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Iran, Long Seen As An Economic Basket Case, Wins Praise From IMF

Iranian gasoline prices surged fourfold in December as the government started scrapping subsidies as part of a long-awaited overhaul of the economy.
Iranian gasoline prices surged fourfold in December as the government started scrapping subsidies as part of a long-awaited overhaul of the economy.
By Robert Tait
If you were seeking endorsement of Iran's economic policies, the International Monetary Fund (IMF) hardly seems like the ideal reference point.

The Washington-based institution is, after all, renowned for zealously promoting programs of public spending cuts and economic liberalization. Iran, meanwhile -- at least under President Mahmud Ahmadinejad -- has repeatedly forecast the imminent end of the global capitalist system.

Yet the IMF's latest report on the Iranian economy represents a surprising departure from expectation by lauding the Islamic regime's success in cutting inflation and praising the sweeping abolition of subsidies introduced by Ahmadinejad's government.

"Real GDP growth recovered to an estimated 3.5 percent in 2009/10 despite the drop in oil prices. The positive growth momentum continued in 2010/11," states the report, which was based on the visit of an IMF mission to Iran between May 28 and June 9.

It goes on to praise the "authorities' monetary policy" in bringing inflation down from 25.4 percent in 2008/09 to 12.4 percent in 2010/11.

On Ahmadinejad's subsidy reform plan -- which ended a range of lavishly generous subsidies on a wide range of items in December 2010, provoking bitter rows between the president and Iran's parliament -- the report is positively effusive.

"The mission commended the authorities for the early success in the implementation of their ambitious subsidy reform program," it writes. Price rises in areas like energy, public transport, wheat, and bread have resulted from the removal of $60 billion of subsidies, according to the report. But as a result, it adds: "The redistribution of the revenues arising from the price increases to households as cash transfers have been effective in reducing inequalities, improving living standards, and supporting domestic demand in the economy."

At Odds With Popular View

The report acknowledges that the abolition of subsidies could result in "transitory" economic slowdown and "temporary" spikes in inflation but is upbeat in saying "it should considerably improve Iran's medium-term outlook by rationalizing domestic energy use, increasing export revenues, strengthening overall competitiveness, and bring economic activity in Iran closer to its full potential."

The portrait seems at odds with the popular view of Iran's economy, which is commonly described in the West as sick, mismanaged, and under-performing. A recent report from the Heritage Foundation, a Washington-based conservative think tank, labeled Iran's economy "repressed" and ranked it 171st out of 179 countries in a league table for economic freedom.

The report's most revealing aspects, one analyst says, lie in what it omits to say about Iran's economic situation.

Anecdotal accounts from inside the country frequently depict an economy that is stagnant and lumbered with persistently high unemployment, leaving a population laboring under rising prices and depressed living standards.

Independent economists, too, question whether the IMF report paints an accurate picture.

Mehrdad Emadi, an Iranian economic specialist with the London-based Data Matrix Systems, says the fund is wrong about Iran's inflation rate, which he believes is closer to 30 percent. The discrepancy, Emadi believes, is because the fund's economists have had access only to selective data provided by Iranian officials.

"The data is entirely government data. They don't make any references to commercial sources," Emadi says. "Also, the data is not publicly available to even internal organizations -- organs like the parliament's budget commission. That does not necessarily mean the data is tarnished or not reliable. It just means that the data is not easily verifiable. Regardless of whether this was the U.S. government, the Iranian government, or the British government, if the data is not verifiable I feel uncomfortable about [these conclusions and analyses]."

Only 'On The Surface'

At the same time, the IMF may have taken the subsidy reform plan out of its proper local context, Emadi argues, by failing to identify the takeover of the Iranian economy by companies linked to the powerful Islamic Revolutionary Guards Corps (IRGC).

"The IMF institutionally, they really like the idea of markets being pushed towards real prices, taking out distortions, which subsidies are. On the surface, Iran is trying to do that," he says. "But it's really not, because Iran is moving from a model of general subsidies to a model of income support for firms and organizations which are going to be now connected to us [the government] -- i.e., through a Revolutionary Guard network of firms, which are going to be getting everything at preferential rates. The IMF is looking at the picture it is getting and is ignoring what I would call the widespread creeping of Revolutionary Guard firms into the economy at every level."

Shaking it up: President Mahmud Ahmadinejad
In fairness, Ahmadinejad's subsidy shake-up has been praised by other outside observers. In February, Suzanne Maloney, an Iran specialist at the Brookings Institution's Saban Center, called the reform a "serious and rational response" to Iran's economic problems with "the potential to spur a virtuous cycle of economic liberalization."

"Most powerfully, the reforms could create a sense of individual ownership in the economy by giving Iranians greater control over the spending of the national wealth," she wrote.

