Brookings: Experts - Djavad Salehi-Isfahani

Economic Issues Remain Murky As Iranians Go To Polls

Djavad Salehi-Isfahani — Wed, 12 Jun 2013 16:45:00 -0400

Talking to ordinary people in Neishabour and Tehran about Iran’s June 14 presidential election, economic issues seem foremost on their minds. But whom they will vote for is based on vague promises to pull the economy out of its deep crisis rather than well-defined economic programs.

Significant differences on economic philosophy divide a confused public about how to end economic stagnation and high inflation.

In the last three decades of the Islamic Republic’s history, Iranians have experienced both market-based economic growth and populist redistribution.

This election cycle would have been a good time to debate which of these two economic development strategies should be used in moving forward.

However, the decision by the Guardian Council to eliminate two important candidates, Ali Akbar Hashemi Rafsanjani and Esfandiar Rahim Mashaei, from the list of those eligible to run has sharply limited the value of this election as a space for vibrant public debate about the issues that are of greatest daily concern to most Iranians.

These two politicians could have represented the contrasting economic strategies and turned the election into a referendum on the past eight years of populist economics practiced by the Ahmadinejad administration.

What this election should be about is how to achieve a key promise of the Islamic Revolution.

Mr. Rafsanjani, the former two-time president, is well known for his preference for market-based economic growth as a solution to poverty and equity issues.

Early on in Mahmoud Ahmadinejad’s tenure, Mr. Rafsanjani rejected Mr. Ahmadinejad’s populist policy of cash distribution as “fostering beggars.”

His elimination from this election has deprived voters of a critical assessment of Mr. Ahmadinejad’s populist program that has inflicted serious damage on Iran’s economy.

A further blow to a meaningful debate on populism came from the elimination of Mr. Mashaei, who was Mr. Ahmadinejad’s close associate and in-law.

It would have been highly interesting, if not very informative, to watch him debate Mr. Rafsanajani on such important issues as the record of the government’s three ambitious populist programs — low-interest loans to small and medium producers, low-cost housing and cash transfers.

What this election should be about is how to achieve a key promise of the Islamic Revolution.

More than three decades ago, a vast majority of Iranians supported the revolution, expecting that it would divide Iran’s oil wealth more equitably.

Early on, Ayatollah Khomeini, the revolution’s leader, tried to limit these expectations by famously saying that “economics is for donkeys.”

But the failure by two previous administrations (Mr. Rafsanjani and Mohammad Khatami, each serving for eight years as president) to reduce inequality has kept the issue of income and wealth distribution at the forefront in recent elections.

Mr. Ahmadinejad came to power in 2005 promising to take the “oil money to peoples’ dinner table,” which he tried to do.

The last two years for which we have survey data, 2010 and 2011, show falling poverty and inequality, but the economy is in a shambles.

Prices rose by 40% last year according to official figures, and the same surveys show unemployment at about 15% overall and twice as high for youth.

It would have been valuable for the public to learn if Mr. Ahmadinejad’s redistribution policies are responsible for the current economic mess, or something else, like incompetence in execution or international sanctions.

What the candidates have said in the short time they have had to campaign is that they will do something different. What and how is not clear.

What the candidates have said in the short time they have had to campaign is that they will do something different. What and how is not clear.

The four front-runners, Saeed Jalili, Mohammad-Baqer Qalibaf, Hassan Rowhani, and Ali Akbar Velayati, have expressed their differences on how to deal with sanctions.

Sanctions loom large in voter minds, but few believe that whoever is elected will be able to influence Iran’s nuclear policy, which is being tightly directed by the Supreme Leader, Ayatollah Ali Khamenei.

What seems to distinguish these candidates most clearly at this point is social rather than economic issues.

They all promise to reduce inflation, increase employment and run a less corrupt and more efficient administration. The differences exist in emphasis rather than specifics.

Mr. Jalili is the most conservative candidate in the race and closest to Mr. Ahmadinejad in economic philosophy but has also been careful to neither defend nor criticize the latter’s policies.

He has defended Iran’s stance in the nuclear negotiations with the P5+1 group (the U.S., Britain, France, China, and Russia plus Germany), which he led in recent years, with the usual anti-Western rhetoric.

By saying the least of any candidate about the economy, he has clearly indicated that economic issues are not his top priority.

In the televised debates, Mr. Jalili made it clear that a more effective enforcement of cultural values was the right way to solve the country’s economic problems.

More specifically, he seemed to reject compromising with the West over Iran’s nuclear program in order to lessen the pain of Western sanctions on ordinary Iranians.

If Mr. Jalili is Mr. Ahmadinejad’s favorite candidate, Mr. Ahmadinejad has not said anything.

He has not made any public statement regarding the candidates so far, except to request time on national television to respond to their criticisms, which was denied.

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Authors

Djavad Salehi-Isfahani

Publication: Lobe Log

Image Source: © Stringer Iran / Reuters

Who Are Iran's Voters?

Djavad Salehi-Isfahani — Mon, 20 May 2013 11:10:00 -0400

The list of candidates registered for the Iranian presidential election in June — at least until they are trimmed by the Guardian Council — offers Iranian voters a reasonable variety of philosophies from which to choose.

