For Iran, 2012 will go down as the year of economic woes. The mantra of the “enemy’s psychological war against Iran” will no longer be blamed more than internal mismanagement even by the most ardent supporters of Mahmoud Ahmadinejad and the Leader, Ali Khamenei. The “resistance economy” against the “economic war [...]]]> via Lobe Log

For Iran, 2012 will go down as the year of economic woes. The mantra of the “enemy’s psychological war against Iran” will no longer be blamed more than internal mismanagement even by the most ardent supporters of Mahmoud Ahmadinejad and the Leader, Ali Khamenei. The “resistance economy” against the “economic war unleashed against Iran” has become the name of the game. Several years of expansionist fiscal and monetary policies — underwritten by high oil prices and government spending and accentuated by liberal import policies — clashed directly with the ferocious sanctions regime imposed by the United States and its allies. Highly contested politics continued to reign as well. A nationwide election — the first after the contested 2009 election — was held; domestic and international objections regarding the government’s treatment of Iranian citizens continued; the attempt to delineate the qualification and age limit of presidential candidates failed. I am not particularly good at ranking events based on importance, but upon Jasmin Ramsey’s request, here are my top 10 picks for Iran in 2012.

1. The Rial’s Freefall

The gradual drop in the value of Iranian currency, the rial, begun at the end of 2011 and continued until about September when the bottom literally fell off, registering a 50 percent drop in one month. The government eventually cracked down on the unofficial market, which as economist Djavad Salehi-Isfahani pointed out, is a limited currency market, and created a foreign exchange center for importers and exporters based on a managed floating system. It also continued to maintain a much lower fixed rate for the import of critical goods such as medicine and some foodstuff. By the end of the year, the foreign exchange rate stood a bit below 25,000 rials per dollar (in comparison to about 15,000 rials per dollar in the unofficial market in January 2012 and about 10,000 a year before).

The cause of the deprecation consumed much public commentary. Some accused the government of cynically manipulating the market in order to sell its dollars at a higher rate and using the generated money to cover its budget deficit. Others lamented the Central Bank’s incompetence while Ahmadinejad blamed unknown market manipulators as well as US-led measures despite his previous dismissal of sanctions as nothing but “torn paper.” But no matter who or what was at fault, the rial’s drastic drop was the most significant event of the year, not necessarily because of its economic impact, but because all the government’s talk about everything being dandy despite sanctions could no longer be listened to with a straight face. Of course, many outside observers’ predictions that the rial’s crash would lead to the collapse of the Iranian economy did not materialize either. Ultimately, the rial devaluation showed that the Islamic Republic is hurting, but far from dying.

2. Sanctions, Sanctions, and Even More Sanctions

Since its onset, the Islamic Republic of Iran has faced sanctions, including some imposed by the United Nations and unilaterally by various countries. However, 2012 should be marked as the year that the US-led and promoted sanctions regime went after the Iranian economy’s jugular. In January, US pressures led the EU to impose an oil embargo on Iran and the freezing of Iran’s Central Bank’s assets. In March 2012, all Iranian banks identified as institutions in breach of EU sanctions were disconnected from the world’s hub of electronic financial transactions, SWIFT. This was followed by the EU placing sanctions on Iran’s best technical university, Sharif, in December.

The EU seems determined to prove Ahmadinejad’s 2007 claim that “In addition to the closure of our country’s nuclear centers, they were after the closure of universities and research centers connected to peaceful nuclear research, including classes in physics and mathematics and they had announced this officially.” At present, both EU and US institutions look like bodies filled with what can only be described as sanctionholic politicians and bureaucrats desperately in need of a 12-step program. Unable or unwilling to offer Iran a nuclear package that it can accept, they act like people who cannot help themselves because they are addicted to just one thing.

In Iran, sanctions began to bite not only because oil exports dropped significantly (by about 40 percent) but more importantly because banking restrictions prevented the transfer of currency into the country. People are complaining that even vital drugs — not on the sanctions list — have become difficult to import because of payment restrictions. There is, meanwhile, little evidence that Tehran is reconsidering its position or that it’s willing to accept a nuclear deal that it previously rejected. Perhaps 2013 will be the year that the Iranian leadership will finally crack and cry uncle, but I wouldn’t bet on it.

