Is the Iranian Economy Near Collapse?

Its the Economy STUPID. With all of his posturing, Iranian president Mahmoud Ahmadinejad is only 11 months away from an election. He was elected based on a promise to deliver the benefits of all the oil revenue to the "common folk." There is only one problem, he hasn't followed through on that promise, in fact the economy is in very bad shape.

As Ahmadinejad increases subsidies and spending, inflation has become Iran's chief domestic issue. While the government acknowledges an inflation rate of 18 percent, parliamentarians and central bank officials say the real rate is closer to 25 or 30 percent.

Gee its no wonder Jimmy Carter wants to negotiate with Ahmadinejad they had the same economic policy. In Ahmadinejad's case his former allies are beginning to complain about his handling of the economy. As the Iranian economy begins to collapse, is the reign of Ahmadinejad going to collapse also? Read below:

Iran's Faltering Economy by Michael Rubin
Euro-Atlantic Quarterly
July 2008

While the international community focuses upon Iran's nuclear program, Iran's faltering economy dominates the Islamic Republic's domestic debate. In his 2005 election campaign, President Mahmoud Ahmadinejad famously promised to bring Iran's "oil [money] to the table of every Iranian." Oil prices may have more than tripled to over $130, but few Iranians see benefit. Across the Iranian political spectrum, officials and even the president's former allies have blamed Ahmadinejad's policies for runaway inflation and shortages of basic commodities. Outgoing Finance Minister Davoud Danesh-Jafari, acknowledged Iranians' frustration as he stepped down in May 2008, "In economics, a government is not judged by its intentions."

As Ahmadinejad increases subsidies and spending, inflation has become Iran's chief domestic issue. While the government acknowledges an inflation rate of 18 percent, parliamentarians and central bank officials say the real rate is closer to 25 or 30 percent.

Inflation has hit certain commodities hard. This past winter, bread prices increased between 200 and 700 percent across northern Iran. To alleviate prices, the government shipped bread from Tehran to the northern prices, sparking shortages and bread lines in Tehran. As a brutal winter dumped record snow across northern Iran, the Revolutionary Guards deployed to northern Iran to counter potential unrest amidst gasoline, kerosene, and electricity shortages.

Inflation continues. According to the National Bank, rice prices rose 90 percent this spring. The price of other basic foodstuffs has increased 30 percent. On May 19, the head of the Butcher's Guild complained that declining purchasing power was undercutting the public's ability to eat meat, once a staple of Iranian cooking.

Politicians are distancing themselves from their president. Parliamentarian Hossein-Ali Shahriari, an ideological ally of Ahmadinejad, quipped, "The economic team of the government is the main reason behind rising prices." Former President Ali Akbar Hashemi Rafsanjani quipped, "You can't improve the economy by raising beggars."

Ahmadinejad has remained stubborn in the face of accelerating inflation. He has ordered bank to lower interest rates to ten percent and clashed with the director of the Central Bank after he refused. Sarmayeh, Iran's main financial daily, ridiculed Ahmadinejad's new finance minister after he denied any relationship between interest rates and inflation. As the Central Bank issues 100,000 rial notes for the first time, the government's only proposed solution is to knock zeros off Iran's currency. Ahmadinejad refuses to accept responsibility and instead, in a number of speeches in April and May, has blamed shadowy mafias and conspiring competitors.

Austerity measures have failed due to lack of fiscal discipline. Upon questioning, Oil Minister Gholam-Hoseyn Nowzari acknowledged that the Iranian government spent $4 billion above budgetary limits to import gasoline obviating the self-sufficiency sought by rationing.

Privatization schemes have also languished. While announcements of impending factory privatizations are many, sales are few. The reformist daily Aftab-e Yazd observed, "The misguided policies of the government hit us harder than the sanctions of the foreigners."

As tempers rise, however, Ahmadinejad calls on Iranians to have faith. During the Islamic Revolution, Ayatollah Khomeini famously quipped, "You can't have a revolution over the price of a watermelon." As the Islamic Revolution nears its 30 year anniversary, Ahmadinejad may test that proposition