As usual, there is a mix of social and economic issues on voters’ minds, but differences between candidates in their approaches to solving Iran’s mounting economic problems matter most. Populists, led by president Ahmadinejad’s close associate Esfandiar Rahim Mashaie, promise more redistribution. Pragmatists and reformers, led by former President Hashemi Rafsanjani, argue for the revival of economic growth. Finally, an assortment of conservatives, led by politicians close to the Supreme Leader, such as former Foreign Minister Ali Akbar Velayati, Tehran Mayor Mohammad Bagher Ghalibaf and nuclear negotiator Saeed Jalili, will take a middle course promising both growth and redistribution.

But who are the voters to whom these philosophies would appeal?

Since the last election in 2009, the voting-age population (18 years and older) has grown from 47 million to 55 million. (Age structure and employment data are calculations from the 2% sample of the 2011 census provided by the Statistical Center of Iran and are adjusted to reflect the 2013 age structure.) It has also aged slightly: The median voter is now 38 years old, three years older than in 2009. Voters under 30 (henceforth young voters), account for one-third of all voters, down from 37% in 2009. So, young voters are not as numerous as they were in 2009 when, in the aftermath of the highly contested vote that returned Ahmadinejad to office for a second term, they poured into the streets and created the Islamic Republic’s first serious political crisis. But, compared with 19% in the US, Iran's young voters are still quite a force to be reckoned with.

The shift to adult voters (aged 30-64), who comprise 57% of all voters, compared to 54% in 2009, though small, points to the direction in which Iranian politics may be moving in the future: away from social issues that concern youth and in the direction of economic issues that matter to older voters. In 2009, younger voters were energized by Mir Hossein Mousavi’s statement during a television debate that, if elected, he would stop the public chastity police. They seemed less concerned that his economic plan was much less specific about how he was going to help them find jobs.

Youth suffer from very high rates of joblessness, but their pain is often shifted to their parents. An astonishing 65% of young voters live with their parents, and are thus partly shielded from the harshest aspects of Iran’s failing economy.

Older voters are more concerned with economic issues because they work and are breadwinners for their families. Youth suffer from very high rates of joblessness, but their pain is often shifted to their parents. An astonishing 65% of young voters live with their parents, and are thus partly shielded from the harshest aspects of Iran’s failing economy. About 77% of adult males work, compared to 40% for young voters (11% of adult women work compared to only 6% of young women).

Social class will play a larger role in this election than any in the past, thanks in part to the populist policies of the Ahmadinejad administration. In 2011, the median voter lived in a family with about $11 per day of expenditures per person, which by common international standards classifies him or her as middle class. (Conversions to US dollars use a factor of 6,500 rials in 2011, which is higher than the World Bank estimate of 5,854 rials per USD; income and expenditure data use the Expenditure and Income Surveys of 2009 and 2011 collected by the Statistical Center of Iran.)

Poor voters (defined as living in families with less than $3 per day) accounted for only 2.1% of the voting age population. But rising inequality, especially at the very top, has created a much wider base of disgruntled voters who would like to see the government engage in more redistribution, not less, despite the fact that many in Iran now believe that Ahmadinejad-style redistribution has caused inflation and not improved their lot.

Since January 2011, President Ahmadinejad’s main populist program — cash instead of energy subsidies — has been depositing cash in individual bank accounts of nearly every Iranian every month. Survey evidence suggests that for people below the median income, trading cheap fuel for cash has been a net gain. The monthly payment amounted to $360 (in international dollars) for a family of four in 2011, which was about 50% of the monthly expenditures of people in the poorest 10% (now about half as much), 17% for those in the middle of the distribution, but only 5% for the richest decile. As a result of these and other transfers, the Gini index of income distribution fell by nearly 5 percentage points to 0.36 (my calculations from surveys of incomes and expenditures), its lowest level in the post-revolution period.

Improving the distribution of incomes is not the same thing as raising them. In the last two years, Iran’s economy has performed very badly, in part because of international sanctions, but also in large part because crude redistributive policies, such as unconditional cash transfers, are rarely good for economic growth.

Even if Esfandiar Rahim Mashaei, the candidate most closely associated with Ahmadinejad, is allowed to run, it is uncertain whether or not he will be able to rally the beneficiaries of the populist policies followed in the last eight years to make a good showing at the polls. Uncertain, too, is how long his reformist and conservative opponents can afford to ignore popular demands for redistribution or be able to undo the redistributive policies of the current administration if they win the election.

Authors

Djavad Salehi-Isfahani

Publication: Al Monitor

Image Source: © Morteza Nikoubazl / Reuters

Iran’s Presidential Election Puts Populism to the Test

Djavad Salehi-Isfahani — Wed, 15 May 2013 17:25:00 -0400

Economic issues are paramount on the minds of Iranian voters as they ponder the long list of candidates registered for president: who among them is likely to survive the vetting by the Guardian Council, and, of those, who offers the best plan to get Iran’s economy out of the rut it has been in for the last several years?

Since the last election in 2009, the economy has stopped growing, more people are unemployed, prices have skyrocketed, and the currency has lost more than half of its value. Not all of these are the fault of outgoing President Ahmadinejad — sanctions have tightened considerably since he started his second term in 2009. But for the last several months the economic debate in Iran has been dominated by both his conservative and reformist critics who charge that his populist policies have brought economic ruin.

Three large programs define this populist legacy of redistribution. The first was a large $40 billion lending program for small enterprises, known as the “quick-returns projects”, which started in 2006 and was already widely considered a colossal failure before the 2009 election. The 2011 census revealed zero net jobs added to the economy since the program’s inception. Meanwhile, the public banks that were forced to lend to these projects have been left with huge unpaid loans. This large expansion of credit that failed to bring much additional output spurred the inflationary spiral that would later define the Ahmadinejad presidency.

