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Business | To Survive: Hope Hits the Bottom Line


04 Apr 2012 17:27Comments
775903_orig.jpgAverage Iranians endure mounting economic pressures as prospect of 50% inflation looms.

[ dispatch ] When Iranians banks reopened on Monday, March 25, after closing for Nowruz, many people may have noticed an extra 28,000 tomans in their accounts. According to Behrouz Moradi, head of the Subsidy Policy Reform Organization, the money was deposited on March 18, one day before the Persian New Year's Eve, though the banking holidays had caused delays in the transfers to some accounts.

The funds were deposited by President Mahmoud Ahmadinejad's administration, apparently signaling the start of the second phase of economic liberalization measures labeled "optimizing subsidies." The move caught Iranians by surprise. The budget for 1391, the Iranian calendar that began two weeks ago, has still not been passed by the Majles, as Ahmadinejad did not submit it on time. On the other hand, the Majles did pass legislation just before the holidays postponing implementation of the liberalization program's second phase until summer. In response, Ahmadinejad declared, "Had they let us move to the second phase, we would have given every family 80,000 tomans so they could go on a trip for Nowruz."

A road trip, in fact, costs much more than 80,000 tomans -- roughly $65 at the official exchange rate, just $40 at the "street," or open-market, rate. In any event, the recipients are not even permitted to withdraw the 28,000 tomans for the time being.

The administration's political adversaries have reacted with indignation to the step, calling it "unlawful" and "unbelievable." Tehran representative Ali Motahari, an outspoken critic of Ahmadinejad's policies, told Mehr News Agency, "The government used the new year holidays to go on with its illegal activities." Ahmad Tavakoli, another deputy from Tehran who heads the Majles Research Center, told Mehr, "I am in shock and do not know what to say." Addressing reporters, deputy Elias Naderan stated, "This is illegal, and this government is used to [committing] illegal activities."

On Tuesday, at the Majles's first session of the new year, Speaker Ali Larijani criticized the government's decision as "thoughtless." He told the parliament, "This step will create waves of inflation." He added, "Such decisions do not help either production or employment." Hamid Reza Fouladgar, Isfahan's Majles representative, told the reporters that a joint session of several parliamentary commissions would review the administration's moves and formulate the legislature's strategy in dealing with the next phase of "optimizing subsidies."

Reflecting on the economic consequences of the volatility in Iran's currency market, the conservative website Baztab called the events of this past winter a "currency explosion." According to Baztab, only 36 percent of Iran's imports are designated "necessities" -- the materials and products essential for industrial manufacturing. The government will continue to effectively subsidize these items through its official exchange rate, currently 12,260 rials per dollar. For the remaining 64 percent of imports, merchants are already using the street rate, currently around 19,500 rials per dollar. Without any other drivers of short-term inflation, this alone would translate into a 35 to 45 percent increase in prices. Taking into consideration import delivery lags, Baztab predicts that the rial's devaluation on the open market will begin to make an impact in late spring and summer, driving the inflation rate up to 50 percent. Given that last year's inflation rate was officially announced to be 20.6 percent, which most consider a significant underestimate, the prediction is more than plausible.

Many Iranians have not had to wait for summer to recognize that they have lost substantial purchasing power. Saideh, a 35-year-old administrative assistant, observes, "This Nowruz holiday, fewer people left Tehran." The Persian New Year is well known for bringing calm and quiet to Iran's capital. Thousands of Tehranis leave for their ancestral provinces to visit family and friends or simply to enjoy a vacation. Tehran's streets would empty, its sky turn blue and clear of pollution for a few weeks. This year many decided to stay home and traffic remained mostly heavy."With these prices, who can afford even a decent three- or four-day road trip anymore?" Saideh asks rhetorically.

The economic conditions frustrate Alireza, a 31-year-old engineer and father of a four-year-old girl. He shares his experience. "Before Nowruz, I received a text message asking me not to accept subsidies." Several thousand Iranians received such text messages, which usually read, "Dear Sir, given your financial strength, please refer to , the portal for the Subsidy Policy Reform Organization, to stop receiving subsidies." Alireza says, "It is not a question of needing subsidies, the part that bothers me is their assumption that I am well to do!" As is true of millions of other Iranian families, he and his wife both have to hold down full-time jobs to make ends meet. "And I do not complain about working -- thank God I have a job -- but this government does not know what it wants from us!"

Alireza is far from alone in perceiving that the government's economic policies are in disarray. One Iranian economist, recounting Ahmadinejad's moves in recent years, says, "The only predictable thing about him is that he definitely will do the opposite of what the Majles wants him to do." On several occasions, the president has defied legislators and other government bodies, such as the High Council of Money and Credit, to demonstrate that he is the man in charge. He began the previous Iranian year in spring 2011 by taking control of interest rates and bringing them down to new lows. The policy was soon subjected to widespread criticism -- including from officials of the Central Bank of Iran (CBI) -- for preventing the country's financial institutions from responding to market realities. As is customary, Ahmadinejad never admitted that he might be at fault, and he and his supporters blamed any problems on profiteers and the government's enemies. Speaking of Ahmadinejad, the economist observes, "He seems to be ignorant of the cost of his policies."

Ignorant or not, his administration appears increasingly apprehensive about the economic dilemma it faces. Last month, when Baztab posted detailed information about Iranian-Chinese commercial links and arrangements, it was filtered immediately. According to the article, Iran has been depositing its oil revenues in China to be used for the purchase and importation of Chinese products and services. The accounts are run and managed by the Chinese government, which accepts no responsibility for any losses caused by market fluctuations. Furthermore, it charges a 4 percent insurance fee on its exports to Iran. Estimating the amount involved at more than $25 billion, Baztab called the arrangement "a capitulation."

In less than 48 hours, the website permanently withdrew the controversial report. The government makes little secret of its efforts to manipulate data and other information to present a less bleak picture of economic conditions. However, Iranian consumers hardly need accurate CBI reports to see what is going on.

Ghazaleh, a 23-year-old IT student, recently married her husband, a 27-year-old shopkeeper in downtown Tehran. "Our only hobby was to eat out. We would go to restaurants or to pizza places to have a bite and to talk." Sometimes other family members or friends would accompany them. "But nowadays it has become so expensive." Last week, the young couple ventured the streets only to realize "we cannot afford to eat out anymore." They grabbed some hot dogs and came back home. "I do not know what will happen this year. Already some items I buy are costing me twice as much as before." Still, Ghazaleh feels lucky that she had her wedding when she did. "I feel bad for those who want to get married now. It is going to cost at least double and many cannot afford it anymore."

Nobody has any illusions about the challenges they face in the Iranian year that has just begun, says Alireza. "The economy is the main concern, and frankly no one knows how much further things can or will go." To survive is already the program adopted nationwide, without any need for a government edict. "What else we can do?" Saideh says, shrugging her shoulders.

Ali Chenar is a pen name. Photo: Young man wears Nowruz's decorative "sabzi" display over his head.

Copyright © 2012 Tehran Bureau

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