3. The Parliamentary Elections

Elections for the 9th Islamic Consultative Assembly or Majlis were held on March 2 with a second round on May 4 in the 65 districts where candidates did not receive 25 percent or more of the votes cast. Stricter qualification criteria saw fewer candidates registering than in previous elections. Still, more than a third were disqualified by the Guardian Council, leaving about 3,400 candidates to run for the 290 seats that represent Iran’s 31 provinces. This was the first election held since the contested 2009 presidential election and much was made of it being an eventless event which nevertheless registered a respectable participation rate for the legitimacy of the Iranian state. Posters exhorted people to vote as a means to prevent military attacks and displayed emphatic declarations by Khamenei that in this “critical” election, high turnout would be a “slap” in the face of the enemy.

Official figures showed a 7 percent increase in voter turnout compared to the last parliamentary election in 2008 — from 57 to 64 percent – but many doubt the veracity of this figure. Participation rates in parliamentary elections have ranged from 51 to 71 percent and, given the disaffection of many voters after what happened in 2009, the likely turnout was probably on the lower end. Turnout in large cities such as Tehran has historically been much lower. Despite the failure of more than 65 percent of sitting MPs to return to the new session (the incumbency rate is historically low in Iran and only between 30 to 35 percent), the election was mostly a competition between conservatives and ultra-conservatives wherein the latter did not do as well as the more traditional conservatives. This outcome assured the re-election of Ali Larijani as Speaker along with deputy speakers who are also traditional conservatives. Historically, parliamentary elections held right before the president’s second term is over have been harbingers of trends for the next presidential election. So, although Iranian presidential elections have proven unpredictable the last few times, a lackluster election with slim pickings will likely be the name of the game for June 2013. Still, even disgruntled non-voters will probably be hoping for a move away from the radicalism and erratic conduct of the current president.

4. The Majles Questions, Ahmadinejad Mocks

After weeks of wrangling, in a first for the Islamic Republic, President Ahmadinejad was called to the Majles in March to answer questions regarding his refusal to implement legislation passed by the Parliament, controversial cabinet appointments, and a tense relationship with Khamenei. Ahmadinejad’s responses turned out to be both evasive and dismissive; they were performed by a man safe with the knowledge that he would not be impeached. Members of parliament complained that he insulted and mocked their questions but did nothing given the costs of bringing him down during the midst of all the external pressures Iran is under. A second attempt in November to question Ahmadinejad regarding the devaluation of the rial was suddenly halted by Khamenei, who once again expressed his wishes for the president to finish his term without too many disturbances. Still, nothing is over until it is over and Khamenei and the whole country will have to endure much more heartburn in 2013 before Ahmadinejad leaves his post by August. Given the support he has given to Ahmadinejad’s presidency, Khamenei deserves the stress, but the country doesn’t.

5. The Suspension of the “Great Economic Surgery”

The Parliament was manhandled by Ahmadinejad on many occasions but did manage to strike back at the heart of his economic program. Fearing greater inflation than the official 25 percent, and concerned about the unauthorized use of foreign exchange to cover the budget deficit, the Parliament suspended the second phase of the Targeted Subsidies Reform Act of 2010 — the center-piece of Ahmadinejad’s “Great Economic Surgery” — in November. This suspension halted more public utility price increases and further rises in monthly welfare cash payments to households, as was planned by the Ahmadinejad Administration. The parliament also voted in a new law which explicitly states that “all money received from the sales of oil and gas proceeds at new higher exchange rates is part of the government’s general revenue, and no part of it can be used to raise monthly cash payments.”

6. Death and Resistance in Iran’s Prisons

This year forcefully disproved the assumption that imprisoning political and civil society activists and critics silences them and fixes the Islamic Republic’s dissident problem. Former presidential candidates Mir Hossein Mousavi and Mehdi Karroubi remained incarcerated in their homes (the former along with spouse Zahra Rahnavard) without being charged and remained mostly without any kind of access to the outside world. But letters written by political prisoners about prison conditions and solidarity among prisoners — as well as the woeful state of the country’s politics — made it out of the prisons and were sufficiently covered by external news and activist outlets for many inside Iran to become aware of them.

