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Rouhani’s Next Test: Empty Coffers

Kevan Harris

What is the status of Iran’s economy three months after President Hassan Rouhani’s inauguration?
     In a televised interview marking his first 100 days, President Rouhani acknowledged that the state coffers were virtually empty when he assumed the presidency. The government did not have sufficient revenue to pay public sector salaries. Iran also faced major shortages in basic commodities, such as wheat, at the same time. To compensate for the unexpected shortfall, the new government had to stop several development projects and borrow from the Central Bank.
 
            In the November 26 televised interview, Rouhani also outlined the latest economic indicators:
• Inflation was over 40 percent in the last Persian year, which ran from March 2012 to March 2013.
• Iran’s GDP declined by 5.8 percent over the same period, according to the Central Bank.
• Unemployment was above 12 percent, with youth unemployment at over double the rate. (Unemployment does not include discouraged workers, who mask problems of under-employment and part-time work.)
            Rouhani said Iran had not suffered this depth of stagflation since the revolution’s early years. 
 
            The government is also in debt to a wide variety of public and private entities:
• Iran’s Central Bank, Social Security and Retirement funds
• Municipal governments
• Provincial development contractors
• Energy and industrial producers
• Educational institutions 
 
            Rouhani put the current debt at 200 trillion tomans, or roughly $70 billion using the open market exchange rate. If true, the ratio of government debt to GDP is about 30 percent, a sizable jump from previous years even with the currency’s devaluation. In comparison, Turkey’s ratio of public debt to GDP is about 36 percent, and Egypt’s ratio is over 80 percent.
 
What role does Iran’s economy have in Rouhani’s political game plan?
            Rouhani’s foreign and domestic economic strategies are irrevocably linked. Inside Iran, the issue is not whether international sanctions or domestic mismanagement caused its economic woes, which is largely a rhetorical question used by Iran’s politicians to criticize each other. So the barriers to economic rejuvenation are mostly political.
            Iran’s economic woes will be easier to solve if it can increase access to:
• Foreign exchange
• Global financial flows
• Oil revenues 
 
      Rouhani’s team is trying to mobilize allies in parliament behind a range of new economic policies to address these issues. Given perceptions of President Mahmoud Ahmadinejad’s disastrous legacy, hardliners have little leverage – for now – to challenge the new centrist president and his reformist allies on economic policy. If reforms deliver results, conservatives can say they were part of the solution. If not, Rouhani’s initiative lessens the chance of Iran’s entire right-wing establishment attacking him – as happened during former President Mohammad Khatami’s tenure.
 
What strategy is Rouhani pursuing to improve Iran’s economy?
           Rouhani is engaged in a precarious balancing act. So far, his administration has decided not to massively curtail government spending on cash grants, energy subsidies, and other public arenas. Given the importance of government spending in the economy through various formal and informal networks, a rapid move toward austerity to reduce inflation would drive the economy into a deeper recession. Rouhani is cutting back the budget both this year and next year, but his team has argued they can spend limited revenues in smarter ways.
           Rouhani concedes that the government cannot cut enough spending to balance the budget, since Iran’s lower and middle classes rely on subsidized healthcare and income grants. The administration fears social backlash. So, for now, Rouhani is trying to establish social trust in public institutions in a way that will allow more reforms down the road.  
            At the same time, Rouhani has promised to accomplish two goals over the next two years:
      • Reduce inflation to 25 percent
      • End the recession. 
 
           His ambitious agenda will require more stringent monitoring of public spending and directing it in more productive ways, while also creating an investment climate that encourages productive, not speculative, activities by a fickle private sector. 
 
What shifts have occurred in the economy since Rouhani’s election—with what impact?
            The new government has largely stopped using shares of public sector companies to pay existing debts to semi-governmental holding companies, pension funds, and contractors. A recent Reuters investigation on the Imam’s Orders Headquarters detailed how one such holding company – ostensibly run by the office of Supreme Leader Ayatollah Ali Khamenei – invested in wide swaths of Iran’s economy. The story grabbed headlines, but it was misleading.
           This form of investment and asset management is common in Iran, not just for companies attached to the Revolutionary Guards or the Supreme Leader’s office. There are dozens of such holding companies, with ownership spread among political actors. Rouhani’s administration has made a decisive break from the Ahmadinejad era by halting government transfer of state assets into this form of ownership and rethinking how to privatize the public sector.
            The government has also put a stop to the previous administration’s huge public housing program – the Mehr Housing Plan – which is widely regarded as a major driver of Iran’s inflation. The plan was supposed to construct public housing for poor Iranians, mostly newlyweds, so they could obtain low-interest loans and move out of parents’ homes. But the plan was botched.  
           Large apartment complexes were built on the distant edges of urban centers, often without access to other public facilities. Beneficiaries of the plan were predominantly Iran’s new middle classes, not the poor. And, partly as a result of subcontracting out the work with little oversight, construction was shoddy. The Iranian press is now filled with pictures of sub-par housing complexes and stories of people refusing to move in. The Rouhani government terminated the Mehr Plan and promised to revamp it into a “social housing” program – in several years.
 
