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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: 098 - (25/01/10)

Towards a compromise?
The continuing internal turmoil in Iran is beginning to take a toll. The regime has not dared to crush the opposition with the violence of which no doubt it is capable, but its warnings that a real crackdown is imminent have so far been largely ignored. The violence of the government side has so far no scared anybody, only excited resistance. The regime now seems undecided about whether to opt for a tougher crackdown or negotiate a compromise. Some moderate supporters of the regime seem to be reaching out to the opposition in order to reach a deal; some particularly hated figures could be sacrificed, such as prosecutor-general Saeed Mortazavi, an ally of Mahmoud Ahmadi-Nejad, who has been accused by a parliamentary committee of several deaths in custody. Among the ranks of the opposition there are also voices of moderation. Mir-Hossein Moussavi himself has so far refused to call for the overthrow of the regime, while former president Mohammad Khatami in January condemned radicalism on both sides and stated that most reformists were loyal to both the constitution and Supreme leader Khamenei and did not want a secular state.

Russia and China waver
The real problem for Ahmadinejad might be that if he cannot bring the situation under control, the faith that the Islamic republic is there to stay might be undermined even among the friendliest foreign powers, such as China and Russia. Supreme Leader Khamenei is also quite silent these days, which may not augur well for Ahmadinejad. Indeed for some time there were hopes in the west that China and Russia might subscribe to tougher sanctions against Iran on the nuclear issue, but such hopes are dissipating after China demanded that Iran be given more time. There is still some hope that China, fearful as it is of diplomatic isolation, would eventually distance itself from Teheran.

Subsidy cuts to add fuel to the fire?
An interesting development in January was the approval by Iranís constitutional watchdog of a new law aimed at gradually eliminating fuel and food subsidies. The law is noteworthy because it comes at a time of great tension in Iranís streets already and inevitably risk adding fuel to the fire once implemented. Already the modest cuts in fuel subsidies implemented in 2007 led to protests and riots and the cuts had to be postponed. The current bill establishes that the savings deriving from the cuts should be spent for 50% on helping the poorest households, for 30% on improving Iranís infrastructure and for 20% to the discretion of the government, without any parliamentary supervision. The problem with the plan is that the government lacks accurate records of the wealth of its citizens and therefore effectively targeting money to the poor will be difficult.

Ambitious plans
The average rate of inflation continues to fall and it stood at a yearly 13.5% in December. The latest GDP figure show that growth declined to 2.5% in 2009 according to official figures, as a result of the global economic crisis and of sanctions. Nonetheless the government of Ahmadinejad maintains ambitious economic plans, as highlighted in the new 5 years plan. The target is an average GDP growth of almost 8% over the five years. That should be achieved through a US$20 billion investment in the oil and gas industry, as well as through the development of other sectors of the economy. The share of oil and gas out of total exports is expected to decline by 10%. However the IMF estimates 2009 GDP growth at just 1.5% and does not expect more than 2.2% growth in 2010; the 8% would be dependent on substantial foreign investment, but unless Iranís international positions changes radically it is not clear how that could happen.

Forecast & Summary 2010
The internal political situation has not fully stabilised yet. The opposition remains defiant and continues to demonstrate occasionally. The government has been issuing warnings that its patience is running out. As the demonstrators become more radical and shift from demanding a recount of the votes towards challenging the legitimacy of the Islamic Republic, the likelihood of an escalation of the repression also increases. Ahmadinejad is now facing opposition throughout the spectrum of his agenda. Sorting out the economic situation will not be easy if he continues to face high levels of resistance in the parliament. He would like to entirely phase out subsidies to food and fuel in five years. His plan to cut subsidies highlights how his economic plans have turned around. He talks of the need to reduce the size of government and of reducing waste. Maybe he engineered the electoral fraud in order to have an excuse to crush the opposition, but he has not been very successful at that and now faces a complex situation. At the same time the regime cannot backtrack and opt for a compromise because it would then show weakness. The most likely outcome of the crisis remains a violent crackdown by the security apparatus.

On the international front Iran will try to buy more time, but the net around it is tightening. In December the Americans went a step further in tightening the sanctions net around Iran, in response to the lack of any progress on the issue of the countryís nuclear programme. The Iran Refined Petroleum Sanctions Act expands existing US restrictions to companies that sell and insure refined oil shipments to Iran. Iran is in principle vulnerable to such sanctions, as it still imports 40% of its refined petroleum and 11% of its diesel. Most of Iranís imports have been coming from European firms, including Vitol, Total, Trafigura and BP. However, Iran has increasingly been switching to China for its refined petroleum import; given the burgeoning trade relations between the two countries, it seems unlikely that China will agree to abide by any sanctions. The Iranians claim not to be worried by the development and indeed have been showing their defiance by announcing the forthcoming deployment of a new model of more efficient centrifuges for the enrichment of uranium. The biggest threat to Teheran appears now a Russian-American dťtente, although the Americans have been moving slowly on this front too. The Russians seem intent to extract as many concessions as possible by the American giant being caught off balance.

The economic situation can only get more precarious. Iranís industry is now running well below its capacity at around 40%, according to some sources. Many businesses claim to be on the verge of bankruptcy as high interest rates are strangling them. Up to 40% of all businesses in the country are reported to be in trouble to some extent. The private sector in turn accounts for about 20% of Iranís economy. Businessmen complain that the Presidentís policy of conceding loans at low interest rates to small businesses and short-term projects has diverted loans away from more solid businesses and pushed up interest rates towards 20-25%. Ahmadinejad is trying to stimulate internal production in a number of ways. He recently appointed former Tehran prosecutor general Saeed Mortazavi to lead the effort against the smuggling of goods into the country, highlighting the importance of the problem. In the meanwhile the Revolutionary Guards have been expanding their control over the economy, replacing reluctant foreign companies in some oil projects, like South Pars phases 15 and 16. As foreign investments become less and less likely, the role of the Guards may expand further in the oil sector. In December Iran stopped its talks with Total over South Pars, phase 11, for example. The Guards are also expanding in other sectors of the economy: in September they bought a majority share in the state telecommunications company.


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