Tuesday, January 29, 2008

Saffron and Sugar: Iran's Recipe for Disaster

Iranian blogger Nasrin Alavi has written an interesting analysis of power shifts among the elite in Tehran for OpenDemocracy.net. The most intriguing part, to my mind, is the sketch of what's gone wrong in the Iranian economy:

"...The disillusion with the United States among many Iranians has meant that the hopes and energies for change are increasingly grounded in the domestic troubles of the regime. The people's frustrations with the government's economic mismanagement are rising at a moment when an important electoral test - elections to the 290-seat majlis (parliament) on 14 March 2008 - is approaching.

In routine circumstances, the leadership of President Mahmoud Ahmadinejad and his supporters would at such a time seek to heighten the confrontational rhetoric against the US, mobilising nationalist sentiment against revolutionary Iran's number-one enemy. On this occasion, the tactic may be less effective, for two reasons.

First, the US's national intelligence estimate (NIE) published on 3 December 2007 controverted the White House's portrayal of the alleged Iranian nuclear peril, thus going a little way to defuse tension and undermine the portrayal by Iranian authorities (and in particular by Ahmadinejad himself) of an immediate threat from the US (see "Iran: the uses of intelligence", 6 December 2007). Second, most Iranian citizens are so hard-pressed by their daily circumstances that their concern is not with foreign policy or how their country's nuclear-energy programme is perceived, but with their economic condition and how to improve it.

This is bad news for the president. Ahmadinejad had campaigned for the presidency in June 2005 on an economic platform, and won power by tapping into the vein of popular anger against corruption and cronyism and promising to create jobs and security for Iran's poor and deprived. In the middle of his third year in office, the hopes he raised have largely dissipated: the government has introduced petrol rationing, and there has been disruption in gas supplies and more than sixty deaths amid a spell of severely cold weather - all this in the country that is the fourth-largest oil producer in the world, and has the second-largest natural-gas resources.

In addition, chronic unemployment remains widespread and inflation has continued to climb: the official rate is 19%, though the real figure may be even higher (the cost of housing and of foreign-made consumer and electronic goods has more than doubled in the last year alone). Ahmadinejad is justified in attributing much of the inflation to past policy errors, but he has compounded these by populist and yet wasteful inflationary handouts.

The recipients of these handouts appreciated them, but their euphoria proved short-lived. An illustration is provided by Ahmadinejad's decision at the outset of his presidency to double the price of saffron, which especially helped Iran's poorly-paid saffron-pickers in Khorasan province in eastern Iran; the instant doubling of their income meant that the president had kept his promise to bring some the fruits of Iran's oil wealth into their lives.

By August 2007, however, the picture looked very different. The artificial pricing policy and higher wages for the saffron-workers meant that the price of Iranian saffron had risen fivefold in a year, to $1,945 per kilo; by December, the head of the saffron exports promotion fund was reporting a 70% drop in exports in the first seven months of the Iranian year that started on 21 March 2007. In less than two years, the farmers of Khorasan - who used to cultivate nearly 90% of the world's saffron - have seen their market and (possibly) their long-term livelihoods damaged by a presidential whim.

Iran's sugar industry is also grappling with crisis. The level of domestic demand is around 1.9 million tons per year, but official figures estimate that over 3 million tons of cheap sugar that undercut local produce has been imported. Ahmadinejad often accuses his political rivals of intentionally sabotaging his economic policies. In this case at least, the charge rebounds: Ayatollah Mohammad-Taqi Mesbah-Yazdi - whose reputation in the west is for his role as Ahmadinejad's spiritual guide and adviser - is known to most Iranian people as a major importer of sugar whose companies have dominated the sector since the 1979 revolution. Today, thirty-four sugar factories are facing closure, while workers protesting at not being paid - like those at the Haft Tappeh company in Khuzestan province - have been met by riot police and threats of dismissal.

Iran's Arab neighbours - especially those in the Gulf states that were the principal audience of Bush's speech in Abu Dhabi on 13 January - are flushed with liquidity due to record oil prices; but they have responded by investing in long-term national projects and enhancing their governmental portfolios (including the emergent "sovereign wealth funds") by buying large shares in major international industries. Iran's oil infrastructure is in dire need of modernisation and investment yet the government's policy response to its troubles (including a potential budget deficit) has been to inject about $140 billion in 2007-08 into an already cash-addicted economy; this has had the effect of increasing prices still further.

The rising discontent amongst the very people who were Ahmadinejad's core supporters in 2005 - and whose lives he pledged to improve - may be an important political factor in the approach to the 14 March elections. Its reverberations have already been felt in establishment circles. When he came to power, Ahmadinejad was initially endorsed by many of Iran's senior conservatives, including - crucially - the supreme leader, Ayatollah Ali Khamenei. The policy failures of the protege in whom they had invested so much is generating strains at the heart of Iran's revolutionary elite. This is evident in Khamenei's rare intervention in a budgetary spat between the government and the majlis, when (in a letter made public on 21 January) he effectively admonished the president. Ahmadinejad is losing support from "above" as well as from "below"....

A contrasting view appeared a few weeks ago on the BBC. Some of the online comments denounced it as Iranian regime propaganda:


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