What has happened to Iran’s subsidy reform plan and income grant program?
           In his televised interview, Rouhani said the government is weighing its options. It could raise the price of energy, reduce the value of income grants, or determine some way to restrict recipients of income grants to lower-income households. But each option has its costs. Rouhani said the government could have looked at individual bank accounts to estimate household incomes, but in the end rejected this option. People must regain faith in the banking system, he said, so they would feel more comfortable about investing.
           So, for now, Iran’s subsidy system is in a holding pattern. The government is not reducing subsidies this year on fuel or energy, nor is it changing the nominal level of grants to the population. In the meantime, several industrial sectors – from gas to auto to steel – are lobbying the government for financial support because of energy costs of production.
           Overall, bolder economic policy shifts on any issue require an ever-wider political coalition. Rouhani has so far maintained a wide base of political support as his administration pursues engagement with Western powers on the nuclear issue. If he can keep this coalition intact, then he just may be able to walk the economic tightrope.
 
Kevan Harris is a sociologist and postdoctoral research associate at Princeton University.
He was a 2011-12 USIP Jennings Randolph Peace Fellow. His recent publications are available at http://kevanharris.princeton.edu.
 
 
Photo credit: President.ir, Semira Nikou

 

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The Drama of Iran’s Erratic Rial

Kevan Harris

What are the primary reasons that the Iranian rial has lost half of its value against the U.S. dollar in just one year? Iran’s currency was valued at about 10,000 rials to the dollar in the summer of 2011. It plummeted to more than 20,000 to the dollar in the summer of 2012. 

Inflation in Iran’s economy has not been this bad since the end of the Iran-Iraq War or the economic crisis of the early 1990s, which also caused high inflation. The rial’s value began to slide rapidly at the beginning of 2012 after the United States announced new sanctions above and beyond the latest U.N. sanctions. The slide was due partly to the psychology of sanctions.

In that sense, a certain percentage of the public—and their expectations--helped cause the more rapid slide. They don’t think the Central Bank can stabilize the rial in the medium term. People who have money are buying gold, dollars, and real estate to protect their wealth. Everybody is making individual decisions that are pushing the rial down because everyone is holding onto foreign currencies.
 
What is the impact on the Iranian public?

With increased sanctions, the demand went up for gold, foreign currency and anything independent of the rial. In fact, the real estate market in Tehran has been growing over the last six months. It had slowed in previous years due to a housing crash just like everywhere else. People are even putting money into real estate in poorer neighborhoods, which means people are continuing to take money out of the banks and invest it in housing.
 
What has happened in the last six months is very similar to what happened to the Russian middle class in 1999 and Argentine middle class in 2001. The Iranian middle class is going through the same process. They are seeing the value of their money in the bank erode. It is a shock. 

After the Russian and Argentine financial crises, both countries ended up with more nationalist leaders in power--Vladimir Putin and Nestor Kirchner. Policymakers in the United States might want to remember that. Financial crises do not always produce what you want or expect.

What is the Iranian government’s response?

The government is trying to respond with various short-term measures. For example, the price of rice has gone up only slightly compared to the price of chicken partly because the government has exchanged oil for stockpiled rice with India. Everybody eats rice in Iran and not everyone can afford chicken, so the government is attempting to prioritize those goods which have the widest consumption.

The government also went back to a tiered currency regime similar to what it had in the 1980s, during the Iraq-Iran War, and through the 1990s. Various types of imports and transactions had different exchange rates. Today, the official exchange rate is used for strategic imports such as food and medicine. That is another reason the price of rice did not go up a lot.

The price of chicken went up a lot, however, because Iran is not a socialist country. It cannot control the price of everything. Chicken farmers and wholesale buyers respond to market prices. The government capped the store price of chicken, but the price of chicken feed was going up because much of it is imported.
 
