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Iran Looks To 'Resistive Economy' To Fight Sanctions

Iran is facing a chronic shortage of currency for its industrial projects.
Iran's economy is under attack, and to counter the financial "warfare" being waged against it from abroad Tehran is developing a new weapon.

The "resistive economy" is intended to wean the country of its heavy dependence on oil revenue through fiscal belt tightening, increased industrial output, and the strengthening of science to boost technological innovation.

The initiative comes in response to international sanctions imposed over Iran's nuclear program that have hampered Iran's ability to conduct international trade and targeted its economic lifeline -- oil exports.

In outlining the strategy, Supreme Leader Ayatollah Ali Khamenei recently described Iran's dependence on oil income as a destructive addiction that must be cured.

"We must believe that the country will reach a point some day when it will be able to close its oil wells whenever needed," Khamenei said in a July 29 speech to researchers and innovators broadcast by state radio.

Currency Shortage

That day, however, could be a long way off. Considering that oil accounts for about 80 percent of Iran's foreign income, experts suggest that it would take five to 10 years under a comprehensive economic overhaul before the country's economy could withstand such a shutdown.

Even then, explains London-based economist Mehrdad Emadi, reaching that capability is "highly unlikely, if not completely unattainable" due to Iran's depleted coffers.

"Iran at the moment is facing a chronic shortage of currency for its industrial projects. These are exactly the projects that could actually help increase the export of manufactured goods," Emadi said.

"And, probably more importantly, we now are at a crossroad where more than 75 percent of food bills; that is, imported food products -- are directly financed through currencies and via export of oil. So the economy does not have a buffer in terms of [foreign-currency] reserves nor the capacity to export in other areas."

Iran is not in a good position for fiscal maneuvering.

Crippling sanctions imposed by the United States and the European Union have blocked Iranian banks from using the international banking network SWIFT to conduct financial transfers, prompted countries to stop importing Iranian oil, and led many international companies to stop supplying manufactured goods to Iran.

"Any economic move we make, any credit line we open, the next day we see a problem has been created from the other side," Industry, Mines, and Commerce Minister Mehdi Ghazanfari said in an August 7 speech reported by the Islamic Republic News Agency. "They've blocked the credit, they've prevented money from being transferred. Their moves and actions are taking place each minute against ours."

The sanctions also appear to have harmed industries and alternative sectors of the economy that Iran would have to depend on to successfully develop its diversification strategy.

Iran's Supreme Leader Ayatollah Ali Khamenei has said Iran's dependence on oil is a destructive addiction.
Iran's Supreme Leader Ayatollah Ali Khamenei has said Iran's dependence on oil is a destructive addiction.
One short-term fix, suggests economist Emadi, would be for Iran to quickly expand its natural-gas sector. But while the country boasts the second-largest gas reserves in the world, the sector faces major technical and financial obstacles. And several foreign companies, including Italy's Edisonm, have already scrapped their contracts and left Iran to avoid sanctions.

Tehran has touted manufacturing as another avenue to financial stability. But there, too, trouble looms.

Iran's automotive industry, which ranks next after the oil and gas sector in terms of revenue generation, has sent mixed messages.

The country's leading automaker, Iran-Khodro Company, this month announced that it expects a "boom" of 45 percent in export sales to its main markets Russia, the Middle East, South America, and Africa. The company has touted the arrival of a new, domestically produced and designed compact car, the Runna, and says sales interest is high. It also has high hopes for its revamped sedan, the Samand, which is exported to Russia via an assembly plant in Belarus and is also produced in Iraq.

But at the same time, the Industry, Mines, and Commerce Ministry announced in July that overall domestic auto production dropped 36 percent in the first quarter of the Iranian year (March 21 to June 20), citing "lack of money," according to ISNA.

Production Decline

That fall is directly related to the decision in March by Peugeot Citroen, which accounted for 40 percent of Iran's domestic production through its partnership with Iran-Khodro, to stop supplying parts and assembly kits to Iran. The move was believed to be a result of the tightening of sanctions against Iran.

Iran-Khodro last month claimed it was making up for the setback by producing its own parts, but economist Emadi says the effect of sanctions is significant.

"Iran-Khodro, which is the largest car manufacturer in Iran, recently announced that from [September] they're going to start reducing output [because of] the impact of sanctions," Emadi said.

"They did not itemize how this impact was affecting them, but basically the reason was that they do not have foreign currency to buy spare parts and replacement parts for the equipment to continue the level of output."

Iran's other major car manufacturer, Saipa, is also reportedly facing a decline in production.

"It is not good for the economy when manufacturing runs into problems," parliamentarian Seyyed Moayed Hoseyni-Sadr said in a July 27 interview published by Iran's Young Journalists Club. "Two-thirds of the country's manufacturing plants are either shut down or operating at minimum capacity," he said, estimating unemployment at 17 to 18 percent.

Officials, including Supreme Leader Khamenei, have said that for the "resistive economy" to succeed, the private sector needs to be strengthened.

But analysts such as Hossein Askari, Iran professor of International Business and International Affairs at George Washington University, have their doubts.

Reforms beyond the economic sphere, Askari says, are needed for the Islamic republic to find the economic success that has eluded it since the beginning.

"If they were going to have a thriving private sector, why haven’t they done it for 33 years? The reason why they have not done it is because there is a great deal of corruption," Askari said.

"They could not build efficient institutions, and the most important element [to eliminating corruption] is the rule of law -- that no one is above the law, including the supreme leader or anyone else. So they have not been able to do that."
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    Golnaz Esfandiari

    Golnaz Esfandiari is a senior correspondent for RFE/RL focusing on Iran. She has reported from Afghanistan and Haiti and is one of the authors of The Farda Briefing newsletter. Her work has been cited by The New Yorker, The New York Times, The Washington Post, and other major publications. Born and raised in Tehran, she is fluent in Persian, French, English, and Czech.