Iran battles to bring economy back from brink

Sanctions not the only reason for Iran’s economic crisis, say experts

Mon, Jun 23, 2014, 01:00

“In my opinion, less than 10 per cent of our economic difficulties are due to sanctions,” Mr Laylaz says. “The first signs of economic crisis appeared in 2007, five years before the sanctions. The recession started in the summer of 2011, exactly one year before sanctions hit.”

Mismanagement and corruption under Mr Ahmadinejad, who ruled from 2005 until 2013, are the fundamental reason for Iran’s economic woes, says Mr Laylaz.

Under Mr Ahmadinejad, investment and productivity plummeted. The former president wanted to provoke economic sanctions, as shown by his repeated statements that the Holocaust was a lie, Mr Laylaz says.

Mr Khoshchehreh was briefly an adviser to Mr Ahmadinejad, but says he resigned when he realised the former president was irrational. “Ahmadinejad regarded sanctions as a scrap of paper,” the economist says. “I said at the time it was a stupid thing to say. Now [the authorities] understand, but it’s too late.”

In addition to his defiant, self-destructive bent, Mr Ahmadinejad was responsible for “the biggest wave of corruption in the history of the Middle East,” Mr Laylaz says. “They created a smokescreen and they looted hundreds of billions of dollars; between $300 and £400 billion in my estimation.”

Economic offences

Iranian media are filled with stories of corrupt former Ahmadinejad associates. Babak Zanjani is a well-known associate of Mr Ahmadinejad who called himself an “economic Basij” (after the volunteer militiamen) and once boasted to the BBC Persian service that he was worth $14 billion (€10.2 billion). The oil ministry says Zanjani owes it $2 billion.

Another close ally of Mr Ahmadinejad, the former first vice president Mohammad-Reza Rahimi, has been charged with 27 economic offences, including embezzlement. A parliamentary probe recently found 150 billion rials went missing at Iran’s Martyrs Foundation under Mr Ahmadinejad.

Postponed loans were the most common form of corruption, Mr Laylaz says. During Mr Ahmadinejad’s first term, Iranian banks made between $100 billion and $150 billion in unsecured loans to the president’s cronies. “The government lowered interest rates and raised inflation by printing money . . . Some years, liquidity grew 40 per cent in this country. When inflation is 25 or 30 per cent, if you pay back your loan after 20 years, it costs you nothing.”

Mr Laylaz says Mr Rouhani’s administration is the best economic team in the history of Iran. But the economy shrank 6 per cent last year, and Mr Rouhani admits he cannot hope for a return to growth before next year. “The only way to achieve growth is new capital and technology,” he said. “I’m not saying that if sanctions stop we will not have unemployment. But ending the sanctions will help.”

“The purchasing power of the average Iranian worker is 40 per cent less than three years ago,” Mr Laylaz says. “For government employees, it’s 50 per cent less. Consumption of milk has dropped 25 to 30 per cent – it’s that bad.”

To create jobs, Iran needs 6 per cent annual growth, Mr Laylaz says.