The low-cost housing scheme, known as Maskan Mehr, also turned out to be highly inflationary because it relied on public lending to low-income people, forcing the banks to increase their borrowing from the Central Bank by about $40 billion and adding even more to liquidity.

The third, and most controversial, is the subsidy reform program, which redistributed some $70 billion worth of energy subsidies — most of which benefited people in middle- and upper-income groups — more equitably by replacing them with cash transfers. It also proved inflationary because the amount of cash distributed exceeded the cost of the energy subsidies that had been removed by an estimated $15 billion per year. The last two programs are still ongoing and have come under sharp attack, from both reformists and conservatives.

There seems to be a widespread perception among Iranian voters that Mr. Ahmadinejad has failed to deliver on his promise, first made in the 2005 elections, to “bring the oil money to the dinner table.” But this does not mean that the public is ready to give up on redistribution. If there is a program that promises them what they are looking for – redistribution without inflation – they will support it. But such a program is not currently to be found among the plans of any of the declared candidates.

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Authors

Djavad Salehi-Isfahani

Publication: Lobe Log

Image Source: © Morteza Nikoubazl / Reuters

How the Sanctions Might Hurt America's Potential Allies Inside Iran

Djavad Salehi-Isfahani — Fri, 12 Oct 2012 12:12:00 -0400

The collapse of the rial in Iran's foreign currency exchange in early October was a tipping point — not so much for Iran's economy as for Tehran officials' efforts to deny that sanctions do harm. In a rare moment of agreement, President Mahmoud Ahmadinejad and analysts in Washington blamed the rial's collapse on Western sanctions, even as most of the president's political opponents in Tehran insisted that his handling of the economy — not sanctions — was responsible for the economic mess.

For his part, Supreme Leader Ali Khamenei dismissed the sanctions as "not a new issue" and said that "enemies are making efforts to blow the issue of sanctions out of proportion, and, unfortunately, certain people inside are assisting them."

As a lame-duck president with only six months left in his term, Ahmadinejad is an easy target. But blaming the crisis on domestic policy mistakes is also a way for the more radical politicians in Tehran to continue to deny the sanctions' negative impact and to suggest that the crisis will be brought under control by changes in economic, not foreign, policy.

In reality, both the sanctions and the government's inept response to them have contributed to the country's economic woes. But Western analysts have misjudged the severity of the crisis: Since the rial started to fall, the media has been full of tall tales of hyperinflation, economic collapse, and revolution. Much of this is based on a misunderstanding of how Iran's foreign exchange markets work.

Why didn't Tehran see this coming?

Economic mismanagement in Iran is nothing new. In the past, high oil prices have covered up policy mistakes and prevented economic crises. Oil couldn't save Iran this time, however, because sanctions have taken a large bite out of the country's energy revenues. Oil exports are down about 50 percent this year from their normal level, and they may fall further. Iran has also lost its access to part of its foreign currency reserves, which are frozen in foreign banks.

Iran should have known this could happen. After all, Western governments were not hiding their intentions to tighten the sanctions. The Iranian authorities had ample warning that maintaining the rial as a convertible currency would become infeasible once sanctions began to bite. They could have laid the groundwork for their current multiple-exchange-rate system -- which allows Iran's Central Bank to sell foreign currency at different rates to different users -- long before December 2011, when U.S. President Barack Obama signed the sanctions law that limits Iran's access to the oil market and the international financial system.

Tehran views the multiple-exchange-rate system as the right response to the sanctions. It offers the government, which earns all foreign currency, the tool to manage the economy and contain the political impact of the sanctions. There's logic behind this: The system has insulated the economy from hyperinflation, making its case different from those of other countries that have experienced large external shocks, such as East Asian countries, Turkey, and Zimbabwe.

A tale of two currency markets

Tehran still has tools to prevent the rial collapse from having uncontrollable political effects. The government can limit the devaluation to currencies that are privately traded, selling its own reserves at preferential rates and therefore keeping prices of critical commodities and wages from rising too much. It does not have to print money for its expenditures in tandem with devaluation, which reduces the risk of hyperinflation. Thus a large devaluation in the rial in the free market is much less significant than the same devaluation in countries where the government has to buy its foreign currency from exporters.

The economic signal from Iran's free market is not as significant as people think for yet another reason. Sanctions have segmented the foreign currency market in Iran into two relatively separate parts. One part is for transactions managed by the public sector, which can be conducted on a barter basis, or in the currencies of the countries that continue to buy oil from Iran, such as Indian rupees and Chinese yuans.

The other market is for paper foreign currency and hawala (a system of parallel transactions in two countries), which people use to pay for imports that the government considers luxury goods, to send tuition money to hundreds of thousands of Iranian students studying abroad, to take money out of Iran, or simply to seek protection from inflation. The supply of foreign currency to this market is much tighter than the limits set by falling government oil revenues, so its gyrations do not necessarily reflect the ups and downs of oil exports. Nor is the rial's value in this market relevant for the price of foodstuffs or manufactured items, which the government can purchase with its oil revenues.

The shock to production

This two-tier system hasn't been well suited for the goods that keep Iran's agricultural and industrial sectors running, which constituted about two-thirds of imports. The system's persistence indicates the government's lack of preparedness, which has frustrated Iran's productive sectors for months.

