Drain on economy from war with Iraq forces Iranians to learn to get by with less

Under the mullahs, Iranians have learned to tighten their belts. This trend has proved beneficial, according to a commercial attach'e with a European embassy here, because during the last years of the imperial regime the government was spending a lot of money, pushing up inflation.

Western businessmen, too, say that Iran's new rulers have proved better at managing their economy than anyone had anticipated. This, they say, is despite slow world oil markets and attacks on Iranian shipping. According to reports out of Bahrain, Kharg Island, which holds Iran's main oil terminal, has been hit by Iraq 10 times in five weeks. The extent of damage is unknown.

In the mid-1970s, under the Shah, Iran produced an average of 6 million barrels of oil a day bringing in $72 million, says a businessman. Now, Iran barely sells 1.6 million barrels daily, earning less than $45 million. The figures are clear: Iran is getting poorer.

In addition, this businessman continues, the five-year-old war with Iraq guzzles a third of Iran's annual budget.

A quick look at market stands in Tehran shows that, since the 1979 revolution, prices of most commodities have risen sharply. But the existence of two distribution systems -- one controlled by the government, the other free -- makes it difficult for a foreign observer to assess the real cost of everyday life.

Retail prices of government-controlled commodities have gone down recently, Iranians say. Two pounds of imported low-quality rice, bought with government food coupons, cost 90 rials ($1 at official rates) -- about the same price as under the imperial regime. But on the free market, two pounds of top-quality rice can cost up to 450 rials ($5) -- double the price under the Shah.

The standard of living for the poor is virtually unchanged, says a middle-class Iranian woman. This is mainly due to the availability of subsidized, low-quality commodities.

However, ``we [the middle class] have been badly hit,'' she continues, ``because our salaries remain unchanged. We now find it almost impossible to afford the quality products we were used to.''

Some Iranian officials say the economic problems are a resultIRAN27IRAN12 of the war. However, says one official with the Ministry of Labor, the fact that the economy has survived both the war and trade embargoes imposed upon it is itself a victory for the revolution.

``You have to realize,'' he says, ``that after the 1979 revolution most Western countries withdrew all their advisers from this country [and] many Iranian top managers fled. Nevertheless we succeeded in getting the economic machine going.''

But many foreign observers say that high prices and shortages are the result of state intervention in the economy. Many companies were nationalized after 1979 and are said to have become slow-working bureaucracies.

Private traders are also reportedly artificially pushing up prices with the aim of forcing the government to restore an entirely free economy. More and more deputies in the parliament, say Iranian sources and Western diplomats, favor a smaller state role in the economy.

One European, who has done business with Iranian companies for a decade, gives a basically favorable assessment of Iranian efforts to manage the economy.

``This country's new economic rulers are proceeding tentatively,'' he says. ``Just after the revolution everybody here was euphoric. Salaries rose sharply as factory output made a nose dive. Iranian imports of all kinds skyrocketed. When the war with Iraq broke out in 1980 the state's coffers were almost empty. The government thus embarked on a serious austerity program and forbade the import of nonessential goods.''

``The Cabinet . . . really did a tremendous job,'' he says. ``It reduced the country's foreign debt to almost nothing and restored the country's financial credibility abroad. By the end of 1982 the economy started picking up. But this recovery quickly got out of breath because the government was short of cash to sustain it.''

The only way to put the economy back on track, he says, is to end the war with Iraq.