Beyond letters, prisoners also staged hunger strikes. Of particular note was the 49-day hunger strike by Nasrin Sotoudeh, a human rights lawyer serving a sentence for “acting against national security.” She ended her strike after judicial authorities acceded to her demand to lift a travel ban imposed on her 12-year old daughter. Her mistreatment and courage was widely reported outside of Iran (Sotoudeh and filmmaker Jafar Panahi were awarded the EU’s Sakharov Prize for Freedom of Thought), but also received publicity inside Iran. The dynamic between prisoner resistance inside the country and the persistent coverage of government mistreatment by Iran-focused non-governmental organizations outside of Iran — such as the International Campaign for Human Rights in Iran (ICHRI) — has proven effective in keeping civil rights at the center of the country’s political discourse. Sadly, this did not prevent the death of Sattar Beheshti, a working class blogger who reportedly died soon after he was beaten by members of the cyber police. His mistreatment was immediately reported in a letter written by 41 fellow prisoners that was smuggled out of prison and his death created an uproar leading to the dismissal of the chief of the cyber police and a parliamentary investigation. In the words of the ICHRI’s Hadi Ghaemi, the Beheshti case marked a milestone in showing that ordinary Iranians risk much harsher treatment by security services than those with name recognition. But the publicity also showed that “the culture of human rights is really taking root in Iran – that they can’t cover it up and run away like they did before.”

7. The UN and Human Rights in Iran

The year of 2012 was also a bad year for Iran’s human rights record at the United Nations. The UN Human Rights Council renewed the mandate of the special rapporteur on Iran that it had established in 2011 (it was the first country-specific rapporteur established by the Council since its inception in 2006). UN actions this year included two damning reports by the Special Rapporteur, Ahmad Shaheed, a rebuke of Iran’s rights record by the UN’s Social, Humanitarian and Cultural Committee, and a call by the UN High Commissioner for Human Rights for Iran to release a prominent human rights activist from detention. The year ended with a rebuke at the General Assembly, which condemned human rights violations including arbitrary detentions, the persecutions of minorities, efforts to interfere with the freedom of expression, and inhumane conditions in Iran’s prison system where torture and cruel punishments have been used. Tehran charged that the GA resolution was politically motivated. Politically motivated or not, Iran’s troubles at international forums intensified with its leadership caught in the paradox of wanting to be a respected member of the international community while protesting the alleged manipulation and bullying of international institutions in the same community by bigger powers.

8. The NAM Showcase

It must be considered pure fortuity for the Islamic Republic of Iran that the decision to hold the Nonaligned Movement (NAM) summit in Tehran was made three years ago in Sharm el-Sheikh, Egypt. Although the previous summit took place shortly after Iran’s contested 2009 presidential election, it’s unlikely that anyone could have predicted the significance of the summit in light of systematic Western efforts to squeeze and isolate Iran. The extraordinary effort put into the event by the government was intended to showcase Iran’s global role and offer concrete evidence that the US-led initiative to isolate Iran has failed — but it did not go as smoothly as was hoped. The unpopularity of Iran’s support for the Syrian government became evident when the Iranian television mistranslated Egyptian President Mohamed Morsi’s denunciations of the tragedy in Syria.

The summit did, however, have some positive aspects for the Iranian leadership. For instance, the large economic contingent that accompanied Indian Prime Minister Manmohan Singh’s visit underscored the reality that while the opportunity costs of the sanctions regime are huge for Iran, the country’s location and resources are countervailing forces that cannot be ignored. Quite a few countries look at Iran’s economic strangulation as a prospect for positive gains. This dynamic is likely to continue as the US actively tries to impose new ways of restricting Iran’s trade while other countries collude with Iran in finding ways to get around them.

9. No More Birth Control Policy

In a major reversal in August, with what was considered one of the most successful post-revolutionary plans, the budget for the national birth control program was eliminated. The Health Ministry will instead get funding for “fertility health” with a focus on the health of mothers and children to come. According to Farzaneh Rouhi:

Iran has stood out for lowering its fertility in a short time without coercion or abortion. The fertility rate dropped from 6.6 births per woman in 1977 to 2 births per woman in 2000 and to 1.9 births per woman in 2006. The decline was particularly striking in rural areas, where the average number of births per woman dropped from 8.1 to 2.1 in a single generation. (European countries took about 300 years to experience a similar decline.)