Iran's economy is highly globalized, and most sectors rely on some imported items for production. Sanctions have disrupted the supply chains for these sectors. This summer, a shortage of imported chicken feed caused the first sanctions-related political crisis in Iran. Several hundred ordinary Iranians protested the shortage in Neishabour, a medium-sized city where more than 75 percent of residents voted for Ahmadinejad in the 2009 election.

As a result of sanctions and the government's ineffective response, Iran's industrial production has fallen and thousands of workers either have lost their jobs or are not being paid. Car production, which had increased fivefold in the last decade, was down 42 percent from March to September compared with the same period a year ago, mostly due to a shortage of spare parts. This year, French car producer Peugeot shut down its operations in Iran.

To remedy this situation, the government in late September unveiled its new "foreign exchange center," which allows licensed importers and exporters to bid for foreign currency, mostly supplied by the Central Bank. Approval for access to this center is based on the priority that the Central Bank attributes to the commodity in question.

The new market has introduced a third exchange rate, where the rial is currently trading about 20 percent below the free market rate but twice the official rate reserved for essential imports. This large gap, as well as talk of unifying the exchange rate, fueled speculation that a large official devaluation was imminent -- and possibly caused the value of the rial in the free market to fall 40 percent the same week.

The foreign exchange center has helped producers because they no longer have to compete with speculators and those taking their money out of the country, but it has also sharply increased the power of the government vis-à-vis the private sector -- a risk that critics of Iran sanctions have been warning of for some time.

Why Ahmadinejad won't do the right thing

The blow to the productive sectors of Iran's economy has shrunk output at a time when Iranians are holding record amounts of cash. Liberal spending has expanded liquidity by more than five times since Ahmadinejad took office seven years ago. Too much money is chasing too few goods. Inflation, which was running close to 30 percent a month ago, is now probably closer to 50 percent.

Excess liquidity and high inflation have sent ordinary Iranians in search of safe assets that can protect the value of their savings. As a result, the small Tehran Stock Exchange rose 12 percent last month, real estate has been booming, and gold and foreign currencies have gone through the roof.

An effective way to absorb such liquidity and channel it to productive uses is to raise interest rates, but the government has avoided doing so. Opposition to raising interest rates to fight inflation is partly the result of Islamic teachings that ban interest altogether, but it is also related to powerful lobbies that prefer to borrow cheap from publicly owned banks. One of the first economic actions that Ahmadinejad took when he came to office was to lower the cap on interest rates to 12 percent in the middle of an oil boom, while the economy was overheating. Interest rates have been on average 7 percentage points below the rate of inflation during his tenure.

In a rare concession, Ahmadinejad agreed a few months ago to raise interest rates to 17 percent on one-year deposits, but this was too little too late. With real interest rates in the double-digit negatives, Iranian banks have been losing depositors in droves.

Spreading the economic pain

Despite everything, Iran seems to be weathering the storm better than advertised. Sanctions were intended to inflict economic pain on Iran's population, with the hope that Iranians would persuade their leaders to compromise with the West on the nuclear standoff. But these hopes have been dashed: Tehran may have fumbled its economic response to sanctions and failed to minimize their overall level of pain, but it does seem capable of dealing with their political fallout by managing the distribution of the pain. Its principal means in doing so is the multiple-exchange-rate system, which eases the sanctions' impact on Iranians below the median income -- Ahmadinejad's political base. Meanwhile, the system shifts the burden to upper- and middle-income Iranians, who have shown little affection for the controversial president in any case.

To protect lower-income people, the Iranian government will likely act conservatively in supplying foreign exchange for nonessential needs and make sure that it has enough reserves for critical imports of food and medicine. This will mean the value of the rial in the free market will continue to fall -- but such an event should not be interpreted as a sign of economic collapse.

Ironically, if this scheme succeeds, much of the pain will be borne by upper-income Iranians who are generally most friendly to the West and least likely to revolt, because they have more to lose. They will be the unintended victims of Western sanctions, which have so far proved a very blunt instrument of U.S. foreign policy. Upper-income Iranians have plenty to be upset about with their own government, but now there is a distinct possibility that they will also blame the West for their misfortune.

This is not only unproductive from the point of view of Western policymakers -- but it will also complicate relations with Iran if and when the country rejoins the global economy.

Authors

Djavad Salehi-Isfahani

Publication: Foreign Policy

Image Source: © Morteza Nikoubazl / Reuters

Should the United States Rethink Sanctions Against Iran?

Djavad Salehi-Isfahani — Mon, 06 Aug 2012 12:28:00 -0400

Editor's Note: This piece is a rebuttal to a Federation of American Scientists debate about international sanctions on Iran. For additional debates and rebuttals, please click here.

I have been less than a week in the medium-sized city of Neishabour, Iran, visiting relatives, and I can see no sign of a country hunkering for intensifying sanctions and looming difficult times. Sidewalks are full of shoppers and people seem to go about their business as usual. People are complaining about rising prices but they keep buying. There are extravagant wedding parties every evening as hopeful couples tie the knot before the holy month of Ramazan starts, on Friday July 20. Looking at the pace of normal life, one can understand why Iranian leaders seem in no hurry to throw in the towel in the nuclear standoff with the West, and why Western claims of imminent economic doom are exaggerated.

But all is not well, not by a long shot. The dollar has gone through the roof, food prices have skyrocketed, industrial production is down, and unemployment is rising. The oil embargo has cut into Iran¹s oil revenues and financial sanctions have limited the country¹s access to the global economy. Spot shortages and sharp price increases for key food items are already being felt across Iran. This provincial city was rocked on July 23 when hundreds marched down its main street protesting the shortage of chicken at the official price. There is no doubt that ordinary Iranians will pay a heavy price as sanctions intensify; the big question is how sanctions will influence Iran¹s behavior in the international stage.

