Business | A Swift End for the Innocent: The Sanctions Hit Home
by ALI CHENAR
29 Feb 2012 22:34
[ dispatch ] While Iranians rejoice over A Separation's unprecedented victory at the Oscars and the Iranian media is preoccupied with Friday's parliamentary elections, the country's businesses are bracing for the worst. The economy, it appears, is contracting. After boycotting Iran's oil and banking industries, the United States and its allies imposed sanctions on the Central Bank of Iran (CBI) that threaten to severely disrupt Iranian business activities. Earlier this month, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, followed suit, announcing that it would move to bar sanctioned Iranian banks from using its financial communications and clearing systems. The announcement sent shockwaves through the Iranian business community.
Then, this past Friday, SWIFT revealed that its move would encompass the CBI, thus essentially denying the entire Iranian banking sector the ability to electronically transfer money abroad. The comprehensive SWIFT cutoff will make it virtually impossible for Iranian banks to shift money even between their own foreign branches outside of Iran. Iranian banks in Dubai, for instance, had already been facing such difficulty with financial transactions this past month that Iranian businesses have been abandoning the country, an Iranian who does business in the UAE told Tehran Bureau. Some businesses have reportedly relocated to Georgia, where the Georgians and Russians have established a free zone where money transfers are accepted in Russian rubles, he added.
The Wall Street Journal referred to SWIFT's decision to exclude Iranian banks as "a move that will sharply intensify the West's financial campaign against Tehran" and portrayed it as a step to limit the country's ability to use its oil revenues. However, the move will also hurt Iranian families of every socioeconomic class by limiting their ability to conduct financial transactions of a more personal nature. Amiri, for instance, has a son abroad who is pursuing a graduate degree. "I have not been able to wire him any money in a long time." He is frustrated by the new limitations: "At the beginning, I was able to use currency exchange offices that had accounts in Canada or even Australia." He was happy to have access to them, even though they charged high fees and did not abide by the official exchange rate. But even those outlets dried up after the Western sanctions were imposed on the CBI. Now Amiri has to trust friends of friends and his son's classmates who visit Tehran. "If I find [someone], I will send him some cash, in the neighborhood of 1,000 to 2,000 dollars," he says. The bitter truth is that as the Iranian rial plummets in value, Amiri's ability to support his son has already diminished greatly.
Amiri is not alone. Many Iranian families and small businesses have to find new ways to transfer money abroad. Many are reminded of the 1980s, when the country was subjected to punitive international sanctions while it fought a war with Iraq. The intrepid are coming up with alternatives, but they are risky. Hossein, who is in his late 20s, owns a business that imports electronics. He knows someone "who has a fast boat and would take any amount you want over night to the Emirates." The cash, of course, must be in dollars or euros.
What if the boat capsizes?
"Hmmm," he responds. "Then it is really bad luck."
There is little doubt in Tehran that the recent sanctions have had a transformative effect on a generation of enterprising individuals who, without previous criminal inclination, are now obliged to acquire money-laundering skills on a crash course. One can only wonder what this novice group will do with the skills they are being forced to develop and employ.While average Iranians are coping with their international financial issues with the help of this enterprising group of individuals, the ruling elite are turning to foreign banks. An executive in the banking industry believes SWIFT's decision to cut off Iran will hardly affect the wealthy and powerful. "They preempted this problem a long time ago. Their solution was simple: go to China." It is common knowledge in Tehran's business community that Iran has increasingly been depositing its oil revenues in Chinese banks. The executive adds, "China is Iran's major trade partner. It buys a great deal of oil from Iran and Iran buys a great deal of junk from China." Ironically, the Western sanctions on the Iranian economy have made it much easier for the Chinese government and businesses to influence Iran's economy and bilateral trade relations. The executive says bitterly, "In the fight over Iran's nuclear program, there is one big winner and that is China, not Iran or the U.S."
The new sanctions have also created new opportunities for corruption. Mohammad Reza, a business consultant who works in an affluent north Tehran neighborhood, explains, "Before, business owners and private manufacturers did not want government authorities to interfere with their business." In fact, they would bribe officials to leave them alone. The sanctions have changed all that. "Now they bribe the authorities for their patronage. Officials are offered shares in businesses, membership on boards of directors, and unofficial payments. In return, they are asked to facilitate money transfers and other means of bypassing sanctions." The state-controlled business sector is hardly immune from these developments. "The CEOs of public firms and government-owned businesses are asking the government to eliminate customary bureaucratic procedures. They are asking for more loans, for resources in hard currency." Their list of demands on the public trough is as long as their list of rationales for dipping into it. Iranian newspapers are full of stories about public and private firms that have been pledged "preferential resources" to "facilitate their work." However, the banking executive states, "Promising is one thing, making it happen is another." The Iranian government has never hesitated to promise resources it doesn't necessarily have.
There are other signs that Iran's economic situation is becoming increasingly troubled. Last Saturday, Shargh reported that the country's labor force shrank by 800,000 from fall 2010 to fall 2011, despite the government's claim that it created around one million jobs during that period. Many economists believe this decline is one of the strongest indicators that the economy is contracting. An Iranian economist quoted in the report said, "Even if this was caused by demographic changes within the labor force, it would be worrisome." Sanctioned internationally and challenged domestically, the Iranian economy is a growing source of concern to many Iranians, whose purchasing power declines along with the rial and whose livelihoods are on the line.
Ali Chenar is a pen name.
Copyright © 2012 Tehran Bureau