Along with cutbacks in subsidies, which also caused domestic inflation, the chicken farmers’ costs became so high that they could not make a profit. So they basically stopped selling. Chicken prices went up drastically because there was no chicken on the market. The government was slow to respond—and then did what it always does. It found a place in the world with something cheap to sell. Iran imported frozen chicken from Latin America, just as it now imports beef from Brazil. Each of the goods has its own story, but the rice-and-chicken dynamic is illustrative of the government’s strategy for dealing with inflationary shocks.

The state also stopped its phased subsidy reductions. It had planned to further cut longstanding subsidies for electricity, gasoline and utilities, but parliament told the president in the spring to continue the current level of subsidies. The president initially refused, but under parliamentary pressure has deferred any new price hikes. So U.S. and E.U. sanctions have forced the Islamic Republic to stop the subsidy reduction program that the International Monetary Fund and the Ahmadinejad government had been working on for years.

What roles have U.S. and international sanctions played in Iran’s currency drama? In July 2012, Parliamentary Speaker Ali Larijani said that only 20 percent of Iran’s economic problems were due to international sanctions. What is your assessment?

It is hard to put a number on what percentage U.S. and E.U. sanctions have on currency devaluation and inflation because both are produced by a combination of factors-- what individuals do based on future uncertainty and the sometimes contradictory policies of the government.

The Central Bank has suggested that it may change the official exchange rate. What impact will that have? Will it solve the problem? Are there any side effects or dangers?

Some economists, including many in Iran, say the country needs a single rate. People make money playing the official and unofficial currency rates off each other. But the state does not have the luxury of unifying the rial’s value. So it is trying all sorts of stop-gap measures, which in the long term are harmful. They create opportunities for speculation. But the state, which is dealing in the short term, is in a double bind. Letting the official rate devalue would lead to such an inflationary burst that prices could go up even more.
 
The other option is what the state is doing now, prioritizing who gets money. It is giving money to strategic sectors and industries that it cannot let slide, like the auto industry, the oil sector and businesses related to petroleum. It gives them the better exchange rate. Yet these are short-term solutions to big problems.

In the 1980s, the government also tried to plan what food and consumer goods came into the country. The government had to basically take over the market, and this is what they are doing again--only for those items or industries that it feels are strategic, like rice, as opposed to chicken. Politically, you cannot have a whole town without rice; it is impossible.
 
What will happen if the rial continues to lose value?

People will probably continue to “euro-ize” and dollarize their transactions if the value falls. But Iran will always find another country to make a deal with. There is a long list of countries that will pursue their national interests and deal with Iran. The whole world economy is slowing down, so everyone is looking for cheaper deals. There will probably be more smuggling as well, as people turn to the black market for goods which may be in short supply.
 
 
Kevan Harris is a postdoctoral research associate at Princeton University. He is a 2011-12 USIP Jennings Randolph Peace Fellow.  He writes a weblog called “The Thirsty Fish."

Iran’s Massive Banking Scandal

Kevan Harris
 
 
  • What’s the origin of the Islamic Republic’s biggest banking scandal?
 
The financial conglomerate Amir Mansour Arya Investment Development Company allegedly procured several letters of credit from domestic banks totaling $2.8 billion--far above the company’s available collateral.  The Arya Group, founded by Amir Mansour Khosravi and now controlled by his son Mah-Afarid, controlled around $3.8 billion in assets, including 52 companies with 20,000 workers.
 
After obtaining falsified letters of credit from a branch of Saderat (Export) Bank in Ahvaz, the Arya Group allegedly used them to obtain even more financing from several other banks including Saman, Sepah, and Melli Bank; Melli is Iran’s oldest national bank.  Arya Group is also accused of using its own companies as shell organizations to misrepresent the value of the entire Group.  It reportedly then used the promised loans from multiple banks to bid on recently privatized companies as well as set up its own financial institution, Arya Bank. 
 
There are several layers of alleged corruption, embezzlement and fraud in this case.  The original letters of credit from Saderat Bank were issued without a required waiting and evaluation period; bank officials allegedly may have been taking bribes.  Melli Bank and other banks reportedly did not check the validity of the letters when issuing their own loans to the Arya Group.  The government’s Money and Credit Council was either lax in oversight or overtly supportive of the loans. Critics of President Mahmoud Ahmadinejad claim the council was packed with supporters of the president’s closest aide, Rashim Esfandiar Mashaei. Finally, the Central Bank allegedly failed to monitor these transactions and prevent abuse.
 