When sanctions were “smart” and aimed to make life difficult for Iran’s leaders, ordinary Iranians acted as disinterested bystanders. But now that sanctions aim to make life difficult for them, they will have to take sides. Or so goes the theory: put pressure on the people -- “economic warfare,” as one conservative commentator told the New York Times -- so they get their government to compromise.

Since this theory is about to be put to an extremely costly test, it is important to consider a few things before we commit to this path.

First, international sanctions only work when the population they are imposed on identifies with the objective of the sanctions. This is the big difference between the sanctions to end apartheid in South Africa and those to force Iran to abandon nuclear enrichment. Most Iranians are not all that invested in nuclear enrichment, one way or the other, but few would see stopping Iran’s enrichment as their cause.

Furthermore, history shows that, when threatened by sanctions, Iranians are unlikely to rise up against their own government. In 1952, a Western-imposed embargo on Iranian oil devastated Iran’s economy, but people tolerated the pain and stood with their government. It took a US-sponsored coup a year and a half later to topple the nationalist government and help Western powers achieve their objectives.

True, Iranians are more polarized today, especially after the rise of the Green movement following the controversial election of 2009. But it is a misreading of Iran’s political scene to believe that sanctions will revise or strengthen the protest movement. The opposite may be true. The Green movement was built on economic growth and an expanding middle class. Thanks to economic growth fueled by rising oil revenues, 40percent of Iranians have joined the middle class and the lower 40 percent aspire to the same. The economy has not been doing well lately, the average Iranian still enjoys a decent standard of living, has access to basic services, health, and education. Significantly, last year’s Human Development Report that ranks countries based on income, health, and education placed Iran above Turkey, which is the best performing country in the region.

Sanctions are slowly transforming Iran from a country with an expanding middle class and a rising private sector into a country with a shrinking middle class and private sector. Financial sanctions have placed private firms at a disadvantage relative to government-owned firms in making global transactions. Where the private sector withdraws, the state is often ready to move in.

More severe sanctions will go beyond hurting the private sector and threaten the living standards of the middle class. As basic services deteriorate, and the shortages and long lines that were common sights during the Iran-Iraq war reappear, the government will once again become not the source but the remedy to their problems.

The sanctions will do much to undermine the belief among Iranians about the benefits of the global economy. Such beliefs are what distinguish India from Pakistan. If there is hope for Egypt and Tunisia after the Arab Spring to become stable societies it is the belief in the benefits to their citizens of remaining connected to the global economy. The short-term gains from nuclear gamesmanship must balance the long-term cost of alienating the Iranian middle class.

Spreading faith in global cooperation used to be the White Man’s Burden, but no longer. Leaders in Brazil, China, India and Turkey have done a lot to persuade their people that working within the global economy is not a threat but an opportunity. Many leaders of the Islamic Republic have pushed a similar view. The year President Ahmadinejad took office, in 2005, the Fourth Development Plan he inherited was subtitled “In Conformity with the Global Economy.” These leaders believed in the Islamic Republic as a development state. They built infrastructure and schools and promoted family planning. Naturally, they do not want to gamble all they have achieved in a high stakes nuclear game. If by chance they are contemplating to revive the Islamic Republic as a development state, the world should help them succeed, not undermine their effort.

Authors

Djavad Salehi-Isfahani

Publication: Federation of American Scientists

Image Source: Morteza Nikoubazl / Reuters

West, Iran Have Different Ideas About Iran’s Economic Health

Djavad Salehi-Isfahani — Wed, 13 Jun 2012 12:54:00 -0400

It is widely believed that a dismal economy hurt by sanctions was the main reason Iran returned to negotiations with the five permanent members of the UN Security Council plus Germany in April.

Early hopes of quick progress were dashed last month in Baghdad, with Iran rejecting tough demands by the P5+1. If the latter’s negotiating position was influenced by the common wisdom that sanctions have pushed Iran’s economy to a point of imminent collapse, then it makes sense for them to maintain a hardline position hoping for a rapidly weakening economy to soften the Iranian side. In that case, there is little reason to be optimistic about the next round of negotiations scheduled in Moscow June 18-19.

For their part, the Iranians do not seem to be behaving as if their economic clock is ticking. Are they bluffing or looking at a different set of facts? Whereas reports in the West paint a dire picture of a failing economy, data supplied by Iran to international organizations depict an economy that, while facing serious challenges, is not on the verge of collapse.

Because Iran’s economy is at the center of the nuclear standoff, it is important to examine a few of the major issues of contention that drive these divergent narratives.

Standard of living

A comparison with Turkey helps show why Iran’s economy has not performed as badly as is generally believed.

The 2011 Human Development Report placed Iran above Turkey, using an index that combines income, education and health. According to the World Bank’s World Development Indicators, a publicly available database (which is curiously underused by reporters), Iran’s Gross Domestic Product per capita was about 90% of Turkey’s in 2009, the last year data are available for both countries.

In the prior ten years, Iran’s economy enjoyed a robust rate of economic growth, averaging about 4.7% per year, which was higher than Turkey’s 3.9%. Of course, Iran’s growth was oil driven, while Turkey’s was due more to rising productivity. Since 2009, when Iran ceased releasing reliable data, all indications are that Iran’s economic growth has ground to a near halt while Turkey’s growth has accelerated.