But Iran’s population is now aging rapidly. The latest census figures show that only 23.4 percent of the country is under 14 (a steep drop from 44.5 in 1986) and the median age has increased from 17.4 in 1976 to 27. The policy reversal unofficially began a couple of years ago when the Ahmadinejad administration began to give financial incentives for child birth. But the official abandonment of birth control policies occurred without parliamentary action and upon the words of Khamenei, who said that he had made a mistake in supporting the policy for too long. Reversal may nevertheless be hard to implement in practice. In Rouhi’s words, “Iran may not be able to reverse public practices, in part because small family size is now enshrined in the psyche of both men and women. The public is now used to having control over reproductive rights and may continue to do so, whether through government-sponsored health services or the private sector.”

10. Threats of War and the Ongoing Nuclear Soap Opera

It would have been easy to place the continuing conflict over Iran’s nuclear program at the top of this list. It certainly was the most reported news regarding Iran. But “ongoing” is the operative word here. Yes, there were three rounds of talks in Istanbul, Baghdad and finally Moscow. Yes, these talks were described by Hillary Clinton as “perhaps a last chance to demonstrate a way forward” that can satisfy the international community’s concerns about Iran’s nuclear program. Yes, there was another report by the International Atomic Energy Agency (IAEA) detailing how Iran used the summer to double the number of centrifuges installed deep under a mountain near the holy city of Qom, while allegedly cleansing another site — Parchin — where suspicions persist about past explosive experiments that could be relevant to the production of a nuclear weapon. And yes, there was a lot of war talk, underwritten by Israeli Prime Minister Benjamin Netanyahu’s efforts to use the US presidential election to pressure the Obama administration to establish a red line of intolerance for Iran’s nuclear activities.

From Iran’s standpoint, though, what happened was business as usual: lots huffing and puffing in order to sell sanctions as an “alternative to war.” Indeed, the business of selling alternatives to war became so prolific that even the covert war of sabotage and cyber warfare was sold as a substitute without any hint of irony or discomfiture. In reality, all the discussions of red lines and deadlines revealed more about the state of politics in both Israel and the US than in Iran. Netanyahu’s speech at the UN — armed as he was with a Roadrunner cartoon of a nuclear bomb — matched Ahmadinejad’s past craziness and signaled the extent to which radicalism has become the norm in Israeli politics. Meanwhile, in the US the limited appetite or outright distaste for yet another attack on a Middle Eastern country was clearly revealed along with much harder to deny distortions from lobbies backed by Israeli hardliners which have been inserted into the US foreign policy making process. (This tale continues with the frenzy surrounding former senator Chuck Hagel’s possible nomination for Secretary of Defense, because, in the words of Elizabeth Drew, “Iran more than any other single issue is at the core of the opposition.”)

The year of 2012 began with hopes for change in the battle over Iran’s nuclear program. It ended with more of the same and would have remained so even if the pressure on Iran was substantially increased. We begin the coming year with a keen understanding that more of the same may not be sustainable for too long. But the question of when there will finally be a change in this trajectory — and if so, whether it will be for better or worse — remains elusive, with the answer residing in Washington as much as it does in Tehran.

Cartoon: Peter Schrank, the Economist 

The US-led sanctions regime isn’t directly targeting Iran’s healthcare system but reports continue to suggest that critically-ill Iranians are being affected. The Al Jazeera English clip above squares with Najmeh Bozorgmehr’s Financial Times article from September about how  sanctions on Iran’s Central Bank are preventing critically-ill patients from getting crucial medical aid:

The Iranian rial has been in free fall for the last few days. Inflation has been ramping up for the last few months as the rial has lost more than 50 percent of its value over the last year. Unemployment is up to maybe 25 percent plus, and quite a [...]]]> via Lobe Log

The Iranian rial has been in free fall for the last few days. Inflation has been ramping up for the last few months as the rial has lost more than 50 percent of its value over the last year. Unemployment is up to maybe 25 percent plus, and quite a bit higher in some of the poorer parts of the country.