Yet to Jamshid Assadi, an Iranian economist at the ESC Groupe Business School in Dijon, France, such assessments fail to take heed of the parlous state of Iran's finances and their impact on ordinary citizens' living standards. Iran's Central Bank, Assadi believes, is running short of money -- leaving the government unable to provide the cash handouts that were meant to compensate for the subsidy cuts.

"They even want to reduce the cash subsidies to the households," Assadi says. "They don't have money and they have said that some households who are well-off, we don't give them money and we give to the poor people. They consider that by the new calculation of the government, they are going to give money almost to less than one Iranian out of four. But the rate of poverty in Iran is much higher than the proportion of one of four."

The report's most revealing aspects, according to Assadi, lie in what it omits to say -- by dint of the IMF's requirement to use diplomatic language and limit itself to official statistics. Beneath the apparently upbeat exterior, the findings are not really positive.

"If you read carefully the report, it's not that positive," Assadi says. "It says, for example, the rate of growth is fantastic -- it's 3.5 percent. But 3.5 percent to anybody who knows that Turkey has a rate of growth much higher, it shows that Iran is not doing greatly. Almost every country around Iran is doing better. But the IMF is an official institution, so they cannot be very critical and very often when they get information and data, these are official information and data that they put in the report. So I really don't see a lot of positive things when I read this."
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Comment Sorting
Comments
     
by: Mehdi from: Tehran
June 16, 2011 19:27
You are skeptical about every thing positiveabout Iran. You tend to fool yourself into thinking that anything positive about Iran is not reliable. Iran will not lose from your prejeudices and blind skepticism. It's only you who are trapped into self-deception.
In Response

by: Boris from: Bulgaria
June 17, 2011 17:58
This article is not just skeptical. This is the official propaganda of RL- Iran is bad no matter what.
In Response

by: RD
June 27, 2011 01:48
Boris, you are a product of unjust western propaganda. Bunch of folks in the west, who sit in their offices in Virginia, Washington, condemn Iran without ever having been there, and then go home to their suburban homes. I am not Iranian, but I have been there a number of times, and most of what is said about Iran in the west is inaccurate. I would explain more, but I don't think you have the mental capacity to understand.

by: Siam Erzuah from: Alexandria Virginia USA
June 16, 2011 23:25
I believe Iran is soon going to be the most developed Muslim country in the world and technologically, the most advanced. This so-called third world country makes everything from cars to airplanes and now space vehicles. Moreover, it has a very sophisticated health system, in some areas even more advance than the Western countries. When I read about Iran launching space vehicles, and observe a country like Saudi Arabia trapped in a quagmire of hate against these Iranians, while simultaneously swimming in a sea of indolence, then my heart starts bleeding for these Arabs. Iranians are proving to be very smart, and if I were a saudi decision maker, I will rather think of forming an alliance with such a fast developing country rather than looking at them through a Shia/Sunni prism and spending 70 billions dollars to buy American weapons. Guess what, the Saudi soldiers are even too lazy to learn to operate those weapons anyway. The saudis tend to hire Pakistani solders to fight their wars for them. How did I know that? My Pakistani soldier friend told me that---and I believe him.

I did not write the above just to criticize the Saudis; I wrote out of the abundance of love I have for that country. But with the current direction that its going, I do not see the Saudis becoming scientifically advanced enough to be doing what the Iranians are doing all by themselves.

by: Rostam from: Tabriz, Iran
June 17, 2011 00:09
I wonder how many of the individuals who criticize Iran's economy have ever been to Iran recently or even can find Iran on a labeled map of the world. Iran is under complete economic sanction by the western developed nations for no reason other than pleasing Israel. Even with all of that, virtual ban on using Dollar and Euro, Iran's economy has grown by 3.5%. The elimination of subsidies in Iran has been smooth and successful. Imagine a similar subsidies elimination or even reduction in a country like Saudi Arabia would soon chop Saudi out of the country's name. It looks like Iran is doing it right, no matter what the west thinks and does. There has been much talk about Iran's nuclear development, but home grown Iranian technologies for supporting Iranian industries has been comprehensive. For example Iranian steel industry was reliant on european technologies and materials, making it very uncompetitive, now all materials are manufactured in Iran, supported by local industries making it independently viable. The same can be said of copper industry. There is so much going on in basic industrial development in Iran, not to label it as phenomenal will not do justice to truth. Who is this Assadi you are quoting who seems to have an agenda, without any hint of evidence he says Iran is doing worse than all the neighbors. Which neighbor? Pakistan, Afghanistan Iraq or the former soviet republics? The best among them Azerbaijanis on a daily basis line up on Iranian border to come over and buy affordable food? Give me a break. Turkey isn't a good example. Their growth is codependent on Europe and US and their trade with Iran is also contributing to their growth. Someone should tell Assadi to go back to college to get another degree. Or buy a ticket go to Iran and see what is really going on. Iran is rising and the US that has never really been hated by Iranians better get realistic and make friends with Iran, as all the puppets in the middle east will eventually fall.

by: Kiumars from: Iran
June 17, 2011 08:23
With regard to economy, actually it is the western world that is on the verge of another collapse! Who will bail them out this time?
As we say in Parsi; Hassood Hargez Na-yasoos!

by: Arash from: Denmark
June 17, 2011 11:44
It is alarming to read biased "Independent economists" outside Iran. It should be clear for any journalist that these "independent" Iranians living outside of Iran, for the most part anti IRI. Would one ever believe that these economist would praise any Iranian economy politics? In any way?

