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Iran's economic policy falls victim to political feuds

When a nation faces an external threat there is a general tendency to close ranks and put aside internal disagreements. It seems that no one among Iran's economic policy-makers is paying much attention to this centuries-old rule.

  • By Nader Habibi, Special to Gulf News
  • Published: 23:39 June 8, 2008
  • Gulf News

When a nation faces an external threat there is a general tendency to close ranks and put aside internal disagreements. It seems that no one among Iran's economic policy-makers is paying much attention to this centuries-old rule.

While the US and its allies are intensifying economic and financial sanctions against Iran, Iranian officials are locked in an escalating dispute over several sensitive economic policies such as reorganisation of state-owned banks and determination of interest rates.

Disagreements over economic and monetary policy have led to a visible rift inside President Mahmoud Ahmadinejad's economic team.

The Minister of Economy, Davoud Danesh Jafari, was forced to resign on April 22 after he disagreed with the President's plan to reduce the interest rates to below 12 per cent. Jafari argued that this policy would weaken the banking institutions and further increase their financial losses. Not surprisingly, his temporary replacement, has pledged full support to the President's economic policies. In contrast, the director of Iran's central bank, Tahmasb Mazaheri, has intensified his opposition to these policies. He even tried to use his authority to block the implementation of the government's new interest rate policy, but was overruled.

This internal feud over economic policy is being fully reported and analysed by the domestic media, some of which are now speculating that Ahmadinejad will soon replace the director of the central bank to gain more control over the banking system. This move, however, might only offer him a temporary relief from opposition to his economic policies.

The new speaker of parliament (Majlis), Ali Larijani, has also been a vocal critic of Ahmadinejad's economic policies, which he blames for the worsening inflation in recent months.

Larijani now represents a new conservative faction in parliament that is likely to challenge many of President Ahmadinejad's economic policies. However, it is not yet clear what type of economic policies Larijani and his supporters are likely to advocate.

He has already promised to increase the role of the parliament in formulation and implementation of economic policy and it appears that he enjoys the implicit backing of the Supreme leader, Ayatollah Khamenei.

(Larijani has also criticised Ahmadinejad for his radical foreign policy statements about Israel and the US. He is likely to have a moderating influence on Iran's foreign policy although he is a strong supporter of Iran's nuclear programme.)

However, since the President is ideologically dedicated to his views and enjoys strong backing among revolutionary guards and some low income social groups, he is expected to put up a strong resistance to Larijani.

It is likely that we will witness an intense struggle for control of economic policy between the parliament and Ahmadinejad.

This struggle will only add to the environment of economic uncertainty that has weakened the Iranian economy in recent years. Private investors can hardly figure out who is in charge of economic policy.

Uncertainty about interest rates, inflation and continuation of privatisation programmes will be an added burden on the shoulders of consumers and investors who are already worried about international sanctions and the risk of military confrontation over Iran's nuclear programme.

It is no wonder that some Iranians are transferring their investments to more stable economic environments such as Dubai.

- Nader Habibi is a Henry J. Leir professor of economics at Brandeis University's Crown Centre for Middle East Studies.

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