Iranian Economy’s Biggest Vulnerability: Iran

Iranian economy’s biggest vulnerability: Iran
Posted By Patrick Barry Thursday, April 29, 2010 – 4:05 PM
Foreign Policy

“When your adversary is making a fool of himself, get out of the way.” So said Pat Buchannan last year in response to conservative hawks pushing for U.S. intervention in the wake of Iran’s controversial Presidential election. At the time, those words made a lot of sense. Better for the U.S. to not give the Iranian government a handhold as it descended into infamy by making itself the focus of attention. Buchanan’s advice could just as easily apply to the now-urgent question of U.S. economic sanctions. As a congressional conference committee begins to put the finishing touches on an Iran sanctions package, it’s worth considering the evidence that the biggest threat to the Iranian economy is actually the regime itself. Economic sanctions might actually rescue the regime from its own failings, and produce the opposite of what their backers expect.

Iran’s economy may not be on life-support, but it is in pretty terrible shape. While the statistics reported by the Iranian government paint a rosy picture, the reality is quite different. Iran’s real per capita growth rate was 3.5 percent per annum from 2002-2009, but this period of growth coincided with a period of a steady rise in oil prices, suggesting the “government has not been very successful in achieving diversification of the economy.” Inflation is also on the rise, reaching 10.4 percent in April. Though that’s much lower than the annual rate of 30 percent from last year, the current government has consistently struggled to contain rising inflation (which is often attributed to President Ahmadinejad’s redistribution of oil revenues). Actual inflation may be much higher. Looking at prices in downtown Tehran, the real number might be hovering around 20 percent.

If that wasn’t bad enough, Iran continues to struggle with pronounced inequality. Virginia Tech Economist Djavad Salehi-Isfahani notes that between 2005 and 2007, at a time when Iran was experiencing respectable economic growth, “the income of the top 20 percent rose more than four times as fast as that of the bottom quintile.” Here again, rising oil prices appear to have had a negative effect. “The influx of oil revenues, which trickle down Iran’s unequal structure of access to power and position, always seems to worsen the distribution of income,” writes Salehi-Isfahani.

Continue Reading…

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: