President Hassan Rouhani, whose government aims to have international sanctions against Iran lifted, said the nation can’t achieve long-term economic growth while living “in isolation”.
“Gone are the days when it was said if foreign investors come to Iran its independence will suffer,” Rouhani said in an address at a Tehran conference on sustainable growth and job creation on Jan. 4. Opening up “doesn’t mean letting go of the nation’s ideals and principles”, he said, according to the state-run Fars news agency.

The two-day conference, attended by top Iranian officials, economic experts, university professors, scholars and private sector investors, sought to find solutions for some of the ills currently besetting the Iranian economy.
“It’s been the economy that pays for the politics"
Rouhani took office after eight years of rule by Mahmoud Ahmadinejad during which United Nations, European Union and US sanctions over the country’s nuclear programme drove it deeper into political and economic isolation. Ahmadinejad said the technological and financial restrictions would help Iran become more self-sufficient.

“Our ideals are not linked to centrifuges but to our heart and determination,” Rouhani said. “If we show more transparency and say, halt some of the enrichment operation we don’t need, does it mean we have let go of our ideals?”

Elected in 2013, Rouhani pledged to build ties with the world to improve an economy suffering from a weakened currency and an inflation rate at 40 per cent. His success is tied to the country’s efforts to strike a comprehensive agreement with world powers, which say Iran’s nuclear programme could be a cover for developing atomic weapons. The Islamic Republic says the programme is for peaceful purposes.

“It’s been the economy that pays for the politics,” Rouhani was quoted as saying by the Iranian Students News Agency. “It would be good for once to act in reverse and have internal politics and foreign policy pay for the economy.”

Sanctions including measures restricting Iran’s financial transactions and oil exports have starved Iran of investments needed to develop its energy industry, says Maysam Mousaei, a professor in the faculty of social sciences at the University of Tehran. In addition to high unemployment and inflation, Iran also suffers from a brain drain, which sees thousands of educated young Iranians leave, he says from Tehran.

Iran cannot be “managed as a closed economy and have these issues solved”, says Mousaei, who also heads the Tehran-based Islamic Economics Scientific Association of Iran. “We can exist and breathe but without relations with the world and expansive commerce we can’t have a developing economy.”

There have been some positive signs in the past year. Rouhani’s government has stabilised the currency markets and trimmed inflation to 17 per cent. Speaking on 24 December, Rouhani said the economy expanded four per cent in the six months from the start of this Iranian year on March 21, marking “economic revival” after two years of recession.

Efforts to secure a deal with world powers over the Islamic Republic’s nuclear programme have won Iran some relief from economic sanctions, though negotiations have been extended until July amid major differences. A 48 per cent plunge in the price of Brent crude in 2014 is posing an added challenge for Rouhani, cutting oil revenues that account for the bulk of government spending.

The government, which based its current budget on the assumption oil would sell for $100 a barrel, is using $72 a barrel in its spending plan for the next financial year. Brent crude closed at a five-year low of $49.66 a barrel on the London-based ICE Futures Europe on 6 January.

The International Monetary Fund (IMF) expected Iran’s economy to expand 1.5 per cent in 2014 after shrinking 5.6 per cent and 1.7 per cent in the previous two years respectively, according to estimates in April, before oil’s slide. The IMF estimates growth of 2.2 per cent in 2015.

In his speech, Rouhani also called for the economy to be “freed” from powerful monopolies. Under Ahmadinejad, Iran’s Revolutionary Guards benefited from multi-billion-dollar contracts in the energy and construction industries. “The economy won’t prosper with monopolies, if something is exclusively in the hands of a specific group this will lead to corruption,” Rouhani said. “All government entities must bring transparency to their economic activities.”

By Bloomberg

 

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