Infighting won't change Iran's economic policy

Infighting won’t change Iran’s economic policy

Reuters columnist Una Galani weaves through the complex web that is the Iranian economy and comes out with some stark realizations.

July 7, 2011 12:47 by Reuters

Iran’s economic prospects don’t depend on Mahmoud Ahmadinejad’s fate. The country’s financial health has been damaged significantly during the six-year rule of the populist president, known for his inflammatory rhetoric and defiant posture on the country’s nuclear programme. During that time, the benefits of higher oil prices have been wasted. But the country’s economic policies are unlikely to change much if the power struggle at the top results in the ousting of its divisive president.

Iran’s economy has grown at half the average rate of the region’s oil exporters over the last three years, according to data from the International Monetary Fund. International sanctions weigh heavily, though higher oil prices act as a partial buffer. Inflation in Iran has also run above its resource-rich neighbours. Foreign reserves remain ample and rose by around 40 percent over the last five years. But the reserves of Saudi Arabia almost doubled over the same period.

Ahmadinejad has bowed to reality and embarked on an overhaul of Iran’s costly subsidy system. Raising the prices of food, fuel and transport in December will save over $60 billion, or 15 percent GDP, according to the IMF. The ambitious reform should give Iran more breathing room and could be a model for others. But it is still early days and the move has increased concerns over inflation, already in double-digits, leading to currency weakness.

But despite his strong personality, the political economics that are attached to Ahmadinejad’s name would be unlikely to end if he left. Corruption may ease somewhat in a possibly more rigorous climate. The country was ranked 146 last year in the Transparency International Corruption Perceptions index, down from 105 in 2006 when Ahmadinejad took power. But the anti-West rhetoric, suspicion of the United States, and support for the nuclear programme are shared by the country’s Supreme Leader Ayatollah Ali Khamenei, who retains popular support.

The economy has never been a priority for the Islamic republic, which mostly ensures that the oil money help it achieve its ideological goals. As long as Khamenei remains at the top of the power structure, and if oil prices remain relatively high, little is likely to change.

CONTEXT NEWS

– Iran’s Supreme Leader called on the country’s ruling elite on July 4 to stop infighting, which he called a propaganda gift to the Islamic Republic’s foreign enemies.

– Ayatollah Ali Khamenei’s comments were aimed at easing mounting criticism of President Mahmoud Ahmadinejad, who faces a possible summons to answer questions from a hostile conservative-dominated parliament, some of whose members have talked of impeaching him.

– “We should try to reduce differences in opinions as much as possible,” the 71-year-old cleric told a gathering of senior officers of the Revolutionary Guards in a televised address.

– In March, Khamenei said that Iran would make the coming year one of “economic jihad”.

– Reuters story: Iranian leader says infighting is a gift to enemies

– IMF: Statement on the Islamic Republic of Iran http://www.imf.org/external/np/sec/pr/2011/pr11228.htm

– For previous columns by the author, Reuters customers can click on

(By Una Galani; Editing by Pierre Briançon and David Evans)