Inflation

Inflation is the indicator of economic distress that Iranians mention most when asked about the economy, and is the most widely reported in the Western press. There is reason for its prominence. Since 1985, according to official figures, the inflation rate in Iran has averaged close to 20% per year. During the last decade, it declined to an average of 15%, and fell to about 10% in 2010, before turning up sharply. In the last 12 months, inflation has averaged more than 25% and last month it increased to an annualized rate of 34%.

After nearly three decades of inflation, Iranians do not appear to be any more used to it, but given the length of time it has persisted, the government does not see inflation per se as particularly threatening. It is concerned about high inflation, because that is a daily annoyance that unites a divided population against it.

In any case, the current high level of inflation is not directly related to sanctions. Two factors are most responsible: the inflow of record amounts of oil revenues and recent subsidy reforms.

Government expenditures of oil revenue always bring some inflation because they raise the price of non-traded goods and services and with them, the general price level. For this reason, prices of housing, medical care and fresh fruit are particularly sensitive to oil-induced expansions. Iranians like their oil rent, but they hate the inflation that comes with it.

The other major cause of the current inflation rate is a daring subsidy-reform program launched in December 2010 which raised prices on energy products by factors ranging from 3 to 9, fueling price increases across the board. To make the program politically acceptable, the government redistributed the money it collected by giving each Iranian a $45 monthly stipend.

Reporting in the Western media on the program has been generally negative, but the government believes the reform is actually quite popular. Last month, Iran’s parliament approved extending the program. Subsidy reform has likely reduced poverty and inequality because the energy subsidies accrued disproportionately to the rich (the poorest decile received $1 for every $10 of the gasoline subsidy received by the rich) while the cash rebate of about $1.50 per person per day has helped many under the international $2 per day poverty line escape poverty.

Finally, there is no evidence that inflation affects the lower-income groups, which form the government’s power base, worse than any other. Not everyone can lose, since higher rents or produce prices must accrue to someone.

Details aside, the very fact the government would embark on such a risky program at the height of its standoff with the West suggests that it does not believe that it is staring into the economic or political abyss just yet.

The exchange rate

The government faced its first palpable and serious economic crisis in December 2011 when, after several years of stability, Iran’s rial collapsed, losing about 80% of its value in one week. The devaluation was clearly triggered by the tightening of the financial sanctions against Iran, passed by the US Congress earlier that month, but it was overdue by several years.

Inflation had put Iranian producers at a huge disadvantage in the face of competition from Chinese imports. Since 2005, Iranian-produced goods had become on average 50% more expensive relative to foreign goods, causing waves of bankruptcies and massive layoffs. While sections of the Iranian society that had enjoyed cheap foreign currency were hurt, others who would soon find jobs in industries revived by devaluation stood to benefit.

Apart from the fact that sanctions have disrupted Iran’s foreign trade, the foreign-exchange situation of Iran is the envy of the developing world, with virtually no foreign debt and substantial reserves of various currencies and gold.

Iran’s economic conditions may not be dire, but they present its leadership with numerous challenges. The sanctions are yet to take their full effect, and the West can bet that when they do in the coming months, they will severely limit Iran’s ability to export its oil, to spend its proceeds on critical imports or to arrange for barter with a few key countries, such as China and India.

The time for Iranian leaders to turn this crisis into opportunity may have passed — they still disagree on whether sanctions have hurt at all — and the national unity needed to achieve it may no longer exist. But they have reason to be confident that with some policy corrections to improve the domestic climate for business, Iran can weather this storm and the economy can coast for quite a while so that the leadership does not have to give in to what it considers unreasonable Western demands — especially with no prospect of a serious rollback in sanctions.

What would the West do if, for the sake of the argument, it were to abandon its belief in a crippled Iranian economy? Would a compromise at Moscow or later in the year be more likely?

The answer depends on how realistic the war option is for the West. If bombing Iran’s nuclear facilities is a feasible option, the West may not care much about whether Iran’s economy is collapsing. It is like a poker player with a gun who plays carelessly because he knows he can clean up anyway. If, on the other hand, the war option is very costly, having a more realistic picture of the Iranian economy would help the West play its cards more wisely.

Authors

Djavad Salehi-Isfahani

Publication: Al Monitor

Image Source: © Damir Sagolj / Reuters

Iran: Subsidy Reform Amid Regional Turmoil

Djavad Salehi-Isfahani — Thu, 03 Mar 2011 16:06:00 -0500

On a chilly day in February, while thousands of Iranians swarmed Tehran’s Eghelab Avenue in support of Iran’s Green Movement, a small but noisy crowd gathered just a few blocks north with a different motive. This crowd was protesting their missing application for a program that has captured the imagination of millions of ordinary Iranians for the last two months, cash deposits in their bank accounts.

On December 19, 2010, the government ended the decades-long subsidy program for bread and energy products like gasoline, and replaced it with direct payments of about $45 per month per individual. As protestors challenged autocratic regimes across the Middle East, the cash subsidy program seemed to present most Iranians with a serious distraction from national politics.

The recent subsidy reform is the single most important market reform program undertaken since the unification of the exchange rates under President Rafsanjani in the 1990s. Then, as is happening now, the exchange rate reform started in fits and starts, with charges of IMF and World Bank influence and warnings of economic ruin, but over time its errors were corrected and kinks ironed out. The exchange rate unification effort nearly collapsed because of errors in implementation (inexplicably a large devaluation was preannounced causing a run on the Central Bank’s foreign exchange reserves and huge short-term borrowing from abroad, forcing a painful austerity program on the population). But with government persistence the reform eventually succeeded and multiple exchange rates were replaced by a single rate, which today most Iranians take for granted and have come to view as a rational way to run a modern economy.

