The economy is Ahmadinejad's big election test

Fredrik Dahl, Hashem Kalantari

Iranian restaurateur Mohsen Misaqi notes that President Mahmoud Ahmadinejad has fulfilled the promise to put oil wealth on the table of every family.

In a way, Iranian restaurateur Mohsen Misaqi notes, President Mahmoud Ahmadinejad has fulfilled the promise to put oil wealth on the table of every family that swept him to power four years ago.

“There is more money,” said the middle-aged businessman in downtown Tehran. “But with much less buying power. One cannot but feel economic hardship as a result of higher prices for almost everything.”

A slump in the West checked oil’s surge last year, but rising consumer prices—as well as a lack of jobs—are still the loudest complaint in Tehran as the Islamic Republic heads to a presidential election where Ahmadinejad faces a challenge from reformers.

People like housewife Behjat Soltani agree the economy is Ahmadinejad’s weakest point in the run-up to the June 12 poll:

“Our family’s economic situation has deteriorated considerably compared with four years ago,” said the 41-year-old, wearing a black headscarf as she bought food and other groceries in a small Tehran store.

But if such bread-and-butter issues work against the incumbent among some in the capital, Ahmadinejad may be stronger electorally in the countryside. The rural poor helped vote him in last time, have benefited from his largesse and like his down-to-earth image.

“He still has an enduring popularity, although probably not as high as a few years back, among the urban and rural masses,” said Karabekir Akkoyunlu of risk consultancy AKE in London.

When the state coffers were swelled by an unprecedented inflow of petrodollars, Ahmadinejad’s government went on a spending spree after his surprise 2005 election victory, lavishing credit and cash during frequent provincial trips to help the needy.

During a typical visit to the north-western province of Qazvin in May, his government announced 160 local development initiatives from roads and water supply to sports facilities.

The politicians seeking to deny him a second term accuse him of “charity” economics and of trying to lure voters with handouts, such as much-publicised distribution of “surplus production” potatoes in different locations earlier this year.

Former Prime Minister Mirhossein Mousavi, seen as Ahmadinejad’s main moderate challenger, says this offends people’s dignity without addressing the root causes of poverty.

‘Still growing’
Among voters in the capital, home to more than 15% of Iran’s rapidly urbanising population of more than 70-million, economic frustrations tend to overshadow Iran’s nuclear dispute with the West, even though the conservative president’s rivals say his defiance hurts the economy by isolating the country.

Inflation may have come down from last year’s 30% peak, reaching an annual 18% in March, but many Iranians say they still struggle to afford food and other basic items.

Government critics also argue that free-spending policies while oil prices were soaring left the world’s fifth-largest crude exporter vulnerable to the tumble that started in 2008.

Despite a sharp recovery this year, crude remains below $75 a barrel, the level at which the International Monetary Fund last year said Iran would show current account deficits.

Ahmadinejad, who vowed during the 2005 campaign to share out Iran’s oil riches more fairly, blames double-digit inflation on global food and energy prices which peaked last year, and has replaced a central banker who tried to rein in monetary policy.

He says the oil-dependent economy, with a Gross Domestic Product of around $360-billion to $370-billion according to IMF projections last year, is still showing annual growth of 5% to 6% and doing much better than those of Iran’s Western foes.

“There is negative growth everywhere you look ... but in Iran the growth rate is positive,” he said in May. Last year, he said Iran could manage for three years on its foreign exchange reserves even if the oil price “reaches zero.”

A Western diplomat said the global economic downturn may have come later to Iran, but it faces growing problems as a result of an oil price fall of nearly 60% over the last year, which is hitting manufacturing and construction.

“It is tough out there ... if they manage to grow it will be pretty good going,” the Tehran-based diplomat said on condition of anonymity as he was not authorised to speak to the media.

‘No more enemies’
While many wage-earners have been squeezed by inflation, which stood at around 11 percent when Ahmadinejad took office, loose fiscal policies have also created winners.

Ahmadinejad’s vows to help those in need, including pensioners, still draw support as does his refusal to bow to Western pressure in the row over Tehran’s nuclear programme.

Retired government employee Esmaeel Malekpour has seen his pension more than double under Ahmadinejad and no longer needs to drive a taxi, using his own car, to make ends meet.

“This government did not just talk about helping us but did something for us through concrete measures,” said the grey-haired 74-year-old. He did not vote for Ahmadinejad in 2005 but said he will now.

Mousavi favoured a strong government role when he steered Iran’s economy through the 1980 to 1988 war with Iraq, but now advocates liberalisation of the state-dominated system. He says he would focus on creating jobs if elected president.

Official unemployment stands at more than 10%, but an Iranian development economist said this figure did not include many people who had some work but wanted more, including some students and housewives.

About 800 000 people enter the labour market each year, competing for only half that number of new jobs, he said.

“Mousavi’s supporters argue that his track record of successfully managing the war economy proves he could do a much better job on economic issues than Ahmadinejad,” wrote political science professor Mehrzad Boroujerdi in Foreign Policy magazine.

Mousavi has yet to unveil detailed economic remedies. Any president would find it hard to curb spending or sell state firms with likely job losses.

Risk consultant Akkoyunlu said the fall in oil revenue—85% of government income—was “swiftly emptying the state’s coffers”. Industrial investment and foreign reserves were also shrinking.

Iran’s refusal to halt nuclear work has drawn United Nations and US sanctions: “In this environment, Tehran is increasingly feeling the brunt of tightening economic sanctions, which is limiting growth and access to international loan markets,” he said.

Cliff Kupchan of Eurasia risk consultancy agreed Iran faced significant economic problems but added years of growth gave it large reserves that could serve as “some political cushion”.

The government says Iran can defy even harsher steps, given foreign assets that rose 20% year-on-year to $85-billion in January, according to central bank data cited by local media.

But oil officials acknowledge Iran needs more foreign capital to meet its annual investment needs of up to $30-billion in energy. Oil firms such as Royal Dutch Shell and Total have either delayed or scrapped large projects in Iran.

Mousavi and Mehdi Karoubi, another reformist presidential hopeful, advocate better ties with the West.

Misaqi, the Tehran restaurant owner, agrees.

“We cannot afford to make any more enemies in our relations with the outside world through our harsh comments,” he said. - Reuters

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