Iran’s economic woes worsen as US sanctions return

“The Iranians respond to pressure but there must be a face-saving way to respond.” - Brandon Friedman, a senior fellow at the Foreign Policy Research Institute think-tank in Philadelphia.
Sunday 05/08/2018
Ailing economy, squandering resources. A man withdraws Iranial rials from an automated teller machine in Tehran. (AFP)
Ailing economy, squandering resources. A man withdraws Iranial rials from an automated teller machine in Tehran. (AFP)

ISTANBUL - Iran’s economic problems are going from bad to worse, as the rial’s value dropped to record lows and politicians in Tehran scrambled to find a way out of a crisis shaking the Islamic Republic ahead of the imposition of US sanctions.

Three months after US President Donald Trump pulled the United States out of a 2015 international agreement designed to keep Tehran from building nuclear weapons, a first set of US sanctions suspended under the nuclear accord go into force in early August, including restrictions on the gold trade with Iran and the country’s car sector. A second wave of sanctions, targeting Iran’s vital oil exports, is to go into effect in November.

In anticipation of the new sanctions, Iranians have rushed to convert their savings from rials to protect the value of the money they hold, prompting the Iranian currency to lose 20% against the US dollar in two days. The rial has lost more than half of its value since April.

Brandon Friedman, a senior fellow at the Foreign Policy Research Institute think-tank in Philadelphia, listed “economic mismanagement, corruption and the psychological effect of uncertainty during this period of heightened tension” with the United States as underlying reasons for the collapse of the Iranian currency.

“I am not sure it is entirely in the government’s power to stop the crisis in the short term,” Friedman added in e-mailed responses to questions. “There are things they can do to reduce panic and build confidence but they might reduce but not ‘fix’ the problem.”

Iran has been rocked by unrest, fuelled by complaints about a worsening economy and expensive foreign policy projects in Syria and elsewhere in the region. Protests in Tehran in June, which closed shops in the Grand Bazaar, were the biggest in six years, reports said.

Hundreds of people recently rallied in cities across the country, including Isfahan, Karaj, Shiraz and Ahvaz, to protest inflation caused in part by the weak rial. There was also unrest over a scarcity of drinking water in southern Iran, a growing political concern due to a drought that analysts say has been exacerbated by mismanagement.

Other mistakes by policymakers have added to the misery. In April, the government introduced currency restrictions, a step that drove even more people into the black market and hastened the rial’s collapse. The restrictions have since been eased.

Signalling a new determination to fight corruption, the judiciary announced in July that 60 people had been arrested for fraud and trying to undermine the banking system. Gholam Hossein Mohseni-Ejei, deputy judiciary chief and spokesman of the Iranian judiciary, said several of those detained had direct ties to the government, allowing them, for example, to illegally import luxury cars.

The arrests follow mounting anger against profiteers who use political connections to access dollars at artificially low rates and then buy imported goods on the cheap or sell dollars on the black market for a huge profit.

Observers say the situation distracts from the need for structural reforms. “We’re in a full-fledged crisis and that’s taking all the attention. No one is talking about bank reform and investment and job creation,” journalist Maziar Motamedi of Tehran’s Financial Tribune told Agence France-Presse.

Parliament summoned Iranian President Hassan Rohani to explain why Iran’s economy is suffering even though the 2015 nuclear deal was supposed to improve the situation by ending sanctions. Rohani appointed a new central bank governor last month and accepted the resignation of the government spokesman on August 1, suggesting that he is conceding a need for reshuffling his economic team.

Friedman wrote it was hard to gauge whether the economic problems would convince the government to introduce major changes or to seek a meeting with Trump, who has said he would sit down with Rohani to discuss a new nuclear deal. Senior Iranian officials and military leaders rejected the offer.

“The Iranians respond to pressure but there must be a face-saving way to respond,” Friedman wrote. “It is not clear if Trump’s offer to meet unconditionally is enough of a face-saver.”

Trump administration critics say Washington’s goal is to topple the Tehran government. A controversial Iranian opposition group that has received support from people close to Trump says only regime change in Tehran can improve the economy.

“Iran’s crumbling economy cannot be saved unless by toppling the regime,” Maryam Rajavi, leader of the People’s Mujahideen of Iran (MEK), wrote on Twitter. “The clerical regime has ravaged Iran’s economy by its missile and nuclear projects, warmongering and terrorism.”

MEK was on the US terror list until 2012 but Trump’s lawyer Rudy Giuliani recently addressed a meeting of the group in Paris.

12