President Khatami originally thought to reform Iran’s massive subsidies—estimated today at about $70 billion, nearly 20 percent of GDP, and mostly geared toward energy products—but failed in his attempt due to parliamentary opposition. President Ahmadinejad decided to launch his version of the subsidy reform program—grandly named the Economic Transformation Program—in an unlikely time, in the wake of popular uprisings following his controversial election in June 2009 and economic recession. He had the support of the Supreme Leader Ali Khamenei and the parliament, but his program was attacked as reckless and a grave danger to the anemic economy. His reformist opposition dismissed it as a populist stunt to win the approval of the poor and appease the middle class.

Two features of the program have political salience, prices of bread and all energy products were increased to market levels in one shot, and at the same time money was transferred back to people’s bank accounts. One reason for the failure of previous attempts was gradualism, which allowed opponents of subsidy reform several opportunities to stop it. President Ahmadinejad braved political waters by going for shock therapy, albeit a managed one, price discriminating in favor of the poor using an innovative gasoline card, which registered how much gas each car used per month, and the meters for utilities at homes and offices. The rich are charged a higher price than the poor for the same product. The cash-back program was also initially designed to heavily favor the poor, but this plan collapsed last summer when the government found out that its method for identifying the poor based on income deciles calculated from self-reported survey data was highly flawed. In a rare display of pragmatism, President Ahmadinejad appeared on national television to ask the “good people of Iran to forget the plan [based on income deciles].” Contradicting the critics who believed his main objective in the subsidy scheme was to pay off cronies and recruit an army of poor followers, he dropped the graduated payment scheme in favor of uniform payment to all citizens. All the work to fill and analyze 15 million forms that families had filled revealing (or not) their income and wealth had gone to naught.

In order to forestall angry reactions to the sudden hike in prices and to overcome deep cynicism of the Iranian public about ever seeing their government give anything back to them—especially with large sections of the population in open revolt—the government chose an innovative plan. Bank accounts were set up in the name of household heads, usually a male, into which the government deposited the first tranche of the cash subsidy, about $90 per person covering two months. The money deposited in these accounts could be seen but not withdrawn until further notice. What to do with the cash subsidy (yaraneh) once it was to be released soon became the talk of the town. Then, in a dramatic gesture, at 10 pm on December 18, President Ahmadinejad appeared on television to announce that prices would increase as of midnight and the bank accounts would release the funds the same day.

Many had predicted that skeptical Iranians would be rushing to their banks the next morning to collect their money before it disappeared, but bank offices remained calm. Perhaps it was the numbing effect of skyrocketing fuel prices, or a rare display of trust in the government, we will never know. But, surprisingly, the day on which the price of key necessities increased multiple times went by without an incident. Bread, the national staple, at 20 cents per loaf had doubled in price; gasoline, powering 12 million cars on Iran’s roads increased four times; natural gas, which flows directly to the homes of 75 percent of Iranians, increased by a as much as eight times; and diesel fuel that powers the nation’s commercial transportation increased nine-fold.

For the poor, who spend much less than the rich on driving and heating their homes, the excitement of getting a chunk of cash per month most likely outweighed the pain of disappearing subsidies. A rural family of five, with one or two persons earning $10 per day each, suddenly had about $450 at the bank. For Iran’s severely poor (below the so-called $2 per day poverty line), about 10 percent of the population in 2010, [1] the cash payment of $1.50 per person per day is not negligible, nor even for the person with the median income of $4.50 per day. Many of the roughly 4 million families that had not taken the offer seriously to bother filling the necessary forms to set up bank accounts for the cash subsidy now crowd government offices to get them into the system.

Because in the past the rich benefitted more from the subsidies, the cash back offers Ahmadinejad the opportunity to make good on his promise of redistribution. The initial impact of the redistribution, before figuring in the increase in prices, was to reduce the Gini coefficient of income inequality by 8 points, from 0.42 to 0.34. In light of the hastily announced cash benefits in various Middle Eastern countries, from Morocco to Saudi Arabia, Iran’s program stands out as much more than an instrument to pacify the restive masses: it kills two birds with one stone, reducing waste while reducing poverty and improving equity. However, as a model for other countries it falls well short of superior examples from outside the region, such as the Progresa-Oportunidades program in Mexico, which also used subsidy money to persuade families to keep their children in school. Iran’s subsidy reform law is formally known as the Law of Targeting Subsidies, but as it turned out, the only targeting was a consequence of the uneven distribution of the original subsidies.

Iran’s subsidy reform program has cleared a big initial hurdle in that it made it possible for the government to adjust prices to market levels without causing mass protests. However, it is too soon to call it a success. Two serious problems loom on the horizon. First, people only began to feel the full impact of the removal of subsidies in February as their first utility bills with adjusted prices arrived. The shock to the poor is not huge because utility prices increase steeply with use. Therefore, they should continue to come out ahead in the balance of the cash they receive and the higher prices they pay for utilities. It is a different story for the average middle class family, who will see its initial gain disappear. Their dissatisfaction could spill over into the ongoing political protests and setback the program’s progress and even cause its cancellation.

