Economic crisis in Iran

16 April 2010

In the coming year Iranian workers will continue to have to live below the subsistence level. In addition, hardly any growth is forecast for Iran's economy despite the country's high oil revenues.

Iranian economists have calculated that an Iranian worker needs to earn at least ‚¬337 a month in order to cover minimum material needs. This is the minimum level of food, clothing, accommodation and medical care they say is necessary to enable physical survival in Iranian society.

Other independent Iranian economists have even set the subsistence level for Iranian workers living in towns at ‚¬599. Urban life, they claim, is much more expensive than life in the country.

Iranian Workers Living Below the Poverty Line

As reported by the BBC Persian service, Iranian workers will have to make do with a predicted average income of around ‚¬227 a month. That is ‚¬110, ie 33% below the poverty line. This dilemma has even caused Hadi Moqadessi, Vice Chairman of the Commission for Social Issues in what Iran calls its parliament, to conclude that the minimum income for the Iranian new year, which began on 21 March, is not enough to support a worker's family.

Iran's Minister for Work, Abdolreza Sheik al-Islami, nonetheless claims that he knows of no fixed amount that marks the threshold to poverty. Iranian workers' activists have been protesting that the government is ignoring their social problems.

Reza Derakhshan, a worker at an Iranian sugarcane plant in Hafttapeh in the Iranian province of Khuzistan, said that a sugarcane plant in his town was closed due to high sugarcane imports. This not only resulted in the workers being dismissed; some even had legal action taken against them, BBC Persian reported.

Fall in Inflation while Economy Stagnates

Fereidun Khavand writes that last year inflation in Iran fell from 25% to 11%.

According to figures from the International Monetary Fund (IMF) the average rate of inflation for states in the Middle East and Central Asia is only 7%. Iran's economy shows no growth, however, and a drop in inflation is only good news for the economy if economic growth is "at worst" not in decline. Fereidun Khavand adds that for the past two years the Iranian government has refused to publish figures for the Iranian economy. The last official data on economic growth to have been disclosed by the Iranian Central Bank dates from April 2008. At the time official figures put economic growth for the months of February until April 2008 at around 2.3%.

According to IMF figures economic growth in Iran for the years 2006 and 2007 was around 6.6%. Despite high income from the oil industry, economic growth for 2009 was only 1%. For 2010 the IMF predicts a growth rate of 2.2%.

Fereidun Khavand emphasises that Iran's economy requires a growth rate of around 8%. This means that the drop in the inflation rate is by no means a good sign for the Iranian economy. The only reason prices did not rise in Iran last year is that the Central Bank pursued a restrictive monetary policy in 2007 and 2008, reducing the amount of money in circulation. If the Iranian Central Bank had refrained from a restrictive monetary policy this year and instead pumped a large amount of the considerable income from oil revenues into Iran's domestic market, there would have been a much steeper rise in inflation.

It was not until 2009 that the Iranian Central Bank once again channelled oil revenues into the Iranian market, causing a noticeably higher rate of inflation.

Iran's inflation level also rests on its policy of state subsidies. To name an example, foreign currency is subsidised in Iran, since the more foreign currency is subsidised, the higher the rate of imports. This does, however, stifle growth on the domestic market. A rise in imports can cause runaway inflation.

Iran's high state oil revenues are resulting in a steady increase in foreign currency reserves. Iran's Central Bank keeps the value of Iran's currency artificially high in order to sustain the high level of imports. This in turn ensures that price increases of imported goods are kept low, and the purchasing power of Iranians is kept artificially high. Fereidun Khavand states that this economic policy is the exact opposite of that pursued by China. China keeps the value of its currency artificially low in order to boost its exports and keep its imports at a minimum. The Iranian government on the other hand boosts imports by keeping foreign currency costs low and making exports more expensive.

This all raises an obvious question: who exactly profits from this economic policy pursued by Iran's dictatorship? It is the Revolutionary Guards who virtually control Iran's entire economy, enforcing whatever serves their profit interests and relying on the Bassiji forces to crush demonstrations by workers.

This totalitarian control through the Revolutionary Guards nonetheless does nothing to change the capitalist laws of economics, despite the Guards now taking on the role of capitalist entrepreneurs.

If foreign currency is ever allowed to regain its real value, which is inevitable, the task of controlling inflation will provoke new conflicts to which not even the totalitarian dictatorship will be immune.