The Hindu Business Line : Iran's economic irony

I WAS taken aback when one of the speakers at the Second International Public Relations Conference held in November in Teheran told me that meat cost 50,000 Iranian riyals per kilogram. Sixteen years ago, an Iranian just paid about 5,000 riyals for every kg of meat. A cup of tea in the hotel where I was staying cost around 5,000 riyals. For $100, I got a bagful of currency, and that too in one of the oil rich countries in the world.

Any one who visits Iran these days will be startled at the prices and inflation levels that prevail in the country despite the government's heavy subsidies on fuel and other essential commodities to control the spiral. The European Union and the US blame Iran's nuclear ambition for the sorry state of the country's economy. Those in power in Iran believe that it is their right to go nuclear ostensibly for peaceful purposes. They are confident that their country has the resources to proceed with its nuclear agenda without subjecting its population to any economic hardship.

Intellectuals in Iran seem to be haunted by basic questions such as how much does it cost to be in the nuclear limelight? Should Iran fulfil its nuclear goals at the cost of the nation's economy that overwhelmingly depends its oil reserves?

It appears that managing Iran is a challenge for the country's planners. They cannot turn a blind eye to the fact that Iran's economy is in trouble. The high oil prices in recent times have enabled Iran to build formidable foreign exchange reserves. Unfortunately, this has not eased economic hardships such as a high unemployment rate and inflation.

Where does all the oil revenue go? Sceptics say that the country's nuclear and military ambitions may be guzzling a part of it. In the process, the promises of Iran's new president, Mr Mahmoud Ahmadinejad ensuring equitable distribution of wealth, generating employment and reducing poverty, seem to be lost in the country's nuclear imbroglio. Other issues as well such as foreign investment and privatisation, which the country really needs, have been shelved. Private sector activity remains small scale — workshops, farming, and services.

The inflationary trend in Iran, today, is so alarming that almost nothing is produced or manufactured indigenously with the exception of carpets, leather goods and some sundry products such as perfumes. The other industries that are thriving include food and beverage (non-alcoholic) shops. "It is no longer cost effective to produce any thing in today's Iran," laments a business man in a downtown market in Teheran. According to him, it is far easier to import the stuff especially from China and India and sell it at reasonable profit margin.

Some call it `non-productive' or `buy and trade' business activity that does not do any good for the country's economy. But people seem helpless as there are no big opportunities. They remain mute spectators to the way the riyal has been declining against the dollar or any other major international currency.

It has now reached 9,000 against the dollar. The fall has been too steep considering that 16 years ago a dollar cost just 750 riyals. What puzzles experts is the fact that the Iranian riyal remained stable from 1998 to 2003 as export of industrial products went up from $1.6 billon in 1998 to $ 2.6 billion in 2003. At present, the currency continues to slide despite the back-up revenue garnered from high oil prices.

"We expected things to change drastically once the eight-year-long war with Iraq ended in 1988. We have enormous wealth, excellent farm produce that range from pistachios, dates, apples, grapes, pomegranates... yet our economy, for some strange reason, did not take off as it should have," says Mohammed Iftikhariyan, a travel agent who dreams of coming to India for higher education. "It is cheap over there and quality too is no big issue," he says. There is plenty more to worry about in Iran as its economy struggles with a declining riyal and, at the same time, resists allegations levelled against its nuclear programme.

A decade-long economic sanctions have taken their toll. The younger generation, which forms the bulk of the population, feels that Iran's association with the Organisation of Islamic Countries (OIC) has not been fruitful as the OIC countries remain silent spectators to the country's suffering. Analysts believe that so long as oil prices remain high, Iran will breathe easy but the country will need drastic reforms to take care of its rising population of around 70 million, 40 per cent of which, according to some estimates, is below the poverty line.

The index of Iran's economic uncertainty can be gauged from the Teheran Stock Exchange Bourse, which has had a consistent bad run for the past six months. With the government pre-occupied with the nuclear issue, the common man has no choice but to wait. "We have pinned all our hope on the young generation," says an Iranian professor who ironically teaches in a US university. Half of the population is below 25 years and is demanding employment, good education and quality life. Does this signal a revolution of a different kind? Perhaps.

(The author is Associate Professor, Manipal Institute of Communication, MAHE, Manipal)