Iran General NewsBeginning of the end for Iranian president's honeymoon period

Beginning of the end for Iranian president’s honeymoon period

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Financial Times: Complaints about rising chicken prices during the holy month of Ramadan mark the first widespread disquiet about president Mahmoud Ahmadi-Nejad, just two months after he became Iran’s president. Financial Times

By Najmeh Bozorgmehr and Gareth Smyth

Complaints about rising chicken prices during the holy month of Ramadan mark the first widespread disquiet about president Mahmoud Ahmadi-Nejad, just two months after he became Iran’s president.

While Mr Ahmadi-Nejad remains popular, some who voted for him are asking when he will deliver on election promises to reduce unemployment of 12 per cent and distribute “oil money to the people’s sofrehs [dining cloths”>”. High oil prices are a double-edged sword for Mr Ahmadi-Nejad, swelling government coffers, but increasing public expectations. “Oil is over $50 a barrel … so where’s the money going?” asks a 40-year-old manual worker in Tehran.

Ayatollah Ali Khamenei, Iran’s supreme leader, last week acknowledged public concerns in Friday prayers, saying it was “unfair to drag the government to the table of expectations after only two or three months”. Private business was wary of Mr Ahmadi-Nejad’s rhetoric even as he won June’s landslide election victory, but is now approaching a crisis of confidence. “Name me one sector that is working,” says a government official.

The Tehran Stock Exchange (TSE) has dropped 20 per cent since the election, with the Tehran price index (Tepix) closing on Monday at 10,014, perilously close to the psychological 10,000 mark level. Yesterday the exchange was closed for a public holiday.

A sense of malaise in the economy has resulted both from Mr Ahmadi-Nejad’s statist rhetoric and from tension with Europe and the US over Iran’s atomic programme. Hossein Abdeh-Tabrizi, secretary-general of the TSE, has linked falling share prices to the nuclear issue. Business circles welcomed the new government’s economic team and applauded parliament’s plan to reduce subsidies on the sale of imported petrol, but Mr Ahmadi-Nejad has himself spread confusion over the government’s direction. The president reacted to falling share prices by calling on public bodies, which own about 80 per cent of shares, to control the decline. At the same time, the commerce ministry banned cement exports to help meet domestic demand, hitting the cement companies which comprise about 30 per cent of the bourse. “The government seems to jettison long-term policies [favouring the market”> for short-term reasons and so it’s not clear where it’s heading,” says an economy analyst.

Iran’s private businesses are also worried about possible UN Security Council sanctions over Iran’s nuclear programme. Questioned last Thursday by reporters, Mr Ahmadi-Nejad refused to deny that Tehran is blocking letters of credit for companies from South Korea, the UK, Argentina and the Czech Republic, countries that last month voted for a resolution at the International Atomic Ener-gy Agency finding Tehran in “non-compliance” with the nuclear non-proliferation treaty. “Economic relations have to be balanced with political relations,” says Mr Ahmadi-Nejad.

South Korean direct and indirect exports to Iran and its investment – mainly in the oil and auto sectors – were about $3bn in 2004. “When you compare this with Korea’s $55bn trade surplus with the US, it’s hard to see what Iran thinks it can achieve from such pressure on Korea,” says the analyst.

Iran’s media have been rife with reports of capital flight, especially to the UAE, where thousands of Iranian companies have subsidiaries.

The private sector is aware it has limited clout in an economy dominated by the government and funded by oil. With Iran the second largest producer in Opec, Mr Ahmadi-Nejad is granted an apparent room for manoeuvre by oil income – expected to reach $45bn in the current Iranian year – that makes up 80 per cent of export earnings and 60 per cent of government income.

But in politically volatile Iran, he still has to deliver on his pledge of “social justice”. “We are poor people living in an oil-rich country,” says a middle-aged man in the southern city of Shiraz. “We should feel some benefit.”

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