Iran's Growing Gray Market
by CORRESPONDENT in Tehran
30 Dec 2010 21:47
Off-the-books economy grows in response to disappearing subsidies.[ 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.
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