Iran News ...


01/16/09

End of the Good Times for Iranian Economy

By Arash Hassan-Nia, Tehran (Source: Mianeh)

 

Middle Eastern states including Iran are primarily linked to global markets via pipelines and the oil tankers that sail up and down the Persian Gulf. Falling oil prices have had a severe effect on all these economies in recent months, and Iran was also affected despite being isolated by international sanctions.

 

As Iranian leaders struggled to ward off the effects of the global crisis, the change in oil prices forced the country to join other OPEC members in cutting back production.

 

Given the downturn in oil revenues, the International Monetary Fund predicted in August that the government budget balance could be significantly in the red. At the time the oil price had fallen to 75 dollars a barrel from the July high of close to 150 dollars.

 

"We have to face it - we are now involved in the global economic crisis, and we are feeling the pain on ourselves, too. So we need to face up to it and try to get out of it," said Asadollah Asgar-Oladi, who chairs the Confederation of Iran Exporters.

 

He adds: "Many exporters have run into problems selling their goods, to the extent that buyers are not in a position to accept items even if the sale has already been concluded, or else deliveries are not paid for," he said. "Export figures for the past nine months indicate that in contrast to previous years, the growth in exports has halted... and given the current global environment, the trend is on a rapid downwards slope."

 

The situation Asgar-Oladi describes with regard to exports of nuts and Persian carpets is the same for other sectors.

 

Aside from crude oil itself, refined petrochemicals account for the lion's share of exports, but exports of these have seen a decline of 60 to 70 per cent. The plants that produce these items are likely to have to cut production, and some may have to close altogether.

 

All this amounts to a drastic reverse in fortunes for Iran's leaders. In the early years after President Mahmoud Ahmadinejad's election in 2005, economic policy was based on world oil prices that headed for, and then surpassed, 100 dollars a barrel. By April 2008, the president was predicting that prices would hit 200 dollars a barrel.

 

The subsequent collapse in oil prices as the international financial crisis deepened brought a premature end to the good times for the government.

 

Oil prices are currently hovering around the 40 dollar mark.

 

The effects on the Iranian economy are likely to be manifold.

 

First, declining oil export receipts are likely to have a severe effect on the trade balance because the government has more than doubled the projection for imports to over 60 billion dollars in the current year, according to the central bank and ministry of commerce.

 

Another area that faces serious challenges is the stock market. This operates in isolation from global financial markets, so it was not directly impacted by the world financial crash. Even so, the decline in world demand has hit Iranian manufacturers, leading to a slowdown in stock market trading.

 

On the Tehran stock market, the main price index has fallen by more than 30 per cent in the last three months, and trading has slumped to less than 20 million dollars a day.

 

The currency exchange market is perhaps the only area which could potentially have been directly affected by the global crisis but has remained relatively unaffected so far. While the trend for euro appreciation and dollar depreciation has been followed, the markets remain more stable than other areas.

 

For the last two years, the Iranian rial has remained relatively stable against the US currency while the euro has increased in value. Current trends only accentuate that position, making European goods more expensive while dollar-priced imports from places like the United Arab Emirates are becoming cheaper in comparison.

 

The question now is how the authorities respond to the change in economic circumstances.

 

Officials insist they can cope and the global crisis will not have a profound impact on the economy. In November, for example, Ahmadinejad said he would still be able to run the country even if oil was worth five dollars a barrel.

 

Others warn that a more realistic approach is needed, one that takes into account both the new economic realities and the expectations of an anxious public.

 

"I think our friends in government have made a mistake in their analysis," commented Mohammad Baqir Nobakht, a former member of parliament who now works for the Strategic Research Centre attached to Iran's Expediency Council, which is chaired by former president Akbar Hashemi Rafsanjani. "They believe that to boost morale and keep people's spirits up, they have to deny reality. But this will only backfire. When the reality is so evident, yet what people hear runs contrary to this, they will simply lose trust in government predictions."

 

Arash Hassan-Nia is a journalist in Tehran

 

This article is an abridged and translated version of the full original text published on the Farsi pages of Mianeh, with editorial adjustments agreed with the writer made to provide clarity for English-language readers.

 

About Mianeh: Mianeh is a new independent web-based initiative run as a project by the Institute for War & Peace Reporting (iwpr.net) the award-winning non-profit media development organisation that works across the globe to platform local voices and promote international learning and engagement. Mianeh aims to be an open space for ideas, news and debate where writers in Iran can reach out to each other as well as to those outside the country who are interested in learning more about the vibrant and dynamic society that is Iran today.

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