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Iran: Carpet Exporters Fall Victim To Economic Woes

By Freydoun Zarnegar and Charles Recknagel

Prague, 1 December 1998 (RFE/RL) -- Iran's most famous export -- Persian carpets -- is suffering hard times as the industry has fallen prey to the economic downturn in Iran.

Iranian Trade Minister Mohammad Shariatmadari said last month that revenues from exports of Persian carpets totaled some $1 billion in 1997, almost 45 percent less than five years ago.

Carpet exports -- Iran's top currency earner after oil -- have sunk from $1.8 billion in 1994 to some $1 billion in the last fiscal year which ended in March. Earnings are forecast to drop further to no more than $700 to $800 million this year.

The dramatic decline in carpet revenues comes as Iran's carpet manufacturers also have lost what traditionally has been their dominant place in the world market.

Producers say that up until 1992, Persian carpets accounted for almost half of the oriental rugs sold internationally. But they say that figure has dropped to less than one-third today.

One member of Iran's parliament, Mohammad Nobakht, has estimated that Iran's share of international carpet sales is now just 10 percent of what it was before the Islamic Revolution of 1979.

Nobakht, who addressed an emergency session of the parliament last month on ways to boost the carpet industry, blamed the loss of market share on past over-production without enough attention to quality, and a lack of diversity in carpet designs.

Meanwhile, Central Asian countries, as well as Turkey, Pakistan and India, have all managed to increase their share of the world market, according to experts.

The ill fortunes of the carpet industry reflect the growing economic woes of Iran, which have been deepening over the last years.

The industry is by far the country's largest employer, providing jobs to some two million weavers, who mainly work in small family businesses in villages. Another 300,000 people are employed in related industries.

Carpet producers suffered a major setback last year when the government directed non-oil export companies to sell the foreign currency they earned to the treasury to boost the state's hard currency supplies. The exporters resisted selling at the government-set exchange rate -- which they considered unfavorable -- and began to cut back production to reduce expenses.

The problems for Iran's businessmen have only grown this year with the sharp decline in the world price of oil, which normally supplies the Islamic Republic with 80 percent of its hard currency revenues. The drop in world oil prices -- which have repeatedly fallen to near 10-year lows below $12 a barrel -- has caused Iran's total foreign currency revenues for 1998 to plunge. The government now faces a deficit of some $6.3 billion, or roughly a third of its total budget.

Businessmen have directly suffered from the oil revenue shortfall because it has weakened the exchange rate for the Iranian rial. The cost of acquiring foreign currency has grown ever more expensive, making it difficult to import raw materials needed for production and forcing factories to close.

In one measure of the seriousness of the situation, the official unemployment rate has jumped in recent months from 11 to 13 percent. Independent estimates put the unemployment figure significantly higher. Analysts say the decline of the carpet industry points out the high cost of Iran's long dependence on oil as its sole major commodity. Iran is currently OPEC's second largest oil producer after Saudi Arabia.

Iranian government officials recognize the problem and often speak of the need to diversify exports to cushion the country against oil price fluctuations. Parliamentary speaker Ali-Akbar Nateq-Nuri said recently that oil "is an unstable product that cannot provide the foundations for a lasting economic development."

But efforts to boost non-oil alternatives -- such as carpets, pistachio nuts, caviar, and traditional Persian handicrafts -- have so far made little progress.

In an effort to cope with the impact of the lower oil prices, Iran's President Mohammad Khatami two days ago presented an austerity budget for the next fiscal year, which starts in March.

Khatami announced massive cuts in public expenses, including the closure of 11 or more "non-essential" embassies and a freeze on development projects and public sector hiring.

(Freydoun Zarnegar reports for RFE/RL's Persian Service.)