The government took possession of Arya Group’s assets and companies in September, which at least temporarily prevented the layoff of 20,000 workers. But full recovery of the $2.8 billion, just under one percent of Iran’s annual GDP, is still uncertain.
 
  • What impact will this have on Iranian politics, especially Present Ahmadinejad and his inner circle?
 
The political fallout increases almost daily.  The directors of Saderat Bank and Melli Bank resigned in late September.  Melli’s director, who has dual citizenship, fled to Canada.  Dozens of banking officials have been arrested and questioned.  Members of parliament discussed the possible impeachment of Minister of Economy Shamsoddin Hosseini.  Central Bank Governor Mahmoud Bahmani cannot be impeached since he has a presidential appointment, but members of parliament have called for his resignation.
 
But even if Ahmadinejad contains the short-term damage, the scale of this scandal dwarfs all earlier corruption scandals during the presidencies of Akbar Hashemi Rafsanjani and Mohammad Khatami. It also stains the president’s attempt to portray himself as an incorruptible politician fighting a crooked system. 
 
  • What role has Supreme Leader Ali Khamenei played in the reaction to the scandal?
 
Ayatollah Khamenei is once again stuck arbitrating deep factional strife among Iran’s political elite.  He has publicly vowed that the perpetrators would be tracked down and severely punished.  But he has also demanded an end to the mud-slinging among conservative critics and the president’s supporters.
 
Since the presidential election in 2009, Iranian has been plagued by an unrelenting cycle: clashes among conservatives, Khamenei calls for unity, temporary lulls in the battle, and then renewed discord at more intense levels.  For all the supreme leader’s powers, he has been unable to get supposedly loyal followers to fall into line.
 
  • What are the economic implications of this bank scandal?
 
The Arya Group’s purported scam is a perfect storm for Iran’s economy for two reasons:
 
First, Ahmadinejad forced domestic banks to offer certain types of loans at interest rates lower than the rate of inflation—an unusual but not unwarranted practice under some circumstances for developing countries. But without oversight, the practice can produce speculation and fraud, since people with connections can procure money essentially for free and spend it on profitable activities outside the formal banking system.
 
Banks were eager to lend money to the Arya Group without much oversight because it promised higher profits in an economic climate where banks are forced to hand out loans that are technically guaranteed to lose money.  As a result, Ahmadinejad’s recent loan policy has indirectly produced usury and wasteful speculation by middlemen – both supposedly illegal in the Islamic Republic.
 
Second, Iran’s government has been selling off public enterprises at fire-sale prices over the past four years.  Profitable companies have often been sold to big pension funds, conglomerates with government ties, and other institutional investors.  Ahmadinejad boasts that his privatization program succeeded in shrinking government, but the practice has actually increased corruption through murky transfer of these companies.
 
Corruption linked to privatization is not unique to Iran.  In the 1990s, Russia and China transferred many public companies to former government officials.  Similarly, Iran’s privatization program under Ahmadinejad is producing a new class of owners who, while often dependent on government connections, pursue profit largely by gaming the system.  The Arya Group would not have been able to build up 52 companies so quickly over the past several years if not for these opportunities.
 
The Islamic Republic will pay a price whatever course the government takes. If the Iranian judiciary actually exposes the full details of high-level corruption, the government stands to lose further legitimacy even among loyal cadres.  Yet if the state does nothing, strife among political factions could deepen, undermining attempts to implement policy changes that could address the country’s many social and economic ills.
 
Kevan Harris, who last visited Iran in June, is a 2011-12 Jennings Randolph Peace Scholar at the U.S. Institute of Peace.  He also blogs at “The Thirsty Fish."
 

 

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Youth Game-Changers in Elections

Kevan Harris
 
      This is the eighth in a series on parliamentary elections due in March 2012:
 
 
  • What role does Iran’s youth play in elections?
 
After the 1979 revolution, the voting age was lowered to 15 which automatically made youth important in elections. But since the mid-1990s, Iranian youth have been particularly pivotal to both the campaigns and turnout in major elections. Student organizations were critical to the birth of the reform movement, symbolized by the 1997 election of Mohammad Khatami as president.  They operated as de facto campaign staffs in towns outside of Tehran, where Khatami was basically unknown.  
 
The 1999 student protests in Tehran and elsewhere were sparked by the closure of a popular reformist newspaper. But they reflected widespread frustration, especially among new students in the expanded public and private university system, at the slow pace of political reform. The demonstrations were quelled but student activism laid the seeds for a national opposition movement a decade later.
 
