"Tehran begins to feel the pain of finance crisis Gloating ends as slumping oil prices take toll on economy"
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- Date: Thu, 13 Nov 2008 12:01:05 -0800 (PST)
http://www.washingtontimes.com/news/2008/nov/05/tehran-begins-to-feel-the-pain-of-finance-crisis/
Tehran begins to feel the pain of finance crisis Gloating ends as
slumping oil prices take toll on economy Hadi Nili (Contact)
Wednesday, November 5, 2008
TEHRAN
When the U.S. stock market plunged and venerable New York investment
houses fell, some Iranian leaders said the Bush administration was
paying the price for its aggressive, unilateral ways.
As the crisis mushroomed into a worldwide phenomenon, officials here
are no longer so smug.
Former President Ali Akbar Hashemi Rafsanjani, still one of Iran's
most prominent and influential political figures, told those attending
Friday prayers Oct. 24 that Iran should not gloat because one of the
major consequences of the crisis has been tumbling oil prices that are
hurting the Iranian economy.
"We should not think the financial crisis that hit the world is in our
interest," Mr. Rafsanjani said in comments broadcast by Iran's state-
run IRIB TV. "The first negative consequence of the wave is the fall
in oil prices. The drop in oil causes major damage to us."
Iran has become increasingly dependent on oil earnings since the 2005
election of President Mahmoud Ahmadinejad. It is the world's fourth-
largest oil producer and second biggest exporter in the Organization
of the Petroleum Exporting Countries (OPEC). Since July, however, the
price of oil has dropped by half.
The consequences could be serious for a government facing
international sanctions because of its rejection of demands that it
suspend a nuclear program that it insists is peaceful but some argue
could give Iran the ability to make atomic weapons. Economic
difficulties could also give the next U.S. administration new leverage
to negotiate with Iran.
Only a few weeks ago, when oil was still above $100 a barrel, the
attitude in Tehran was blase, even triumphant.
Mr. Ahmadinejad told reporters when he visited New York in September,
"We really do not face serious problems. What you are facing [in the
United States] is far harsher than in Iran."
A clerical supporter of the president, Ayatollah Ahmad Jannati, said
last month that the financial meltdown was a "punishment from God" and
that Iranians were happy that the U.S. economy is in crisis.
"The unhappier they are, the happier we become," said the cleric, who
heads a council that vets candidates for elected office and supervises
voting.
The initial impact of the financial crisis fed into ideology here that
predicts the end of capitalism and the failure of liberal democracy as
well as communism.
"The school of Marxism has collapsed and the sound of the West's
cracking liberal democracy is now being heard," Iran's supreme leader,
Ayatollah Ali Khamenei, told a crowd of clerics last month, recalling
the fate of the Soviet Union.
"It is the end of capitalism," Mr. Ahmadinejad said."The reason for
their defeat is that they have forgotten God and piety."
However, the crisis has led to an apparent recession in the West that
has severely depressed demand for oil.
ASSOCIATED PRESS PHOTOGRAPHS A money-changer in Tehran displays
various bank notes as petrodollars get scarce in a country dependent
on income from exported oil, which has plummeted in price because of
the world economic slowdown.
For Mr. Ahmadinejad,the timing could not be worse, since he is seeking
a new four-year term next year When he triumphed over Mr. Rafsanjani
in 2005, Mr. Ahmadinejad pledged to put Iran's oil money on the dinner
table of ordinary Iranians. While oil was trading at close to $150 a
barrel, the populist leader could lay on quite a feast.
Now with prices hovering around $60, the party may be over.
In a clear sign of crisis, the government last month first imposed -
and then postponed - a value-added tax on many consumer goods after
bazaar merchants in Isfahan and then Tehran shuttered their shops,
staging the largest such protest in nearly three decades
The pro-Ahmadinejad newspaper Keyhan criticized the decision to
suspend the tax as giving in to "wealthy, leech-like rich people."
But a shopkeeper in the Tehran bazaar, who asked not to be named to
avoid retribution, said that "because of this tax, there is an
increase of 10 [percent] to 15 percent in prices, so we want the
government to annul the law."
With inflation already running at 30 percent in part because of
government handouts to the poor and speculation in the housing market,
the tax increases were more than the country could stand, said Saeed
Leylaz, an economist and critic of Mr. Ahmadinejad.
The strikes in the bazaars are "a sign of the dissatisfaction of the
middle class with the economic policies of Ahmadinejad," Mr. Leylaz
said.
Until last month, external economics were going the president's way.
Iran earned about $54 billion from oil exports in the first half of
this year, according to government estimates, after reaping $70
billion last year.
The government says its budget assumes an oil price of only $37, but
actually it is based on a price of $55 a barrel, with the surplus
channeled into an oil-stabilization fund that is supposed to tide the
country through rainy days.
This year alone, Mr. Ahmadinejad´s government has withdrawn at least
$17 billion from the fund. The remaining balance is estimated at only
$25 billion.
Critics of the president say he has wasted Iran's resources at a time
when he should have been saving for contingencies and investment in
infrastructure.
"Iran's economy is crisis-stricken, and many experts are worried about
the future because the economic crisis in the West is about to reach
us," the reformist newspaper E'temad-e Melli editorialized on Oct. 28.
"The price of OPEC crude has drastically fallen. ... It is not
possible to judge Iran's economy at the moment because we are in the
eye of the storm and faltering. We have lost the last three years when
we could have provided a strong cover for the country with the
revenues from the high price of oil."
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