Teaching Comparative Government and Politics

Wednesday, January 24, 2018

How things work in Iran

If you have any doubt about the opaque ways politics and economics work in Iran, here are some things to consider.

How Corruption and Cronyism in Banking Fueled Iran’s Protests

The weeklong demonstrations across Iran, centered in religiously conservative, working class towns and cities rather than Tehran, were the broadest display of discontent since the Green Movement protests in 2009… The outpouring of anger was directed not only at President Hassan Rouhani, who won re-election promising to revitalize the economy, but also the country’s supreme leader, Ayatollah Ali Khamenei…

Economic protest signs in Tehran last fall

The cascade of [bank] defaults, economists say, was not just the result of risky banking practices, but also a case study in official corruption — a major reason Iranians found their losses so infuriating. Adding to their outrage, Iranian officials made a series of statements blaming the victims for not being more careful with their money.

Many of the institutions... were allowed to gamble with deposits or run Ponzi schemes with impunity for years, in part because they were owned by well-connected elites: religious foundations, the Islamic Revolutionary Guards Corps or other semiofficial investment funds in the Iranian state…

Iranians have a term for the growing class of victims: “property losers,”…

The International Monetary Fund warned last month that Iran’s banks and lenders “need urgent restructuring and recapitalization,” calling for write-downs of overvalued assets and a crackdown on loans to insiders. The problem has grown so big, the fund warned, that the money required to prop up the banks will “cause government debt and interest outlays to rise substantially.”…

The corruption underlying the bank failures has long been an open secret. In December, a lawmaker, Mahmoud Sadeghi, released a document listing the Top 20 debtors who had failed to meet payment deadlines for Sarmayeh Bank, which is co-owned by a pension fund for teachers. The loans totaled $1.9 billion, and almost all appeared to be held by well-known insiders…

After the 1979 Iranian Revolution, the new Islamic Republic initially nationalized all banks, among other industries. It also created a variety of semiofficial holding companies controlled by the supreme leader, senior clerics or top military commanders. Over the years, many of the companies have evolved into sprawling conglomerates with major roles in even the ostensibly private economy.

Clerics controlled religious foundations, called bonyads, that acquired commercial businesses. The largest of these, under the supreme leader, now makes up “15 to 20 percent” of the Iranian economy, according to an estimate by Hooshang Amirahmadi, an economist at Rutgers University who studies Iran. The elite Revolutionary Guard Corps controls a separate business empire.

All the semiofficial holding companies have major advantages over private businesses in favorable access to capital, tax exemptions and political connections. And most or all of them have been plagued by accusations of inefficiency and mismanagement, in addition to insider dealing and other forms of corruption…

“The involvement of opaque government institutions like the Revolutionary Guards works contrary to transparency, and the lack of transparency is a recipe for poor banking practices,” said Sir Simon Gass, who was the British ambassador to Tehran from 2009 to 2011, in a recent interview…

When lenders began to fail over the past few years, some senior Iranian officials tried to blame the borrowers, noting that many of the institutions were not officially licensed or guaranteed by the Central Bank…

Mohammad Bagher Olfat, a Muslim cleric who is deputy chief of the judiciary, said that jilted borrowers shared the blame with the lenders and regulators…