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Wednesday, October 04, 2006

Ahmadinejad's domestic troubles

TEHRAN (Asia Times)- While President Mahmud Ahmadinejad is busy running a high-voltage campaign against the United States and its policies, Iranians are wondering whether he will ever make good on election promises to crack down on corruption and distribute Iran's vast oil revenues more equitably.

"My whole family voted for Ahmadinejad because he promised to improve our lives. He said he was going to fight corruption and create jobs. He said oil money belonged to the people. I haven't

seen any of the oil money in my house yet, but I have to deal with the ever increasing prices anyway," said a a 67-year-old pensioner who asked to remain anonymous. "I'm running a family of three on less than US$220 a month and the price of the cheapest cut of meat is $6 per kilogram. Thank God I'm not paying rent or we wouldn't have anything to eat."

A political analyst in Tehran said: "Dissatisfaction with the administration of President Ahmadinejad is not yet widespread, but it is growing fast. The hardline government that outran reformists on a plank to check inflation, lift living standards, create employment, and take a bite out of the corrupt and the rich and give it to the impoverished has not only failed to deliver those promises, but has clearly moved in the opposite direction."

He said: "Iran is the 30th-largest economy in the world. The per capita income in 2006 is estimated to rise to $3,465, or $700 more than the previous year. But according to Social Security Organization figures, 30% of the population is still living under the poverty line. The top 20% of the population is holding 50% of the national income and 80% of the total wealth, so it's quite natural that economic improvement means a great deal to the president's most ardent supporters, the impoverished.

"Results of an opinion poll reported by Mehr News Agency in September show that in May, 61% of those asked found his team successful in the nuclear issue, 44% in managing inflation and only 37% in fighting corruption.

"The report doesn't mention percentages but says those asked consider unemployment and inflation the administration's most urgent problems. It seems Ahmadinejad has concentrated his efforts more in foreign policy rather than in the more challenging economic arena."

The analyst continued: "His administration seems to have failed for the time being to deliver the economic promises abundantly made at election time, and the results of wrong and hasty economic decisions, like forcing government and private banks to lower their interest rates, are now beginning to show in people's reluctance to make long-term deposits in banks, for example."

Fourteen months ago when Ahmadinejad took office he talked of "taking oil revenues to people's dinner tables", charging that governments run by his predecessors had ignored poverty and the poor, something his team would remedy.

Economic indicators now show a huge decrease in the stock-market value and private banks claim they are on the brink of bankruptcy resulting from lowered interest rates. The inflation rate is said to be just above 12% now, and is forecast to rise to 14% or 15%. There is a huge budget deficit, amounting to $8 billion. Even Iran's top judiciary has warned about capital drain. The highly subsidized, oil-revenue-dependent Iranian economy is struggling with inflationary stagnation, they believe.

"It's still too early to make a good assessment of the government's economic performance, but some of the contradictions resulting from lack of a clear economic theory are already becoming evident," said Saeed Leylaz, an economic analyst in Tehran.

"Single-digit interest and inflation rates that Ahmadinejad promised to achieve quickly [are] one example. They can't be both achieved at the same time. Lower interest rates meant to bring growth to the national economy can in countries like Iran and the US lead to higher inflation. In our case, the economic growth rate wasn't accelerated by lowering interest rates and when prices started to go up, the panicky government had to back down and resort to controlling and manipulating prices," said Leylaz.

"Moreover, the government sector is growing fast and the private sector is losing ground. The government has been granting huge contracts by the order of the president and without holding tenders to military bodies. [The] Islamic Revolutionary Guards Corps has over the past few months been granted $8 billion worth of government contracts alone."

Leylaz added: "On the other hand, the government's slogans and its domestic and foreign policies have scared away investment. The stock market has lost 50% of its total value compared to its peak time."

The huge amount of subsidies paid by the government is widening the gap between the rich and the poor, economists warn.

"The Iranian economy will be injected with around $50 billion worth of subsidies this year," Leylaz said. "But it will do little to help the poor. Fuel subsidies comprise one-third of the total subsidies paid by the government, and more than half the fuel subsidies, for example, will find their way into the pockets of the top 10% of the population who have and use cars, meaning that the top 10% are getting one-sixth of all subsidies.

"The populist government believes in paying subsidies to overcome poverty and deprivation, but [it] should try instead to achieve economic growth and create jobs," he said.

Parliament closed the budget on oil revenues of $40 per barrel for the current Iranian year (March 21, 2006, to March 20, 2007). The high oil prices, up to more than $50 per barrel and even topping the $70 mark for a while from about $8 per barrel in 1998, have given the hardline government courage to spend, economists say. The extra money is supposed to go to the Oil Stabilization Fund, set up by the reformist government a few years ago.

Just to pay fuel subsidies in the first half of the current Iranian year, the government has drawn $2.5 billion from the fund and is seeking the approval of parliament for $3.5 billion more for the next six months. "The government is expected to draw a total of at least $14 billion until March, and there is a danger the fund will run dry by then," said a political observer who asked not to be named.
Leylaz said: "The government drew five times more from the Oil Stabilization Fund than the same period last year in the first five months of this year [beginning March 21], but you can't see any growth. Parliament is not politically strong enough to stop the government and will give it the go-ahead.

"We are now five times more dependent on oil revenues than we were in 1998. The real results of what is being done now will become only too evident in 2008. The government will have enough forex resources to mask its mismanagement," he said.

The political observer said: "Oil revenues are used to import things to control inflation. Imports are expected to amount to $60 billion this year. Apart from items like meat and fruits, lowered tariffs are being applied to the import of construction material like cement and steel, too, to bring down the soaring real-estate prices and rent. But even so, the government has not yet been able to lower inflation. Even hardline members of parliament [MPs] and the hardline Keyhan newspaper are now crying out against rising prices.

"Ahmad Tavakkoli and Mahmoud Khoshchehreh, both hardline MPs and former Ahmadinejad allies, have now turned into government critics," he said. "They, too, are accusing the government of following a populist approach.

"There may come a time when the Islamic Republic may not be able to cope with the highly increased expectations it originally created, the dismal outcome of which will be political upheaval."
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