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Iran economy mismanaged, not collapsing yet

Dubai, October 13, 2012

By Una Galani

 

Iran is suffering from economic mismanagement, but isn't threatened by imminent collapse. The $480 billion economy is troubled and heading in the wrong direction, but recent forecasts from the International Monetary Fund suggest Tehran's finances aren't in dire straits. 
 
Even with its oil exports halved to one million barrels per day, Iran's current accounts are still in the black. The massive fall of the rial last week was mostly homemade.
 
In the face of tough sanctions, Iran will generate a current account surplus of 3.4 percent of GDP this year and 1.3 percent next year. That is a sharp drop from the double-digit numbers Iran ratcheted up last year, but so far Iran has avoided the deficit that would spell real trouble. 
 
The IMF also predicts that although gross domestic product will contract 0.9 percent this year, growth will rebound to around 0.8 percent in 2013.
 
Iran could avoid a major meltdown if the IMF is right and the trend holds. The fund predicts oil prices at an average $106 this year and $105 next year. If tighter sanctions cut Iran's access to hard currency, economists privately estimate that the country could still continue to meet its import bill - inflated in recent years by luxury goods - with the reserves it does have for up to two years.
 
The currency crisis, in the absence of a shortage of dollars, mostly underscores the ineptitude of President Mahmoud Ahmadinejad. Seven years of neglect concerning the rise of imports makes it harder to adjust. After officials warned the media against negative reports on the impact of sanctions, the government fuelled panic with its attempt to enforce a bizarre "money exchange" centre that smacked of currency control. The open rate then soared to three times the official rate at which licensed companies can still buy basic food staples.
 
A new president next year, or sooner if Ahmadinejad is ousted on the back of the currency woes, may offer some hope. True, any successor will struggle to make reform barring a compromise on the nuclear issue that would help lift sanctions. At least a new team could try not to add government incompetence to Iran's many problems. - Reuters Breakingviews
 



Tags: economy | Iran | IMF |

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