Economic policy in Iran

Rouhani′s inevitable failure

Four years ago, Hassan Rouhani assumed the Iranian presidency on the back of a campaign pledge to alleviate Iran′s economic hardship by striving for the removal of sanctions. Yet the looked-for up-turn has yet to materialise. An issue, argues Ali Fathollah-Nejad, that is bound to play into the hands of the arch-conservative opposition

The recession Rouhani inherited from his predecessor, Mahmoud Ahmadinejad, has been turned into an economic growth rate of about 5 percent, mainly as a result of the doubling of oil exports in the wake of the J.C.P.O.A.′s implementation in early 2016. This economic growth rate, together with the reduction of the inflation rate, are used by many as proof of Rouhani′s economic success. Yet, few ask whom the rise in G.D.P. has benefited most.

As demonstrated by numerous studies, economic growth per se is not necessarily a reliable indicator of socio-economic development. Instead, attention ought to be devoted to ′inclusive growth′, i.e. economic growth whose dividends are distributed equally, thus benefiting larger sections of the population, rather than merely the elite.

Looking at other indicators, a more sober picture of the Rouhani administration′s economic legacy emerges. On the one hand, as revealed by a World Bank study from September 2016, poverty and income inequality have risen under Rouhani. On the other hand, the revitalisation of trade and investment with the outside world has almost exclusively benefited Iranian state entities. Of the nearly 110 agreements worth at least 80 billion U.S. dollars to have been struck since the deal was reached in July 2015, 90 have been with companies owned or controlled by the Islamic Revolutionary Guards Corps and Supreme Leader Ali Khamenei′s economic empires.

Economic up-turn illusory

Both these factors underline Rouhani′s failure to achieve ′inclusive economic growth′. The western concept of ′transition through trade′ vaunted by many Iran experts, not to mention the Rouhani regime, with its expectation of trickle-down economic benefits for the whole of Iranian society, has proved nothing but an illusion.

From the outset, however, there were clear indications that Rouhani′s economic policy was flawed. At its core stands a neoliberal-authoritarian doctrine driven by (regime) security concerns, which – very much ignored in the West – had already been met with severe scepticism from the country′s leading intellectual magazines months into the administration taking office.

A force to be reckoned with: cleric and legal scholar Ebrahim Raisi is the arch-conservative faction′s favourite for the presidential elections on 19 May. Following the Islamic Revolution he entered the judicial system, rising to prominence as deputy chief justice and subsequently attorney-general. Last year he was appointed director of the Imam Reza shrine in Mashhad, considered one of the country′s most prestigious posts. Speculation is also rife that Raisi could eventually take over from Ayatollah Ali Khamenei as Supreme Leader. Despite his lack of political experience, he enjoys the unmitigated support of the influential clergy
Social inequality increasing: Hassan Rouhani may have been able to lower the rate of inflation and halt the devaluation of Iran′s currency. Yet unemployment remains at around 12 percent. With many companies still wary of investing in Iran, the removal of sanctions has failed to produce the hoped-for economic boost. Moreover, contrary to Rouhani′s promises, there has been no loosening of social restrictions during his time in office

Here, Rouhani′s 2010 book, entitled ″National Security and Iran′s Economic System ″, takes centre-stage. The project of ″Iranian–Islamic development,″ he writes, shall transform the Islamic Republic into a country that is ″advanced, secure and that has the smallest class divisions,″ which could only be achieved by a ″strategy of competitive production.″

Prejudiced against unions and a minimum wage

Moreover, he deplores Iran′s ″very oppressive″ labour laws. He argues that the minimum wage must be abolished and restrictions on the laying off of workers eliminated if Iran′s ″owners of capital″ are to have the ″freedom″ to create prosperity.

″One of the main challenges that employers and our factories face,″ Rouhani continues, ″is the existence of labour unions. Workers should be more pliant toward the demands of job-creators.″ Accelerated neoliberal economic models have proven to only accentuate class divisions, as oppose to bridge them.

A glance at Rouhani′s budget plans could have created doubts over his administration′s seriousness to cure the country′s socio-economic problems. For instance, his 2015/16 budget rested on two problematic pillars: austerity and security. In mid-April, Rouhani boasted that, under his tenure, the military budget saw a 145 percent rise.

As experienced in numerous countries of the Global South, not least in West Asia and North Africa, the pursuit of a neoliberal paradigm constitutes an inadequate means to meaningfully address deep-seated socio-economic problems. In Iran, these problems are similar to the Arab Spring countries: an alarmingly high rate of youth unemployment of officially 31.9 percent; equally disturbing rates of poverty and social inequality; as well as corruption, including among Rouhani′s own entourage.

Presidential candidate Ebrahim Raisi (photo: picture-alliance/AP)
A force to be reckoned with: cleric and legal scholar Ebrahim Raisi is the arch-conservative faction′s favourite for the presidential elections on 19 May. Following the Islamic Revolution he entered the judicial system, rising to prominence as deputy chief justice and subsequently attorney-general. Last year he was appointed director of the Imam Reza shrine in Mashhad, considered one of the country′s most prestigious posts. Speculation is also rife that Raisi could eventually take over from Ayatollah Ali Khamenei as Supreme Leader. Despite his lack of political experience, he enjoys the unmitigated support of the influential clergy

Against this backdrop, disillusion and frustration spread among Iran′s lower and middle classes early on under Rouhani′s presidency, which was largely ignored in the West. Not only was the country′s economic growth anything but inclusive, the rise in G.D.P. generated by oil exports is capital-intensive without creating jobs.

As seen in Western countries facing a populist backlash against failed neoliberal policies, Rouhani′s neoliberalism à l′Iranienne with its neglect of the social question has produced the same political effects.

Political vacuum an opportunity for hard-liners

The vacuum left by Rouhani′s socio-economic failure has quickly been filled by right-wing populist slogans from his most promising conservative contender, Ebrahim Raisi. Taking a leaf out of Donald Trump′s campaign promises, the conservative has pledged more money for the lower strata of society and the creation of four-to-five million jobs. But he has done so without addressing the core structural problems of the Islamic Republic′s highly monopolised political economy.

As a result, Rouhani′s socio-economic failure has become the main target of his presidential rivals. Nonetheless, the president can hope to escape punishment by voters, who habitually favour the lesser over the greater evil in Iran′s presidential elections.

Ali Fathollah-Nejad

© Qantara.de 2017

Dr. Ali Fathollah-Nejad is Iran expert with the German Association of Foreign Policy (DGAP) and an associate of the Belfer Center for Science and International Affairs at Harvard University.

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