Iran General NewsTehran begins to feel the pain of finance crisis

Tehran begins to feel the pain of finance crisis

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ImageWashington Times: 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.

The Washington Times

Gloating ends as slumping oil prices take toll on economy

Hadi Nili

TEHRAN

ImageWhen 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.

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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