Teaching Comparative Government and Politics

Wednesday, March 18, 2015

The bounds of state power

Economic, political, and diplomatic limitations on Iranian policy makes any action less effective.

Fading hope

TO TEHRAN’S businessmen, they are known as the tea-ceremony set: foreign day-trippers sizing up the bounty that could be on offer if Iran’s supreme leader, Ayatollah Ali Khamenei, takes the plunge and backs a conclusive nuclear deal with the West…

With a population close to 80m and the world’s 18th-largest economy, Iran could be an attractive market. Hassan Rohani, its outward-looking moderate president, argues the case for foreign investment and the jobs it could create. Yet his hopes of opening up the economy are stymied not just by sanctions and the elusive hope of a deal that would lift them. He also faces strong opposition from hardliners in Tehran, many of whom bridle at the notion of foreign companies on their turf. And time is not on his side. Iran’s economy is suffering from the effects of sanctions, a plummeting oil price and decades of mismanagement, not to mention the cost of funding militias and dictators in the region. Youth unemployment is rising and living standards are falling.

The president’s team of technocrats has had some successes…

Yet many of these gains are now at risk because of low oil prices. Although Iran’s economy is less dependent on the black stuff than some others in the region, it still accounts for 42% of government revenues…

The squeeze on government revenues is setting Mr Rohani on a collision course with Iran’s powerful Revolutionary Guards. The military force that underpins Iran’s clerical regime has a sprawling commercial empire. With their control of seaports and multiple land borders, guard commanders have become rich sanctions-busting traders, dabbling in industries from telecoms to banking. When Mr Rohani speaks of the need for “monopolies” to pay their taxes, people know exactly who he means…. Mehrdad, an Iranian-American [said,]“When the Sepah [army] import from China and don’t pay any taxes, well, it makes guys like me unviable.”

The optimism that a nuclear deal would soon see sanctions lifted has largely evaporated. Domestic investment has stalled. Several state-owned banks are said to be close to collapse. Efforts to circumvent sanctions have made an already corrupt country worse…

Foreign business visitors continue to pop in for tea, but the numbers have dropped sharply in the past quarter, according to a European airline manager in the capital. Other indicators also suggest that hope is fading…