Iran’s oil exports have been slammed by sanctions. Even with Iran’s attempts to sneak some out in various ways, such as registering tankers in Mongolia of all places; the sanctions hunters found out about that one fairly quickly and shut it down with some diplomatic moves in Ulan Baator.

Then there is the purchase of 2 million barrels of stranded oil in Sid Krir in Egypt that the Egyptian government wants to purchase. US-Egyptian relations are not exactly the best these days and President Morsi visited Tehran recently. He might have embarrassed his host by mentioning his views on Syria, but he still went. Egypt also looks like it might be working towards improving relations with Iran. Turkey may be buying some oil from Iran with gold or other barter methods. Other states may be setting grain and goods for oil barter arrangements.

The financial system of Iran has been hit hard with the sanctions. The closing down of Iran’s access to the SWIFT system was significant. This may have done more damage to Iran’s ability to do business internationally than many of the other sanctions combined. The sanctions focused on persons and banks are good politics, but have historically not been that effective. Closing the country from a major clearing house is like slamming a large financial door in their faces.

Indeed, Iran is in a tight spot. I would expect runs on banks to follow on to this if the government cannot stem the flow of the psychology of financial contagion that seems to be sweeping the country. The government is clearly in a panic. They are blaming the usual “outside forces” and “22 conspirators” who of course were arrested quite publicly today. Then they blamed the black market money changers in the bazaars of Tehran for the collapse. This last one makes less than no sense. The bazaaris do not exchange enough money to make this sort of a dent in the US dollar-Iranian rial exchange rate. The currency drop has a lot more to do with hyper-expansive monetary policy pushing inflation. There is clearly a sense that there are way too many rials chasing at a faster velocity the goods that are in stock and are flowing into Iran. See this article for some supporting monetary and other data.

The huge rise in the stock market of Tehran is also due to nominal reasons, as we economists would like to say in such circumstances. The money flowing into the economy via the policies of the Central Bank of Iran has pumped up not only the prices of goods, but also stocks. This huge increase in money supply has also pumped up the price of land and housing in Iran. Also driving the stock, land and housing costs is the shortage of alternative investments. Sanctions have taken a bit out of the Iranian economy on that account.

Iran’s economic policies have actually magnified, not countered, the effects of the sanctions. One of the major culprits was expanding the broad money supply by 100 percent in the last 5 years.

This said, what is happening now shows not only the results of sanctions but counterproductive economic policies and more. The current economic status of Iran also shows how the credibility of the regime is weakening.

I am certain that there are many people in Iran who are questioning the worth of the country’s nuclear program and especially the leadership’s global defiance on this issue in light of the growing resulting problems they’re facing.

Developing about 90 percent of the entire nuclear fuel cycle is very expensive. This could have been costing Iran about 10 percent or more of its GDP for many years. That is 10 percent that could have been invested in industries that produce jobs, agriculture, education, and more.

Expansive nuclear infrastructure development is not necessary given the existence of global trade in low enriched uranium for nuclear plants. It is also unnecessary given the small amount of raw uranium that exists in Iran. This is also counter-intuitive given that Iran flares off the equivalent of four nuclear power plants of 1200 MW each of natural gas.

There are many reasons why Iran’s government should focus on its economy and its people, rather than on defiant nuclear brinksmanship.

The Iranian leadership may find that their brinkmanship is about to bring their country to the brink.

Writing for the Financial Times the talented Iranian journalist, Najmeh Bozorgmehr, reports on how US-imposed sanctions on Iran’s Central Bank are preventing critically-ill patients from getting crucial medical aid:

The government of Mahmoud Ahmadinejad says international sanctions have had little impact on the country and insists that its nuclear program [...]]]> via Lobe Log

Writing for the Financial Times the talented Iranian journalist, Najmeh Bozorgmehr, reports on how US-imposed sanctions on Iran’s Central Bank are preventing critically-ill patients from getting crucial medical aid:

The government of Mahmoud Ahmadinejad says international sanctions have had little impact on the country and insists that its nuclear program should continue. It has launched a public relations campaign stressing that 97 percent of Iran’s medicine is produced domestically — a clear attempt to prevent panic that medical supplies could be at risk.

