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Books on Iran
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Update No: 073 - (19/12/07)
Inflation threat looms
Over the last two years liquidity grew by 87%, driving inflation up. While the
actual level of inflation is debated, even Central Bank of Iran’s latest
figures show that it has reached 19%. The government so far has tried to fight
inflation with short term measures, possibly containing the rate but at the same
time harming the economy in a number of other ways. For example, mandatory
prices of some consumer goods and reduced import tariffs are likely making Iran
more dependent on imports. The new governor of the Central Bank is restricting
lending to slow the growth of liquidity. Some observers seem to think that
measures like this ca have a real impact. The IMF, for example, predicts that
inflation will peak at 19% this year, but decline to 17.7% next year. In the
meanwhile, liquidity is hunting for investment opportunities and is finding them
mainly in the real estate sector, where as a result prices are being pushed
upwards. Over the last year, property prices have increased by 30% countrywide
and by 50% in Teheran. Liquidity is probably also helping the stock exchange to
appear healthy again after a period of crisis; it now stands 70% above its level
a year ago. Certainly concern for the conditions of the economy is spreading, as
is concern over President Ahmadinejad’s spending drift. In December the
parliament voted down a US$1.2 billion dollars request for additional funding by
the government, to be drawn from the already beleaguered Oil Stabilisation Fund.
The government justified the request with the higher than expected costs of
ongoing projects, due to high oil prices and the appreciation of the euro, but
fear of inflation sufficed to gather a majority against the bill.
Another factor militating against the funding request is criticism of the
attitude of Ahmadinejad towards the Stabilisation Fund, which last December
stood at US$7 billion, down US$3 billion on March despite the injection of US$12
billion during the ongoing year.
Return to bipolar politics
On the internal political front the only relevant development in December was
the formation of a coalition of reformist and moderate parties to confront the
conservatives in the forthcoming parliamentary elections. 21 parties have joined
the coalition, including Rafsanjani’s supporters; only Mehdi Karrubi’s group
has not, but it decided to run joint candidates with it in 80% of the
constituencies. Contrary to expectations, though, the conservatives have managed
to form their own united front, including both Ahmadinejad’s supporters and
more traditional conservatives. Much of the outcome will depend on the vetting
exercised on the candidates by the Guardian Council, which severely punished the
reformists in the previous elections.
Teheran scores 2 on nuclear front
On the international front, December was marked by Russia’s decision to start
delivering nuclear fuel to Iran. Although Russia guarantees that it will
exercise close supervision on the fuel, the move can be seen as an Iranian
victory.
The fact that the new National Intelligence Estimate produced in Washington
assessed Iran’s nuclear military program as having been stopped in 2003, has
transformed the international situation. It has also been interpreted as
unexpected good news in Teheran, making US intervention vastly more difficult.
The hawks in Washington indeed are in disarray. The obvious implication of the
discontinuing of the military program four years ago, is that by elimination,
the program must be civil, as the Iranians have claimed. Russia’s position
following Putin’s visit, was that was exactly what the evidence indicated.
With the US winding up to their critical election, which is bound to produce a
new administrative team within eleven months, it is unthinkable that the
outgoing administration could launch an attack, or facilitate Israel doing so as
a proxy, with that National Intelligence Estimate now lying on the table.
The Chinese, who two days before the release of the Estimate were sending
signals of being ready to discuss sanctions, have now backtracked using the new
assessment as an excuse. Major rethinking is now necessary and it would be
wonderful opportunity for any peacemakers on both sides to seek a break-through.
Business drifts eastwards
In response to Washington’s isolation policy, Teheran is strengthening its
links to the SCO block. Not only its relations with the Shanghai Cooperation
Organisation itself are friendlier and friendlier (Iran has already applied for
full membership in the SCO), to the extent that Iran’s level of cooperation is
hailed as ‘no lower than that of member countries’, but bilateral relations
are also improving fast. China has already become the main foreign investor
country in Iran, far outstripping France and Germany, respectively second and
third ranking. The China Petroleum and Chemical Corp has just signed a new US$2
billion deal with Iran’s National Iranian Oil Company for the development of
an oil field in Khuzestan. Russians are far behind but on the move too. Teheran
is keen to show that it is talking to Lukoil and Gazprom about joint projects
and that it is inviting them to invest in Iran. Gazprom has already invested in
the South Pars gas fields and Iran talks of ‘prioritising’ further
cooperation.
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