Successes and Failures of Rouhanomics

rouhanomics

According to President Rouhani, the recession in Iran is definitely over: Inflation is down from 40% to 15%, economic growth rose from minus 6.8% to 4% and Iran is ready to weather the dropping oil prices instigated by “some countries” (those who supported Iraq in Iran-Iraq war according to parliament speaker Larijani) to hurt Iran.

Others look at the same economy and can only see a nightmare which is becoming more volatile daily: they see an economy crashing along with oil prices, stock market and currency rates and a budget whose goals are not focused on economic successes but political survival. Or as an article in the WSJ put it –”Rouhanomics, in other words, is less about growth than it is about regime self-preservation.”

 

Rouhani’s 2015 budget soothes hard liners and allies

LEBANON-HEZBOLLAH-PARADE-ASHURAA country’s budget is a blue-print of its political agenda: It puts numbers on ideas and shows us not only what the government “thinks” but just how serious it is about issues that made it into the budget and those that didn’t. Since a country’s budget is “the walk behind the talk”,  let’s take a look at where Rouhani’s walk is taking Iran.

Take, for instance, a 48% hike in the IRGC’s budget in 2015. For the past few weeks, Rouhani attacked the IRGC, albeit never directly, for promoting corruption and for blocking sanctions relief which would hurt IRGC businesses. Despite these attacks, he found a way to give the IRGC a raise. Similarly, the Intelligence Ministry received a whopping 40% budget increase.

Why would a moderate president allocate so much money to military might? Because his foreign policy which began as a rapprochement to the West to lift sanctions has evolved into a joint manifest destiny with his neighbors and allies, namely Syria, Lebanon, Iraq and Gaza.

  • Damascus needs Tehran to end the civil war – a defected Syrian commander put it succinctly: “Assad sold Syria to the Iranians“.
  • Baghdad needs Tehran to end ISIS’s rampage – Iraqi officials, especially Shi’ite ones, praise Tehran while 7,000 IRGC troops moved into Baghdad.
  • Beirut & Gaza, Hamas & Hezbollah all need Tehran to continue to operate politically and militarily.

And all are eyeing Iran’s roller-coaster economy with fear and trepidation knowing that the flow of Rials, oil and ammunition could end in a flash despite this year’s budget.

 

The link between oil and sanctions

oilAlthough some economists explain the crash of oil prices on increased production of shale fuel in the US, Tehran, and most of the world, believe that the blame should be aimed at Saudi Arabia and the US. Although many Westerners scoff at “oil plot“, there is probably some truth to it: The Saudis don’t trust the UN nor the West to seriously hinder Tehran’s development of a nuclear bomb and regional domination and are hitting back effectively where sanctions have failed. As oil prices crashed by about 50%, so did Tehran’s stock market and its Rial and suddenly, Tehran, on the brink of a major economic turnaround brought on by the nuclear negotiations and deals which effectively circumvented sanctions, found itself crashing back down.

Tehran’s search for partners to circumvent sanctions was placed on high priority with Russia heading the list. Moscow had extended a hand to Tehran since the beginning of the nuclear negotiations last year but as time went by, that hand was filled with Rubles. High level deals of trading oil for food went on simultaneously with deals to build new Russian nuclear reactors in Iran. Moscow had found a business partner who was willing to settle for lower prices due to sanctions and possibly a political and military partner in Moscow’s never ending cold war with Washington. And then, the oil crash hit Russia and the Ruble followed the Rial’s catastrophic drop and suddenly it looked like two shipwrecked sailors helping each other on a life raft.

Rouhani may be a moderate but he is a politician first and he understands the need for hardliners to support him at least until a nuclear deal is signed. Without them, Khamenei could pull the plug on his foreign policy, sanctions would remain and Rouhani’s promise of moderacy would be shelved as an election slogan much like George Bush’s infamous “read my lips” promise on taxes.

 

Rouhani taxes his electorate, the middle class

iran-economy-rial-2012-1-26Rouhani won the election through a middle class who had had enough of Ahmadinejad’s anti-West rants and the resulting crippling sanctions. He offered them hope to lift all sanctions and preserve national dignity. Now, over a year and a half later, he will be stabbing them in the back with a 23% increase in taxes and hefty reductions in subsidies to the poor. Word leaked out that even Khamenei’s huge financial empire might be taxed for the first time but everyone is still holding their breath for Khamenei to accept such a move.

Yes, Rouhani is also initiating a move to approve of “hundreds” of projects in the oil and gas industry, as well as railways and trade ports but all of these projects might be abandoned if the oil prices don’t rise to give Rouhani the breathing space he needs to keep these projects alive. Rouhani might be tempted to slim the infamously bloated Iranian bureaucracy which absorbs nearly 80% of fiscal expenditure in wages but instead, he decided to increase the budget for the judicial system which is repeatedly under fire for abusing human rights.

And in any case, there are serious doubts whether the relief of sanctions would benefit the Iranians since corruption is so rampant that most of the relief will benefit mullahs and IRGC officials.

 

Minister ImpeachementAny way you look at it, it seems that Rouhani’s façade as a moderate is crumbling down as fast as oil prices: Rouhani was voted in to strike a deal with the West but when that deal remained elusive, he turned to the East and to his neighbors who seemed more eager to cooperate than the demanding and unsatisfied West. And now, as the economic crunch is being felt, he is focusing inwards, to the Iranian people to help him survive. Meanwhile, the Iranians who had believed that Rouhani would save them from the economic disaster they had felt under Ahmadinejad, will have to keep on paying the bill for a regime which continues to place national pride over well-being.

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2 thoughts on “Successes and Failures of Rouhanomics

  1. Pingback: Rouhani Under Fire…Again. | IRAN 24/07

  2. Pingback: Betting on Rainbows Over Tehran | IRAN 24/07

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