In 2005, some student organizations called for a boycott of the presidential election, which was won by President Mahmoud Ahmadinejad in a second round of voting.  In 2009, however, young Iranians were widely visible in the campaigns of reform candidates Mir Hossein Mousavi and Mehdi Karroubi — and in six months of street protests after the government announced Ahmadinejad had been reelected.
 
Iran does not have a system of political parties, so endorsements by student organizations with a nationwide network can be immensely important to any candidate.  
 
  • What role is Iranian youth or the activist generation likely to play in the 2012 parliamentary elections?
 
Iran’s young are not homogenous in their views or level of activism. On one end of the spectrum, many youth in the Basij militia supported Ahmadinejad in the 2009 election because they believed he represented their national interests. On the other end, young members of the Green Movement supported Mousavi for the same reasons. There are both engaged and apathetic youth—with the majority both, depending on the month.  During the 2009 post-election protests, it was mostly young people that were beating up and shooting at other young people.
 
The debate for the 2012 parliamentary elections is largely about participation versus boycott.  A central issue is whether voting in the election in turn bestows legitimacy on the entire political system.  It is the subject of many conversations at dinner tables, coffee houses, and hookah bars all over Iran.  People generally make up their minds about whether or not to vote right before the elections.
 
  • What is the origin of the youth factor in Iran's politics?
 
The numerical importance of young Iranians dates from the early years of the revolution.  During the monarchy’s final decade in the 1970s, Iran’s birth rate decreased moderately.  But under Ayatollah Ruhollah Khomeini, the Islamic Republic regarded population control as a sort of Western conspiracy and encouraged large families in the early 1980s.  The new government also viewed an expanding population as good for defense of the nation and the revolution, especially during the eight-year war with Iraq.
 
By 1980, the average number of children per family had risen to seven children.  In 1986, the ratio of Iranians aged 0-4 to the rest of the population was the highest it had been in 30 years.
The growing numbers, particularly data in the 1986 Iranian census conducted while Mousavi was prime minister, began to alarm the political elite. The war- ravaged economy could not easily cover the costs of feeding, educating, housing and eventually employing the new baby boomers.  With the voting age at 15, the young also loomed as a disproportionately decisive political factor in the post-war era.
 
After a vigorous public debate, the regime introduced an innovative family planning program in the late 1980s that included religious fatwas encouraging contraception and a lower family size.  Family planning services, which covered prenatal health and marriage counseling, quickly expanded in Iran through the construction of village clinics and urban community centers. Growing literacy among females also contributed to raising the average age of marriage which also limited family sizes.
 
Iran's average birth rate witnessed an astounding decline down to two children by 2000.  As a result, the demographic bulge from the 1980s has not been repeated. In 2007, the regime raised the voting age to 18. Yet that baby boom generation—now between its mid-twenties and early thirties in age— is in its prime in terms of education and jobs. (Many young Iranians enter university later than their Western counterparts.) 
 
  • How have political and economic issues evolved for Iran’s baby boom generation in ways that could impact elections?
 
Iran’s economy has not been able to absorb the baby boom generation, which is more educated and skilled than any previous Iranian generation.  The Ahmadinejad government frequently discusses the issue of youth unemployment, but the large numbers of new jobs it promised have failed to materialize. And an already bloated public sector cannot hire all of the jobless youth either.  
 
Iran's baby boom generation is well connected to global culture and technology. They are in turn transforming Iranian society. Religious music stores in Tehran offer hundreds of low-budget CDs and DVDs featuring famous devout young male singers.  Several New Age styled self-help books have been translated from English into Persian.  These are popular among young and educated individuals who reject heavy public displays of religiosity but want to retain spiritual ideas as part of their identity.  The newly opened concert hall attached to Tehran's Milad Tower recently had its first heavy metal show, which sold out.  
 
As this generation ages, Iran faces problems down the road of social security and health care.  Iran’s major health issues are no longer tuberculosis or cholera but diseases of the elderly - high blood pressure, depression, diabetes and obesity.  Although Iranians are living longer, the country's public health care system is not set up to handle these kinds of diseases, which are costlier to treat and require a more efficient and universal social safety net.  These concerns are not far beneath the surface of Iranian politics already—and are likely to become more important with each future election.
 
Kevan Harris, who visited Iran in June, is a Ph.D. candidate in sociology at Johns Hopkins University and a 2011-12 USIP Jennings Randolph Peace Fellow.  He writes a weblog called “The Thirsty Fish." 
 
