Iran's Economy Struggles As Sanctions Take Hold Dramatically lower oil prices and mismanaged government policy, fueled by the growing bite of international economic sanctions, are causing deep problems for Iran. The state of Iran's economy will certainly have a huge impact this June, when President Mahmoud Ahmadinejad faces re-election.
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Iran's Economy Struggles As Sanctions Take Hold

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Iran's Economy Struggles As Sanctions Take Hold

Iran's Economy Struggles As Sanctions Take Hold

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ALEX COHEN, host:

This is Day to Day. I'm Alex Cohen. Coming up, mixed messages from Moscow. We get the latest on relations between Russia and the U.S.

But first, to Iran. Dramatically lowered oil prices and international sanctions there are causing deep problems for the country. Inflation in Iran is pushing 30 percent and unemployment is growing. This is what President Mahmoud Ahmadinejad faces in his bid for a second term. The election is in June. From Tehran, NPR's Mike Shuster reports.

MIKE SHUSTER: Supporters of Iranian President Mahmoud Ahmadinejad tend to dismiss growing criticism that his policies have been disastrous for Iran's economy. But every now and then, a few candid words pop up. That happened recently in an editorial in the government-controlled daily newspaper, Iran News. Oil prices have plummeted, the editorial reads. The government's policy is doomed to fail. Now it's up to the parliament, the editorial pleads, to minimize damage to the country's economy.

Heydar Pourian also speaks with candor about the economic problems caused in large part by misdirected government policy. Pourian is editor-in-chief of Iran Economics, a monthly magazine.

Mr. HEYDAR POURIAN (Editor-in-chief, Iran Economics): First of all, the inflation has been one of the highest in the last 10, 12 years. It ruined, actually, any enterprises. I think the excessive expansionary fiscal, monetary, and foreign exchange policy, actually has ruined the economy, and we have to pay for it now.

SHUSTER: The causes are numerous. They include the vast subsidies the Iranian government pays to keep the price of life's necessities low, from gasoline and electricity to bread and rice. When oil prices were above $100 a barrel - they reached $147 a barrel last summer - the government reaped an enormous windfall. But that oil revenue was not used properly, says Ali Shams Ardekani, an economist and businessman.

Mr. ALI SHAMS ARDEKANI (Economist, Businessman): From the time that price of oil went from, let's say, $40 to $140, we did not benefit much in terms of job creation, in terms of improvement on the street, on the railroads, on the transportation, on communications. Then the question is where the money's gone.

SHUSTER: Much of that money was used to maintain the subsidies. Much of it went to support social welfare programs and promises that Ahmadinejad has made since he ran for president four years ago. Some of it simply vanished. A report to the parliament that surfaced this week said that two years ago, more than a billion dollars in oil revenue simply never made it to Iran's treasury. And although government officials don't like to admit it, economic and financial sanctions are having an impact - mostly on the poor, Ardekani says.

Mr. ARDEKANI: The vicious policies of those who impose sanctions is mainly to create problems for the population, thinking that this problem will be transferred into problem for the government.

SHUSTER: Trade sanctions haven't made most consumer goods unavailable, just more expensive. To cushion the effect of sanctions, Ahmadinejad's government sought to expand the economy rapidly through deficit spending and growth in the money supply, policies designed to stimulate small business and create jobs. What they did mostly was fuel speculation in real estate and spark increasingly higher inflation, which is now just shy of 30 percent, says Heydar Pourian.

Mr. POURIAN: To compensate for the effect of the sanctions, it had to come with some expansionary, monetary, fiscal, and foreign exchange policies. The government responded, in my view, to the sanctions, but it may have overreacted.

SHUSTER: Many analysts have reached the same conclusion, that Ahmadinejad's government mismanaged the economy. Conservative analyst Amir Mohebian started out as an Ahmadinejad supporter. Now, he wants new faces running economic policy.

Mr. AMIR MOHEBIAN (Financail Analyst): We need planning and good programming and good manageent. Mr. Ahmadinejad tries to solve these problems, but I think some of the managers, especially the specialist managers in this field, can solve this problem better than Mr. Ahmadinejad. It is possible.

SHUSTER: In the meantime, Iran tries to work its way out of its economic ditch by expanding energy exports. Its oil output is limited by OPEC quotas, so it is focusing on boosting natural gas production and sales. Hojjatollah Ghanimifard, vice president for investment in Iran's oil ministry, said this week that new contracts have just been signed.

Mr. HOJJATOLLAH GHANIMIFARD (Vice President for Investment, Oil Ministry, Iran): Especially during the past six months, we could conclude two huge contracts for production of the gas.

SHUSTER: Who is that with?

Mr. GHANIMIFARD: Well, if you don't mind, because we don't want to make any problem for those companies who signed a contract with us, we do not mention their name. But as soon as the production comes out and the market is going to be facing with more of the gas, they would notice that - who those companies are.

SHUSTER: For several years, the Oil Ministry has pursued foreign investment in its oil and gas fields only to be stymied frequently by the threat of U.S. sanctions on Iran's potential partners from Asia or Europe. Iran's deteriorating economy will surely erode Ahmadinejad's prospects when he faces the voters again in June's presidential election. Mike Shuster, NPR News, Tehran.

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