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IRAN


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 136,833 107,522 114,100 34
         
GNI per capita
 US $ 2,000 1,710 1,680 110
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 081 - (26/08/08)

Plans to fight inflation
In August the Iranian government announced that in 2007-8 GDP growth reached 6.9%. This is a modest increase compared to 2006-7, but a rather disappointing one given the oil boom. Moreover, at the same time inflation kept getting out of control: the official figure for June was 27%. President Ahmadinejad’s vulnerability on this issue is leading one of his main rivals, former president Rafsanjani, to attack him increasingly openly. Rafsanjani declared in August that Ahmadinejad is turning the economy into a fully state-dominated one, instead of pursuing a policy of privatisation. 

Admittedly, however, the relatively modest GDP growth has also to do with international sanctions, imposed to force Iran to abandon or modify its nuclear program. Even=2 0if many believe that tougher sanctions will not suffice to force Iran to abandon its plans, the new round of sanctions imposed at the beginning of August (the third) is leading ever more banks, including some Chinese ones, to cut their financial operations with Iran. Iranian banks have now getting around the sanctions by linking up with a number of small and medium-sized banks which have less US exposure, but this option nonetheless still comes with higher transaction costs. While Rafsanjani’s attack was not much in the way of news, not long afterwards even Supreme Leader Khamenei intervened in the debate, asking Ahmadinejad to make an effort to control inflation. In order to contain inflation, the central bank of Iran has banned high denomination notes issued by private banks and from issuing their own bank notes; it is hoped in this way the banks it is able to better control currency supply as the private banks were printing uncontrollably. Another measure being considered is the introduction of a new currency, knocking three zeros off its, following the Turkish example of 2005, but few believe that either of these options will go far enough to resolve the problem.

Ahmadinejad’s big plans
Despite Rafsanjani’s criticism, the privatization program is not completely stuck. The government has now decided to privatise the state bank (Bank Millat), selling its shares on the stock exchanges. Still it is true that the Ahmadinejad government is not considering privatisation as a top priority, despite Supreme Leader Khamenei’s support for it. Ahmadinejad is instead more keen on a major plan involving in particular the banking, customs, and tax systems. The idea seems to be to lowering taxes on low income families and increasing redistribution, as well as improving the targeting of the benefit programs. To fight inflation, a new chain of stores cutting out intermediaries is planned, while the country's currency, the Rial, will be adjusted at a new rate against the dollar, making imported goods cheaper. This, however, might hurt Iranian industries, which are not very competitive and will struggle to keep the pace with imports.

Doubts of future foreign investment
The political climate also affects the ability of Teheran to attract new investment, even when there is a genuine interest of potential partners. This is the case of Turkey, with which Iran has been negotiating a gas pipeline deal and is expected to reach a deal this summer. The failure to sign the deal might be due to US pressure, although the Turks refused to elaborate on the actual reasons and explained that negotiations are continuing. The official Iranian explanation was that ‘preparations were not yet sufficient’. Even Malaysia's private and state-owned firms are talking of plans to invest in the Iranian building and construction sector. This might be less controversial than the oil and gas one, but any major development in this direction is still likely to upset Washington.

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