and radios to hear President Mahmoud Ahmadinejad's directive for cutbacks in gas, water, and electricity subsidies. While the overall reaction has been relatively muted, creeping inflation and financial uncertainty give locals even more incentive to seek opportunities in Iran's burgeoning gray economy.

The exponential increase in bread, fuel, and utilities prices has left many Iranians searching for ways to supplement their wages, which the economic overhaul does not address. Wary of rocking the political boat after last year's repression, locals are instead adapting to the new economic reality by exploiting holes in the system.

"People are not happy, but after last year, when everybody joined in the anti-government demonstrations and got beaten like crazy, they just accept these policies as a fact of life," says Leila M., a medical school graduate from North Tehran. As a result of the cutbacks, her husband, a practicing physician, is inventing new charges for his clientele. "It's not that he wants to be a bad doctor, but he now has incentive to make extra appointments and give unnecessary injections," she says.

When wages stagnate and living costs are prone to doubling overnight, finding alternate sources of income becomes a necessity, especially for low- and middle-income families. Many of the hardest-hit were in the vastly overgrown public sector, setting the circumstances for surging graft. (Iran already scores 146th out of 178 countries on Transparency International's Corruption Perception Index.) Days after the cutbacks, North Tehran resident Amid K., an international banker, says he was drinking bootleg liquor at a party when a police officer showed up. "Instead of being arrested or paying a fine, we gave him $15. He stood guard at the door all night."

In what is already an unregulated and volatile market, interjections such as the latest subsidy cuts create a fertile environment for private profiteering. In one way or another, most local businesses already operate in an economic gray zone, with little guidance from financial authorities. Iran's underground economy accounts for about 28 percent of GDP, or $100 billion, according to state and Word Bank estimates. Despite international sanctions, the trade in illegal retail products, from bootleg Hollywood films to Johnny Walker whisky to Wrigley's chewing gum, is so widespread that it can no longer be considered part of a "black" market.

"Many things are illegal in Iran, but nobody respects the law," says Elhan M., a 28-year-old from the Tehran suburb of Karaj. Elhan holds a degree in statistics from Tehran University and speaks fluent English. If Iran had a normally functioning economy, her career prospects would be very favorable. Instead, she belongs to a legion of overqualified teachers who work at state rates of $3-4/hour. As a private tutor, however, she could make ten times more.

Aside from putting economic pressure on the already struggling average Iranian, the subsidy cutbacks have become part of the debate over the effect of the sanctions imposed on Iran by the international community. The West interprets the cutbacks as a sign that Iranian officials are finally buckling to outside pressure, while Iranian officials say just the opposite: The fact that the Islamic Republic can afford to implement such far-reaching reforms means the sanctions have been ineffective. Indeed, the trade embargoes appear largely useless -- a visit to the Heinz ketchup-lined racks of a Tehran supermarket provides ample evidence. But that does not mean that Iran's economic future lies firmly in the hands of its government.

Copyright © 2010 Tehran Bureau

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13 Comments

So you're publishing a story that includes a doctor that is unnecessarily injecting patients? How would you like it if a doctor here were doing that to you, and others knew but wouldn't identify the doctor committing this intentional malpractice?

Honestly, Tehran Bureau, how low will you go with this anti-Iran narrative?

Pirouz / December 30, 2010 11:22 PM

HEllo,

2.6% of Iran's GDP is NOT 100 billion$ as Iran's GDP is around 300 billion%. Did you mean 26% ?
Plz correct the article,

Thks
Navid

Navid / December 31, 2010 12:16 AM

Thanks, Navid. Fixed.

moderator / December 31, 2010 1:29 AM

These cutbacks, however necessary, just moved Iran further into the corruption pit. I mean a doctor who lives in north Tehran doesn't need to charge extra. He should do true honest thing and cut back on his own lifestyle, maybe even move somewhere else.

12th Imam / December 31, 2010 1:40 AM

How about interviewing South Tehran residents? Or people living in far-away rural areas? e.g. recently hit by earthquake Rigan?
Poor people who don't know 'fluent' English, do not have a university degree, don't have journalist friends, do not have access to the Web, and thus are never reflected in the media.

