Teaching Comparative Government and Politics

Monday, December 07, 2015

Iran recovery from sanctions

The power struggle in Iran has major implications for what happens as sanctions are removed. Here's an optimistic report from The Economist.

Heavy lifting required: The removal of sanctions will be good for Iran, but also disruptive

ADHERING so far to the terms of its nuclear deal, Iran is now busy taking most of its uranium centrifuges out of operation. That is… the only way to escape economic sanctions. Optimists hope that if Iran can trade more freely with the outside world, living standards will rise; investors hope for fat profits…

No one doubts that Iran has potential. With almost 80m people, it is the world’s 17th-most-populous market; and many Iranians lack even basic goods. The country has competent farmers, carmakers, drug firms and a fairly sophisticated service sector, making it less dependent on oil… than other big producers such as Iraq and the Gulf states…

But by itself, sanctions relief will not transform the ailing economy. There are deep underlying problems, says Mohammad Khoshchehreh, a professor at Tehran University… “Sanctions are just part of it; there is a history of mismanagement, too,” he says.

Today Iran’s most pressing problems include double-digit inflation, slow growth, low productivity and a stubbornly high unemployment rate of 10.6%… Hassan Rohani, the president, inherited these problems from his predecessor, Mr Ahmadinejad, and has improved things somewhat…

Growth rebounded to 4.3% in 2014, a big improvement on the 6.6% contraction in 2012… Inflation has duly fallen from around 40% to under 20%…

Are the right reforms likely to happen? Few doubt that reformists within the regime would like to open up. The government is working on new contracts for oil investors which insiders say look appealing. But other areas, such as the hotel business, are murkier. “In Iran economics is inseparable from politics,” says Saeed Laylaz, an economist and reformist former MP. Some hardliners are scared that competition will undermine their own rent-seeking businesses. Currently they make easy fortunes from construction (power helps when you want a building permit) and smuggling goods that are subject to sanctions…

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