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Dispatch | Government in a Fog as Recession Looms ... or Has It Arrived?


29 Nov 2012 05:09Comments

"The recession is here! Are they kidding?"

RecessionMoodFars1.jpg[ business analysis ] On Monday, November 26, the Iranian Customs Administration announced that it would not permit the release of cargo with imported goods financed through the currency free market as of November 20. That may look a like a typographical error; in fact, it was a retroactive edict with severe consequences for Iranian business owners if it were carried out. Importers who paid for their goods with hard currency acquired outside the authorized banking system would not be permitted to clear customs -- even if the payments had been made up to six days before the rule was announced. Asadollah Asgaroladi, chair of the Iran-China Chamber of Commerce, called the decision "illegal" and predicted that it would cause significant damage.

The following day, Customs Administration chief Abbas Memarnejad told reporters that the clearing process would continue, but that merchants must announce the sources of their hard currency. In an apologetic tone, he said that the edict had been drafted by the Ministry of Commerce rather than by his own agency. As of publication time, the Ministry of Commerce has yet to issue a statement on the matter.

This episode is but the latest example of government meddling in the economy that has exacerbated uncertainty throughout the country's business community, already deeply unsettled by the international sanctions regimen and the collapse of the rial's open-market exchange value. Another recent example of government intervention has had much greater impact: in an effort both to increase the domestic supply of essential goods and to prevent the reexport of imported items in ways that exploit state-subsidized currency exchanges, the Iranian government created a black list of commodities not to be exported. The list was drawn up too slowly to stop manipulators who had already reaped huge profits via reexportation. However, it has caused great hardship among domestic producers who were hoping to earn much needed hard currency through legitimate export activities.

Businessman like Ali Reza, who works in the information technology industry, find it impossible to make any sort of plans under these circumstances. "To me, it seems the government officials wake up every morning with a new idea and that idea affects my dealing right away," he says.

Seemingly uncoordinated government interventions, coupled with the existing international sanctions and the threats of even stricter ones, have created a new economic environment in Iran. This week, the Central Bank of Iran (CBI) released its latest data on foreign trade and government accounts. The CBI reports that Iranian oil exports are down by 40 percent compared to last year -- set off, but only marginally, by a 12 percent rise in other exports. (Other sources state that oil exports are down as much as 50 percent.) Of particular note, Iran is increasingly importing natural gas and petroleum products -- such imports this spring were 101 percent higher than during the comparable period last year. The CBI report also reveals that Iranian government debt to the banking sector has increased by 54 percent.

In an editorial published Wednesday by the Tejarat News website, economist Mohammad Mehdi Behkish warns that the Iranian economy may be on the verge of falling into a deep recession -- a word heard often these days around Tehran. After reviewing the political decisions made by the government that affect Iran's standing in the international arena, he concludes, "The economic consequences of these actions were neither calculated nor taken into account." He asks government officials and members of the business community to come together and devise a strategy to avoid sweeping economic reversals that could last a decade.

To Ali Reza, Behkish's dire observations constitute not a warning but an acknowledgement. "The recession is here! Are they kidding?" He continues, angrily, "The factories have been shutting down for some time now, unemployment is higher than ever."

In his view, the question is not whether a recession can be avoided, but "if there is enough time to save the economy" from total collapse. Ali Reza does not think so. With an air of resignation, even doom, he concludes, "It is too late. We will never come back from this one."

related reading | Sanctions Bite, Iran Scrambles | Iran's Economy: A Ball Rolling Downhill | Iran's Wizard of Oz Economics

Copyright © 2012 Tehran Bureau

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