Accessibility links

Breaking News

Official Iranian Glee Over 'Failure Of Global Capitalism' Ignores Painful Realities


President Ahmadinejad's provincial visits frequently include talk of cheap loans and other costly pledges.
President Ahmadinejad's provincial visits frequently include talk of cheap loans and other costly pledges.
With much of the world grappling with government bailouts and other fallout from financial turmoil, leaders in Iran have hailed the ongoing crisis as the end of capitalism, saying the West is "being punished by God with a recession."

They also insist that Iran's "independent economy" will be unscathed by the worldwide crisis.

But Tehran-based economic experts warn Iran's leadership against excessive reliance on long-standing efforts to isolate their economy and the risk of plummeting profits from the sale of fossil fuels.

Supreme Leader Ayatollah Ali Khamenei recently suggested the crisis indicates that Western liberal democracy is on the verge of collapse.

President Mahmud Ahmadinejad, who rode to power on a pledge to spread oil and gas wealth equitably and who tirelessly denounces Western culture, described the crisis as "the end of capitalism."

Talk of international market meltdowns and credit crises has likewise found its way into Iranian mosques, too. In a sermon at Tehran's main mosque last week, one ayatollah warned European and Arab countries not to tie their future to the United States, "because the financial crisis shows the U.S.'s failure."

The perceived schadenfreude has gotten bad enough that it prompted influential Ahmadinejad rival and ex-President Ali-Akbar Hashemi-Rafsanjani to caution his countrymen against gloating over the global financial situation.

Many Iranian leaders appear to believe the ongoing crisis will not affect Iran, saying they'll escape turmoil because their economy has grown increasingly independent since the 1979 Islamic Revolution.

Indeed, while world markets have plummeted this year, Iran's stock exchange -- the Tehran Bourse -- has been moving in the opposite direction. While share prices have softened in the most recent days, Iran's market has broadly seen prosperity all year, with share prices rising up to 20 percent in value.

Economists attribute the Iranian stock exchange's relative strength to a lack of foreign investors and government control over the economy.

"The fact that the international crisis didn't have much impact on the Iranian economy doesn't mean that the Iranian economy is strong -- it means it is an isolated economy and separated from international development," says Mohammad Ghuli Yusufi, a Tehran-based economist. "So successes in the world economy wouldn't have an impact on the Iranian economy and likewise, the international crisis wouldn't do any good to improve the situation in Iran. The situation here, really, is not good. We have experienced many hardships and continue to experience them."

Seller Beware

Despite their public cheers over the international financial dilemma, Iranian officials acknowledge that the crisis is curbing world demand for oil and pushing prices downward.

That's sobering news for an oil-rich country that depends heavily on hard-currency revenues from the hydrocarbon exports.

While Ahmadinejad has appeared delighted by the worldwide financial crisis, the fallout could adversely impact on his political future, too. Ahmadinejad came to power promising to fairly distribute the country's oil wealth among the Iranian people and improve living standards for the poor.

During the president's frequent trips to Iran's provinces, he regularly promises cheap loans to the poor. Such pandering is criticized by detractors as presidential pandering in an attempt to buy votes ahead of his bid for reelection in mid-2009.

When oil prices skyrocketed last summer -- reaching nearly $150 a barrel -- Iran reportedly made up to $7.5 billion a month from oil sales, and Ahmadinejad could afford a public-spending spree.

But with oil prices down to less than half that, Ahmadinejad is likely to have less cash to dole out during his presidential election campaign.

Food prices have soared despite high unemployment.
Yusufi notes that falling demand for oil "would deprive our officials of the opportunity to spend lavishly to correct or cover their mistakes, as they've grown accustomed to doing."

"With decreasing oil revenues, our officials are facing serious restrictions," Yusufi says, "they can no longer use oil money so abundantly in order to achieve their political or economic goals or to keep people happy by importing the goods people want."

The Iranian Central Bank warned this week that national oil revenues will have fallen some $54 billion short of forecasts by the end of this year.

Homegrown Trouble

There have been reminders of the Iranian economy's vulnerability even absent any obvious ties to the global crisis, however.

The official unemployment figure is 15 percent, although experts put the true jobless rate at closer to 30 percent. Inflation is said to be running above 25 percent, but food prices alone have risen by 40 percent over the same period last year. Even Iran's central bank acknowledged, in a virtually unprecedented disclosure earlier this year, that more some 14 million Iranians -- nearly one quarter of the population -- live in poverty.

Beyond decades of U.S. strictures on doing business in Iran, more recent UN sanctions aimed at curbing the country's controversial nuclear program have ensured that Western investors stay away.

Other investors are arguably more wary of political uncertainties in Iran.

"No one rushes to Iran to invest their money," says Mehdi Taghavi, a professor of economics at a Tehran university, "because everything here depends on the political situation."

"Shares here are currently rising, but it's very possible that they could all go down because of some incorrect political decision," Taghavi says. "There's too much political risk involved here. And there is, of course, isolation. Hence, foreign investors don't come to Iran."
  • 16x9 Image

    Farangis Najibullah

    Farangis Najibullah is a senior correspondent for RFE/RL who has reported on a wide range of topics from Central Asia, including the impact of Russia’s invasion of Ukraine on the region. She has extensively covered efforts by Central Asian states to repatriate and reintegrate their citizens who joined Islamic State in Syria and Iraq.

RFE/RL has been declared an "undesirable organization" by the Russian government.

If you are in Russia or the Russia-controlled parts of Ukraine and hold a Russian passport or are a stateless person residing permanently in Russia or the Russia-controlled parts of Ukraine, please note that you could face fines or imprisonment for sharing, liking, commenting on, or saving our content, or for contacting us.

To find out more, click here.

XS
SM
MD
LG