However, Ahmad Ghavidel, head of the Iranian Hemophilia Society, a nongovernmental organization that assists about 8,000 patients, says access to medicine has become increasingly limited and claims one young man recently died in southern Iran after an accident when the blood-clotting injection he needed was not available.

“This is a blatant hostage-taking of the most vulnerable people by countries which claim they care about human rights,” Ghavidel said. “Even a few days of delay can have serious consequences like hemorrhage and disability.”

In July Iran scholar Farideh Farhi informed us about an important report by the International Civil Society Action Network (ICAN) that details the negative impact of sanctions on ordinary Iranians. Farhi’s article provides useful context and analysis for Bozorgmehr’s piece. She writes:

If ICAN’s analysis is accurate, it also foretells harsher economic realities for the most vulnerable elements of Iran’s population, a harsher political environment for those agitating for change, and a more hostile setting for those who have tried to maintain historical links between Western societies and Iranian society.

Sanctions impact calculations, but usually not in the intended fashion.

via the United States Institute of Peace

What are the primary reasons that the Iranian rial has lost half of its value against the U.S. dollar in just one year? Iran’s currency was valued at about 10,000 rials to the dollar in the summer of 2011. It plummeted to more than [...]]]> By Kevan Harris

via the United States Institute of Peace

What are the primary reasons that the Iranian rial has lost half of its value against the U.S. dollar in just one year? Iran’s currency was valued at about 10,000 rials to the dollar in the summer of 2011. It plummeted to more than 20,000 to the dollar in the summer of 2012.

Inflation in Iran’s economy has not been this bad since the end of the Iran-Iraq War or the economic crisis of the early 1990s, which also caused high inflation. The rial’s value began to slide rapidly at the beginning of 2012 after the United States announced new sanctions above and beyond the latest U.N. sanctions. The slide was due partly to the psychology of sanctions.

The International Civil Society Action Network (ICAN) has published a useful brief aptly subtitled “Killing them softly” about the impact of sanctions on the lives of ordinary people who live in Iran, particularly women and other vulnerable groups such as Afghan refugee women and children. I recommend [...]]]> via Lobe Log

The International Civil Society Action Network (ICAN) has published a useful brief aptly subtitled “Killing them softly” about the impact of sanctions on the lives of ordinary people who live in Iran, particularly women and other vulnerable groups such as Afghan refugee women and children. I recommend it to everyone who thinks that sanctions can be potential instruments for positive change in Iran.

To be sure, most individuals and organizations that push for “crippling” sanctions do so in the name of Israeli security and/or non-proliferation with little or no regard for the resulting impact on the Iranian population and civil society. In a world where economic warfare is considered diplomacy, more sanctions will apparently be the name of the game “until Iran begins to negotiate seriously” or “chooses a different path” — whatever that means. Pretensions or hope regarding the utility of blunt and wide-ranging sanctions for changing the way the hardline leadership in Iran treats its population, or, even better, for bringing about a change of regime in a “peaceful” way, are also out there.

The ICAN brief, while using the words of activists in Iran, does a good job of explaining how draconian sanctions imposed by the United States and the European Union ultimately harm Iranians who are caught in the middle of a battle that has very little do with their dreams of living decent lives and impacting their government’s policies through civil activism.

This is not to suggest that the Iranian government has escaped the impact of sanctions unscathed. The leadership is held responsible for the mishandling of an economy which, by all accounts, is faced with both stagnation and hyperinflation. And, if we take at face value the words of parliamentary speaker Ali Larijani, 20 percent of Iran’s current problems can be attributed to sanctions that have limited Iran’s access to the foreign exchange needed for the import of strategic goods from abroad due to the reduction of oil exports and Iran’s inability to acquire exchangeable currency for the exported products. Larijani attributed the remainder of the problems, mostly related to rampant inflation, to the poor implementation of a subsidy reform plan that did not give enough attention to production in both industry and agriculture.

