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Will the Economy Rock the Boat?

by CORRESPONDENT in Tehran

24 Apr 2011 21:12Comments

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[ dispatch ] The dejected state of Iran's economy is increasingly a topic of public discourse. Facing what a local financial analyst for HSBC Bank describes as "the bleakest prospects in nearly two decades," even the government appears anxious to paint its policies, described as disastrous by market watchers, in a positive light.

On Friday night, a national TV news feature ventured to a lush northern Iranian village to interview its rustic inhabitants about the recently implemented cuts in government subsidies. It concluded that the cuts actually helped the villagers, because instead of cheap fuel and utilities, they were now receiving cash (400,000 rials per month for each adult). The questions of how these targeted handouts would affect the already sky-high inflation rate, and consequently the economic well-being of the poor and middle-income strata, were studiously avoided.

Meanwhile, the government is continuing in its pursuit of populistic, short-term fixes -- most recently, with plans to hack three zeros from the rial in an effort to curb inflation. (Iran's official inflation rate is 12.2 percent, the highest in the region and third-highest in the world. Market experts, however, estimate that the actual rate is closer to 20 percent.) Longstanding structural flaws in Iran's economy, as well as the experience of countries like Zimbabwe, which in 2008 slashed ten zeros from its currency before it spiraled into insolvency, indicate that this cosmetic move will do little to stymie Iran's looming stagflation.

Even officials and members of Khaneh-e Karegar (House of Workers), the only officially designated labor union in Iran, seemed concerned. Several factories have shut down, some because of increasing costs, others because of cheap and massive imports from China. Fluctuations in the gold and currency markets may be as a result of Iranian households rushing to transfer meager savings into something more stable.

While general dissatisfaction has been palpable for some months, it is still too early to gauge the overall sociopolitical impact of these economic realities. While the HSBC analyst predicts an energization of the Green Movement, as well as "massive strikes by disgruntled and unpaid workers," it remains unclear whether the repressed opposition structures will manage to translate the government's economic mismanagement into a rallying call for the masses.

As of this week, Green Movement activists in Tehran still placed more hope on potential rifts in Iran's ruling structures -- as exemplified by the unrealized resignation of Intelligence Minister Heydar Moslehi -- than on economics. Though May Day, a fitting occasion for labor demonstrations, is fast approaching, plans for Green protests don't appear to be in the works, at least for the time being.

Ali Chenar contributed reporting to this piece. Photos: Iranians complaining about sharp spikes in their gas bills.

Copyright © 2011 Tehran Bureau

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