Iran's economy enters 2013 significantly worse than a year ago, particularly with higher inflation and unemployment than at the beginning of 2012. The past year was probably the most tumultuous economically for Iran since 1994, when an external debt crisis triggered a serious inflationary shock and a recession.
Former Bank Melli Head Mahmoud Reza KhavariThe Islamic Republic will pay a price whatever course the government takes. If the Iranian judiciary actually exposes the full details of high-level corruption, the government stands to lose further legitimacy even among loyal cadres. Yet if the state does nothing, strife among political factions could deepen, undermining attempts to implement policy changes that could address the country's many social and economic ills.
Sanctions are biting harder than ever, but business still gets done through the leaks and loopholes. So it’s not changing the regime’s behavior where it counts: on its nuclear policy, specifically, its accelerating enrichment of uranium. President Mahmoud Ahmadinejad’s policies have been largely bad for business and made life harder for most Iranians. Together, that could get Ahmadinejad booted from office, but it probably won’t topple the regime. Iran is rolling in oil money – a salve for all its economic wounds. But Iran can’t effectively tap the wealth underground, given the bans on foreign investment in the energy sector. That, combined with overall mismanagement, makes Iran’s economy is “fundamentally unsustainable,” in the words of one analyst – a “patient with many viruses.”
Iran's biggest economic problem is the growing production slump at its factories and workshops. For both workers and the business elite, Iran's domestic industrial troubles are far more pressing--and generating far more public anxiety --- than international sanctions.
The biggest danger for Iran in 2011 is the combination of higher unemployment and inflation produced by government inaction, unintended consequences of subsidy reform, and dwindling foreign capital caused by banking sanctions.
Sunday, January 6, 2013 at 7:18