The right or wrong belief that better economic management can help Iran overcome the impact of sanctions perhaps explains why internationally imposed draconian pressure has not led to a change in the leadership’s calculations regarding the nuclear program. In fact, according to Iran’s Leader Ali Khamenei, Western governments

…openly say that it is necessary to force the Iranian government officials to revise their calculations by intensifying pressures and sanctions, but looking at the existing realities causes us not only to avoid revising our calculations, but it also causes us to continue the path of the Iranian nation with more confidence.

In other words, instead of a recalculation on the part of the Iranian government, the Iranian population is going to have to get used to a “resistance economy”. What does that entail? Mr. Khamenei’s answer:

Putting the people in charge of our economy by implementing the general policies specified in Article 44 of the Constitution, empowering the private sector, decreasing the country’s dependence on oil, managing consumption, making the best of the available time, resources and facilities, moving forward on the basis of well-prepared plans and avoiding abrupt changes in the regulations and policies are among the pillars of an economy of resistance.

Considering how these objectives have been in the books since at least 2006 when privatization, empowerment of the private sector and efficiency became official policy — and produced little in the way of concrete results — it’s not clear what an administration that is working through its last year can achieve beyond perhaps “managing consumption.”

A few steps have already been taken towards that goal. This week, several economy-related ministers as well as the head of the Central Bank of Iran (CBI) met with members of parliament in a closed session. Parliamentary meetings are by law open and publicly broadcasted. Article 69 of the Constitution only allows for closed sessions under “emergency conditions, if it is required for national security”. This closed meeting and Khamenei’s words clearly suggest an understanding of the emergency situation that Iran is facing.

The first decision that resulted from this meeting was the CBI’s elimination of what is called “travel currency”. Until now, Iranians could get $1,000 a year at the lower government exchange rate of 12,260 Rials per dollar for their trips abroad (the lower $400 per year for pilgrimage travel to Iraq and Saudi Arabia was maintained). According to the head of the Majles’ Economy Commission, Arsalan Fathipour, the $10 billion worth of travel currency that leaves the country every year has no economic justification and has been halted. Travelers now have to rely on an unofficial, but not illegal, floating market rate that has hovered between 19,000 and 20,000 Rials per dollar during the past couple of months.

The lower official exchange rate will remain for the import of basic and strategic goods from abroad in order to limit spiraling inflation. But everything else will probably be imported at the higher rate. As pointed out by Virginia Tech economist Djavad Salehi Isfahani, this multiple exchange rate system, despite inefficiencies, makes some sense when a country is being denied access to global markets, provided action is also taken to:

…minimize misallocation and corruption, for example by publishing a complete list of all official foreign exchange sold to private importers along with the list of the items they import.  The alternative, which is to sell all currencies at the rate set in the parallel market, is to give too much influence to sanctions and to sentiments that underly capital flight.

Whether these steps will also be taken is yet to be seen. Another announcement after the close of the Majles meeting was that some sort of command center comprised of representatives from of all branches of government has in effect been created for the resolution of economic problems and will soon gain implementation powers through legislation. According to Donyaye Eqtesad, the country’s most influential economic daily, the push by some influential MPs is for this command center to have “special powers so that in the coming year it can take the necessary steps for the implementation of the strategy of resistance economy.”

To my mind, this also means that there is not much confidence among the Iranian political class in the Ahmadinejad Administration’s ability to steer the country in a positive direction during the last year of its tenure. This political class holds President Ahmadinejad responsible for his incompetent handling of the country, but due to the urgency of the escalating sanctions regime, no longer considers challenging him and his ministers a useful way of expending their energy. Talk of “working together” and “unity” has permeated the language of the conservative and hardline politicians who are currently running Iran. This language is not meant to extend to the reformist and even centrist politicians and technocrats who have been essentially purged since the 2009 presidential election, but does indicate a closing of ranks among an even narrower circle of politicians in the face of adversity and in the name of resistance.

If ICAN’s analysis is accurate, it also foretells harsher economic realities for the most vulnerable elements of Iran’s population, a harsher political environment for those agitating for change, and a more hostile setting for those who have tried to maintain historical links between Western societies and Iranian society.

Sanctions impact calculations, but usually not in the intended fashion.