With Reforms in Tatters, Iran's Economy Staggers

BIJAN never fails to arrive at work on time. To most passersby, it's just another patch of sidewalk; to Bijan, it's an office. ``This is my spot,'' he proclaims proudly. ``You can always find me here. Sometimes I earn a little, most times I lose,'' he admits.

Bijan is one of hundreds of young Iranians who fan out along Ferdowsi Avenue in downtown Tehran, changing money for a living. Some wave thousands of dollars at passing cars; others squat in front of neat stacks of British pounds, German marks, or French francs. Every currency has its price. Around 10 a.m., the atmosphere is tense, as hundreds of radios tune in to the Hong Kong stock exchange.

Currency volatility

Currency speculation has become the latest fad in Iran and a problem for President Hashemi Rafsanjani, who legalized money changing in March 1993. The Iranian rial has been devalued by one-half and continues to be so volatile - moving as much as 15 percent in one day - that the government brought back an artificial exchange-rate system in June to impose some stability on the currency.

Speculation makes life difficult for ordinary Iranians. Most goods in the bazaar are regularly repriced according to the changing rate, leaving fixed-income families struggling to pay basic food bills. ``They are gambling with the people,'' says one dissatisfied Tehrani as the day's latest exchange rate is announced.

Businesspeople have long abandoned hope of a steady cash flow. ``It's impossible to plan,'' says Gholam Jafari, an electronics retailer in Tehran's bazaar. ``It's impossible to invest. No one knows what the situation will be the next week.''

Iranian employees supplement their meager incomes by taking extra jobs in the informal service sector. Government employees, who earn the equivalent of $60 a month, drive taxis by night or become private tutors. Those such as Bijan who have little higher education line the streets of Iranian cities to change money or sell cigarettes. Beggars have appeared in the streets for the first time since the revolution.

Iran's economic crisis stems from its almost total dependence on oil. Like other oil exporters, the Islamic republic has watched its hard currency revenues plummet since world crude oil prices dropped 30 percent last year.

Oil exports of $18 billion in 1992 - which amounted to about 90 percent of Iran's hard currency earnings - have slumped to a projected $10.15 billion this year.

The resulting economic crisis has placed Mr. Rafsanjani's liberalization program in jeopardy. Rafsanjani won a second presidential term in May 1993 advocating a reduction in the role of the state through privatization, liberalization of foreign trade, and an opening to foreign investment.

``Rafsanjani's economic program is in tatters,'' a senior Western diplomat in Tehran says. ``The government [has] gone back to a multiple exchange-rate system and imposed import controls. Privatization has gotten nowhere, and Rafsanjani's still moving slowly on subsidies.''

Rafsanjani's reforms, designed to inject a little capitalism into Iran's war economy, has already been undermined by a parliament suspicious of the free market. In early 1994, the president tried to reduce a hefty subsidy on gasoline - now selling for 2 cents a liter at Iranian pumps - but parliament voted down the proposal.

Rafsanjani estimated that the oil subsidy alone cost the country more than $5 billion a year in lost export earnings.

Keen to reduce its dependence on oil, the government has tried to build up a sizeable non-oil sector. State investment during Rafsanjani's first five-year plan (1989-94), as well as a limited amount of privatization, has boosted output and quality in the petrochemicals and steel industries.

``Our petrochemicals industry now produces most chemicals we need in farming,'' says Isa Kalantari, Iran's agriculture minister. ``In fact, output in our sector will increase by 6 percent this year.''

Boost for farming

Iranian farmland has benefited from several irrigation schemes funded by the World Bank. Improvements in packaging and marketing have enabled Iranian producers to find new markets in Europe and the Middle East for pistachios, dates, and fresh fruit. Iran is even selling its flowers to the Netherlands.

Yet there are dark clouds looming. In February, Iran rescheduled $8 billion-worth of short-term foreign debt after repayments arrears stretched to 18 months. Western estimates of Iran's total foreign debt vary between $15 billion and $30 billion; even Rafsanjani has given several different figures.

``One gets the impression that the Iranians have no idea what they owe the outside world,'' a senior United Nations official in Tehran says.

Iran opened huge credit lines to fund consumer imports after the end of the eight-year war with Iraq in 1988. Much is short-term debt - expensive to service and quick to mature. A further $8 billion is thought to fall due this year, and it is unclear whether Iran has the resources to meet its obligations.

In the meantime, prices continue to rise by as much as 60 percent a year. Even civil servants are scornful of the government's apparent incompetence. ``The economy's falling apart,'' a long-time ministry employee says. ``No one seems to know if there is even a policy anymore.''

A senior Western diplomat agrees: ``The best the Iranians can achieve is to bump along as they are doing.''

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