Arash / December 31, 2010 7:40 PM

There are quite a few things that caught my eye that seem political or emotional versus based on facts and real economics.

Firstly referring to increase of prices there is a claim that incomes are not supplemented by stating that, "which the economic overhaul does not address". I beg to differ, what is the 80$ per person? I would definitely call that a supplementation.

Secondly, you claim that 28% of Iran's economy being underground. Well if you are including products like Heinz or Wrigley they are not banned in Iran but by the US. So once it enters Iran, it is not illegal and you rightly pointed out are sold in any supermarket and not on the side of a road with a man quietly whispering gum, ketchup?. If you are considering products that are indeed illegal in Iran like alcohol or American movies than I would be surprised if 28% of Iran's economy is based on alcohol and movies. Iran would indeed be the permanent drunk country of the world?!?!

Amir Taheri / December 31, 2010 8:23 PM

Amir Taheri: I think the writer is including the large quantities of "smuggled" goods landed from
Dubai "unofficially" and distributed by shadowy networks. If so 28% might well be a low estimate.

pirooz / December 31, 2010 10:15 PM

Pirooz thanks for your comment. I can't even imagine that being correct. I would be interested in where the writer pulls out the number 28% from. If you take the Dubai goods, it would have to mean that there are imports of over 100 billion dollars from Dubai to Iran "unofficially". Being that all of the UAE in 2010 did around 147 billion dollars in exports to the world I find that impossible for Iran to be importing over 100 billion dollars in imports. Iran does import around 10-15 billion dollars of goods from the UAE though, not 100 Billion.

If we were indeed importing that much "unofficially" I promise you that the US who is the sender of most "unofficial" exports to Iran, would be the first to be knocking at Iran's door to open relations!

Amir Taheri / December 31, 2010 10:53 PM

Amir Taheri: You are right to question the accuracy of the figures but going by the estimates of the underground economy in Italy, a more advanced and monitored economy 15%-27%, the above doesn't seem that out of line, according to Bloomberg $350 billion (%17.5). There must be more scope for the grey economy in Iran than in Italy.

pirooz / January 1, 2011 8:34 AM

This is really disgusting and it has NOTHING TO DO WITH IRAN'S ECONOMY:

""People are not happy, but after last year, when everybody joined in the anti-government demonstrations and got beaten like crazy, they just accept these policies as a fact of life," says Leila M., a medical school graduate from North Tehran. As a result of the cutbacks, her husband, a practicing physician, is inventing new charges for his clientele. "It's not that he wants to be a bad doctor, but he now has incentive to make extra appointments and give unnecessary injections," she says. "

HE IS A DOCTOR, SO HE IS GIVING UNNECESSARY INJECTIONS. THEY LIVE IN NORTH TEHRAN, SO THEY HAVE ENOUGH MONEY TO PAY THE RENT THERE, SO ITS NOT LIKE HE IS GIVING EXTRA INJECTIONS TO FEED HIS FAMILY, BUT PROBABLY TO PAY FOR HIS BMW.

What a load of garbage. Seriously, this pisses me off so fucking much.

M.Ali / January 1, 2011 12:19 PM

12th Imam,

"These cutbacks, however necessary, just moved Iran further into the corruption pit. I mean a doctor who lives in north Tehran doesn't need to charge extra. He should do true honest thing and cut back on his own lifestyle, maybe even move somewhere else. "

This has nothing to do with the economic situation. It has to do with upper-class Iranian's feeling of entitlement. The doctor probably blames everything on others (the government, sanctions, etc) while giving extra unnecessary injections to his patients, all the while spending on a lavish lifestyle, drinking illegal whiskey, smoking illegal teryak, and complaining that the economic situation is bad.

I'm so sick of people like that.

M. Ali / January 1, 2011 12:21 PM

Great photo !!

Ehsan / January 3, 2011 8:34 AM

Re figures: The reporter used an Iranian government report for the percentage and calculated that against the 2009 GDP-PPP ($843,860 million), as reported by the World Bank.

moderator / January 9, 2011 1:45 AM