 
Online news media are welcome to republish original blog postings from this website (www.iranprimer.com) in full, with a citation and link back to The Iran Primer website (www.iranprimer.com) as the original source. Any edits must be authorized by the author. Permission to reprint excerpts from The Iran Primer book should be directed to permissions@usip.org
 
 
 
 
 

  

Iran’s New Economic Slump

Kevan Harris

           Iran’s biggest economic problem is the growing production slump at its factories and workshops. For both workers and the business elite, Iran's domestic industrial troubles are far more pressing--and generating far more public anxiety--than international sanctions.
 
           The biggest danger for Iran in 2011 is the combination of higher unemployment and inflation produced by government inaction, unintended consequences of subsidy reform, and dwindling foreign capital caused by banking sanctions.  The issue has been described as rokood-tavarom, or “stagflation,” by Iran’s leading financial newspaper Donya-ye Eqtesad.
 
           To stimulate the economy, Iran’s Central Bank devalued the international exchange rate of its currency by 11 percent on June 8—a sharp reversal after years of propping up the rial. The exchange rate fell abruptly to 11,750 rials to the dollar. The bank’s action is intended to help Iran’s large industrial sector increase non-oil exports to its neighbors. The devaluation makes Iranian exports of cement, copper, petrochemical and agricultural products cheaper for other countries. 
 
           Yet the Central Bank’s move may in fact only compound problems for Iranian businesses. Iran’s industrial sector also needs to import machinery and raw materials, so decreasing the rial’s value may “hurt the economy and the nation’s industry” as imported goods become more expensive, noted parliamentarian Hamid Reza Fooladghar.
 
           The government’s failure to support industry after reforms in energy subsidies last year is a central cause of the slump. For the general population, the regime promised 45 dollars per person monthly to offset increased prices of basic goods, fuel and utilities.  But the government of President Mahmoud Ahmadinejad did little to aid industries.  It promised the Chamber of Commerce, Industries and Mines to make loans and credits available to alleviate increased costs, but it offered no cash. It also banned business from increasing prices for a long list of household goods to prevent inflation. So, Iranian industries were squeezed on both sides: The government provided no tangible aid as industrial costs soared, but companies were barred from raising prices to cover those costs.
 
           Under these conditions, Iran faces a looming crisis in an already ailing industrial sector.  The irony is that subsidy reforms were designed to rejuvenate the economy.  Instead, public concern is growing about just maintaining modest levels of employment and business activity, especially in provinces outside of Tehran.  In June, the Food Industries Syndicate Chief in wealthy Fars province complained, “Our capable private sector is not afraid of quality or price competition. But the targeted subsidies law, which was supposed to help the private sector achieve quality and price competitiveness, has instead been spent on helping the consumers.” He essentially implied that the government is more worried about its citizenry than its industry. 
 
           But if industries continue to stagnate, unemployment is likely to increase, as businesses cut costs by laying off more employees, forego paying overdue wages and pensions to workers, and close down production lines.  In an interview, a government official in Tehran explained, “I’ve visited industrial zones near the capital and some are now producing at 40 percent capacity because of cost increases for business after the subsidy reforms.”
 
           In a recent assessment, the International Monetary Fund warned that Iran’s main challenge will be “restructuring of enterprises through the adoption of more energy-efficient technologies, and the broader reorientation of the economy towards less energy-intensive products and services, and production technologies.”  Yet even as other emerging economies--such as Brazil, India and China--are successfully retooling industries for a competitive global market, Iran’s approach is decidedly hands-off.  Officials are not dealing with basic questions, including what industries will be viable without subsidies.
 
           Sanctions by the United States and Europe--targeted at Iranian government banks, the Revolutionary Guards, and large official institutions--are also now trickling down to small entrepreneurs and industrial workers by further raising the costs of doing business.  As a result, Iran is less able to compete with other developing economies in international markets.  Despite a vow to help Iranian businesses upgrade infrastructure to become more energy-efficient, the government seems unaware or unsure of how to confront the growing challenges.
 
 
Kevan Harris, who visited Iran in June, is a Ph.D. candidate in sociology at Johns Hopkins University and a 2011-12 USIP Jennings Randolph Peace Fellow.  He writes a weblog called “The Thirsty Fish." 
 
Online news media are welcome to republish original blog postings from this website (www.iranprimer.com) in full, with a citation and link back to The Iran Primer website (www.iranprimer.com) as the original source. Any edits must be authorized by the author. Permission to reprint excerpts from The Iran Primer book should be directed to permissions@usip.org
 

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