Will Iran’s Rouhani survive the bleak economy?
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Will Iran’s Rouhani survive the bleak economy?

Despite uptick in growth since nuclear deal, many Iranians not seeing effects of economic improvement in election year

Iranian President Hassan Rouhani speaks during a joint press conference with his Russian counterpart following their meeting at the Kremlin in Moscow on March 28, 2017. (AFP/Pool/Sergei Karpukhin)
Iranian President Hassan Rouhani speaks during a joint press conference with his Russian counterpart following their meeting at the Kremlin in Moscow on March 28, 2017. (AFP/Pool/Sergei Karpukhin)

TEHRAN (AFP) — Iranian President Hassan Rouhani is credited with pulling the economy back from the brink, but less than two months before his re-election bid, has he done enough to convince voters?

“This year was full of stress — no jobs, recession, a stagnant housing market,” said Ali Bakhtiyari, a jeweler in the Tajrish bazaar of northern Tehran.

Business has been slow, he said, even during last week’s run-up to Nowruz, the Persian new year.

“The government is trying to unlock things, but four years have passed. The locks should have been opened by now,” he told AFP.

Such sentiments are heard everywhere on the Iranian street, and weigh heavy on Rouhani’s bid for re-election in May.

Supreme Leader Ayatollah Ali Khamenei speaks during a meeting in Tehran, Iran, Monday, Aug. 1, 2016. (Office of the Iranian Supreme Leader via AP)
Supreme Leader Ayatollah Ali Khamenei speaks during a meeting in Tehran, Iran, Monday, Aug. 1, 2016. (Office of the Iranian Supreme Leader via AP)

Supreme leader Ayatollah Ali Khamenei has also been sharply critical of the government’s economic performance.

“What has been done is far from the expectations of the people and the supreme leader,” Khamenei said in his Nowruz address, focusing particularly on the unemployment rate which stands at 12 percent, and at over a quarter for young people.

Who’s to blame?

Despite the criticism, most experts say Rouhani, a moderate cleric who won power in 2013 by promising to rebuild ties with the West and ease social pressures, has done about as much as he could.

Rouhani inherited an economy crippled by sanctions and the unconstrained spending of his populist predecessor, Mahmoud Ahmadinejad.

He faced the near-impossible task of reining in inflation, which hit 40 percent, while also stimulating the economy.

“I’d give Rouhani good grades. He hasn’t done everything, but he’s brought down inflation, tried to attract more business, tackle corruption and outdated banking practices,” said Rouzbeh Parsi, director of the European Iran Research Group.

Rouhani can point to impressive figures.

Gross domestic product (GDP) shrank 7.7 percent the year before he took power. This year the IMF forecasts it will grow by 6.6 percent.

Inflation has dropped to single digits. A nuclear deal with world powers ended sanctions and brought an endless stream of foreign suitors to Iran’s door.

An Iranian oil worker rides his bicycle near an oil refinery south of the capital, Tehran, December 22, 2014. (AP/Vahid Salemi)
An Iranian oil worker rides his bicycle near an oil refinery south of the capital, Tehran, December 22, 2014. (AP/Vahid Salemi)

But much of the growth is from the return of oil revenues that are not trickling down.

“It’s still not going fast enough for the average Joe on the street,” said Parsi.

Cash crunch

The central problem is a cash crunch. Wealthy Iranians are still not investing in new businesses.

“This is the most critical problem,” said Saeed Laylaz, an economic advisor to the president. “If we can’t attract investment, GDP will sink back to zero.”

Without greater transparency, investors will remain cautious, he said.

An Iranian man withdraws money from an ATM machine at a Bank Sepah in the capital Tehran on January 19, 2016. (AFP/Atta Kenare)
An Iranian man withdraws money from an ATM machine at a Bank Sepah in the capital Tehran on January 19, 2016. (AFP/Atta Kenare)

But greater transparency does not sit easily with a conservative establishment still wedded to the revolutionary priorities of opposing Israel and the West, and projecting power around the Middle East — priorities which require a certain amount of shadowy financing.

“At some point, the political leaders will have to decide: are they in the money-making business or the revolutionary-rhetoric business?” said Parsi.

Toxic debts

The other major problem is that Iran’s banks are a mess, riddled with toxic debts from an uncontrolled construction boom.

Bad loans and worthless properties account for up to 45 percent of total bank assets, according to a report in November.

Hopes that foreign money might make up the shortfall in domestic cash have not panned out.

Illustrative: An Iranian woman walks past a Bank Pasargad in the capital Tehran on January 19, 2016. (AFP/Atta Kenare)
Illustrative: An Iranian woman walks past a Bank Pasargad in the capital Tehran on January 19, 2016. (AFP/Atta Kenare)

Global banks remain fearful of engaging with Iran’s murky system, and everyone is waiting to see whether US President Donald Trump re-imposes sanctions as he threatened during his campaign.

“Expectations were set high by both Iran and other signatories to the nuclear deal for how much tangible economic benefit would flow into Iran after the sanctions,” said Ellie Geranmayeh, of the European Council on Foreign Relations.

“Part of the problem relates to the difficulty of doing business in Iran — there’s so much red tape and so many hurdles to jump.”

No alternative

The saving grace for Rouhani is that his conservative opponents appear unable to coalesce around a single candidate to run against him in May.

Some analysts have interpreted the supreme leader’s criticism as a sign he wants a conservative to replace Rouhani.

But Geranmayeh said he was just keeping the government in check: “He’s the balancer. Part of his role is to critique every sitting government and make sure no one camp becomes overly popular.”

Iranian President Hassan Rouhani stands next to a portrait of supreme leader Ayatollah Ali Khamenei as he leaves at the end of a press conference in Tehran on June 13, 2015. (AFP Photo/Behrouz Mehri)
Iranian President Hassan Rouhani stands next to a portrait of supreme leader Ayatollah Ali Khamenei as he leaves at the end of a press conference in Tehran on June 13, 2015. (AFP Photo/Behrouz Mehri)

Nor are voters likely to turn to hardliners or civil unrest for a way out of their economic woes — such paths have already been well tested in Iran.

“If people are tired and impatient, they won’t go back to the conservatives. They just won’t participate at all. That isn’t good for anyone,” said Laylaz.

If Rouhani gets a second term, “he must be more aggressive on economic, social and political reforms. He has no choice. The alternative is catastrophe.”

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