The truth is that Iran as developing country is on the right path, in contrast to most western countries. You can discuss if the economy is living up to its potential, but that is going to be a highly subjective discussion, for all we know, is that the western world is going do downplay any Iranian success.

What gets really clear of mr. Jamshid Assadi incompetence, is hes comparison of Iran and its neighbors. This is a true indication of neglect when it comes to economic understanding.

Mr. Jamshid Assadi says, "but 3.5 percent to anybody who knows that Turkey has a rate of growth much higher, it shows that Iran is not doing greatly"

One has to ponder, if this man even understands the arithmetics of a steady growth of economies? Iran a country under politically economic sanctions have shown a 3.5% growth, that is something astonishing for anybody understanding the Mideastern situation.

While we see and hear reports coming from NATO Turkey, that the gap between the social classes are getting wider for everyday, Iran has made big progress in closing on these gaps. In world where recession is lurking around the corner, most countries are cutting on social spendings, while in Iran we see the opposite.

My last point is going to be that the article dose not even consider commenting showing, Iran's bourse, which has shown remarkable growth, any credit. Again this omitting of facts all point to the biased reporting of the article.

One would like to at least bring some really independent economist into play about Iran's economy. One could for example ask a person living and working with Iranian economics about such matters.

- Arash

by: A READER from: WORLD
June 19, 2011 12:58
WHAT AM I READING HERE ON THE COMMENTS SECTION!!!! ARE THESE WRITERS OUT OF THEIR MIND??!! IRAN AND 3.5% GDP GROWTH!!!
THIS IS THE WORST LIE AND STUPID STORIES I HAVE HEARD FOR A LONG TIME. THE GAP BETWEEN THE POOR AND RICH IS LIKE THE EARTH AND THE SKY.... WHO HAS BEEN IN IRAN LATELY?? LOTS OF ORDINARY PEOPLE CAN NOT EVEN AFFORD TO LIVE THEIR ROUTINE LIFE. YOU HAVE NO RIGHT OF NOTHING EVEN TO PURCHASE A KILO OF CUCUMBER. THIS COUNTRY IS WAY DOWN THE HILL AND THERE IS NOTHING TO HOPE FOR THE POOR PEOPLE. THERE WAS TIME, THERE WAS POOR AND NEEDY AND THEN THERE WAS MID PEOPLE AND THE RICH. TODAY IS THE POOREST AND THE RICHEST DRIVE $300K CARS, WHILE SOME ARE DESPERATE FOR THEIR FAMILY BASIC NEEDS. SO, PLEASE GET ON WITH YOUR REALITY IN LIFE. OPEN YOUR DAMN EYES AND STOP B.S HERE. YOU MUST BE ONE OF THOSE CRIMINALS WHO HAVE JAILED THE YOUNG AND THE OLD IN PRISONS, BECAUSE OF THEIR VOICE. WE ALL ARE WAITING FOR THE TIME TO COME. THE TIME TO SEE EVERY ONE OF INCOMPETENT MULLAHS TO BE HUNG FROM EACH TREES IN THE STREETS OF CITIES IN BEAUTIFUL IRAN. BUT AS LONG AS THESE CRIMINALS, WHO ARE PLACED BY THE ISRAEL AND THE BRITS THEMSELVES ARE IN POWER NOTHING WILL GET BETTER. DONT FORGET. NOTHING IS FOR EVER.
In Response

by: European from: EU
June 20, 2011 15:07
I must be mistaken - in the article there is no mention of the USA - we talk about IRAN.
Only in the (US) States people sleep in the woods or on the street, because their government (AIPAC) is rather paying for the Israeli Askenazy and Khazar jews than their own countrymen and women.
But Inshallah their downfall is near
In Response

by: A READER from: WORLD
June 20, 2011 16:15
WELL, MULLAHS WILL GO TO HELL FIRST, BEFORE THE USA. THE HISTORY HAS SHOWN.
ALSO, YOU MUST BE ONE OF THOSE WHO GETS TRAINED BY THE JEWS AND THE AMERICANS FIRST, THEN GET INTO THE PLANE AND GO INTO THE BUILDINGS TO SHOW THE "INSHALLAH" B.S.
GET A LIFE DUDE.

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