Second, production and employment will suffer as consumers cut back on their non-essential expenditures and spend their subsidy money on imported goods on which prices do not rise. In that case, more of the demand stimulus from the cash program would benefit the Chinese rather than Iranian producers. The government is trying to help firms, or sectors, that are facing serious challenges, such as the trucking sector, by delaying the full impact of the price increase or encouraging banks to lend to them. But so far, its only consistent policy has been to stop them from raising their prices. Anecdotal evidence suggests that many businesses that were already in financial trouble since the current recession began, and are unable to get help from the government, are closing down and laying off workers. Unemployment, which was last reported to be close to 15 percent, is likely to increase. The poor are unlikely to come ahead in this round of adjustments to the price hikes. They are disproportionately represented in unskilled occupations and marginal jobs that are more susceptible to being cut when businesses retrench. Another susceptible group is the youth, who already account for 75 percent of the unemployed and are already in the forefront of the opposition to the government.

Iran’s subsidy reform has enjoyed impressive initial success, but it has not cleared troubled waters yet. With the rest of the region in turmoil, dissatisfaction with the implementation of the price increases or the cash-back program can easily spill over into the streets, setting energy subsidy reform back for at least another decade.

Footnote:

[1] Using 2009 expenditure survey data and 18000 rials as the poverty line in 2010 (about $3 at the PPP exchange rate of 6000 rials per dollar).

Authors

Djavad Salehi-Isfahani

Image Source: © Morteza Nikoubazl / Reuters

Human Development in the Middle East and North Africa

Djavad Salehi-Isfahani — Thu, 04 Nov 2010 16:18:00 -0400

Abstract—

Middle East and North African countries (MENA) have achieved much to be proud of in human development. Falling child mortality and fertility have transformed family structures in most MENA countries. Despite important advances in health, education, and income, there are certain
aspects human development in which MENA countries have not progressed as far. There are inequalities in human development regionally, within each country and for specific demographic groups, most importantly for youth and women. In this paper I review the record of human
development in the MENA region to highlight areas in which the region has been more successful, as well those in which human development has lagged in absolute terms or relative to economic growth. I draw attention to certain important characteristics of the region that distinguish it from other developing regions, in particular the presence of oil income and delayed demographic transition.

Read the full paper at the United Nations Development Programme »

Authors

Djavad Salehi-Isfahani

Publication: United Nations Development Programme

Image Source: © STR New / Reuters

Iran’s Youth, The Unintended Victims of Sanctions

Djavad Salehi-Isfahani — Wed, 27 Oct 2010 14:16:00 -0400

Introduction—

Iran remained inexplicably calm this summer as various parts of the sanctions rolled out from the United Nations, Washington, and Brussels. The country’s press was occupied with reporting on the new policy initiatives from the Ahmadinejad administration, such as removing the thirty-year old subsidies on energy; reviving population growth by encouraging families to have more children as part of its conservative agenda; relocating a large part of the government bureaucracy from the earthquake-prone Tehran to the provinces; and wresting control of Iran’s mammoth private Islamic Azad University from Ahmadinejad’s powerful rival, former President Rafsanjani. All these initiatives have logics of their own but, curiously, none are directly concerned with the tightening of sanctions.

Even Tehran’s sophisticated middle class seemed unconcerned until the news came, on July 16, that the Educational Testing Service (ETS), the company that offers the Test of English as a Foreign Language (TOEFL) and the Graduate Record Examinations (GRE), was halting these exams in Iran because the latest round of UN sanctions prevented Iranians from paying the fees for the tests. Two weeks later the problem had been resolved and the tests resumed. However, as the first widely reported effect of the sanctions, this incident helped underline the fact that sanctions have unintended consequences that could hurt those far removed from the intended target - Iran’s Revolutionary Guards.

Unfortunately, not all the unintended consequences of the sanctions can be reversed this easily. Iran’s youth, who came to the streets in large numbers last summer to protest fraud in the re-election of President Ahmadinejad, and who for a while not only seemed to threaten his government but shook the foundations of the Islamic Republic, may turn out to be the biggest victims of the sanction. The sanctions are not expressly intended to hurt Iran’s economy, but there is little doubt that they will. The only hope for youth to find employment is the creation of new jobs but Iran’s economy is in deep recession and in no position to create new jobs unless private investment resumes. Sanctions scare away private investment and thus significantly reduce any chance of economic recovery.

Read the full Policy Brief at the Belfer Center for Science and International Affairs »

Authors

Djavad Salehi-Isfahani

Publication: The Dubai Initiative

Image Source: © Raheb Homavandi / Reuters

Iranian Youth in Times of Economic Crisis

Djavad Salehi-Isfahani — Mon, 11 Oct 2010 11:04:00 -0400

Introduction
Young people in Iran have emerged as important players on the country’s political scene but remain marginal on its economic scene. They were a vital part of President Khatami’s political base and contributed to his landslide victories at the polls, in 1997 and 2001. In June 2009 they again played a key role, this time in challenging President Mahmoud Ahmadinejad’s controversial reelection, which led to massive anti-government protests in the nation’s largest cities. A year later the political crisis appears to have subsided, but the economic crisis that has engulfed the country since early 2008 has deepened, and with it the crisis facing Iran’s youth. Youth unemployment is at record high levels and, for the majority of youth, marriage and family formation are increasingly becoming challenges to overcome rather than celebrations of reaching adulthood.

The economic recession has drastically reduced the economy’s ability to absorb new workers just as the number of young people entering the labor market reached its highest level ever. While the challenges facing youth are at an all time high, the major policy initiatives pushed by the Ahmadinejad administration address issues that have little to do with youth—reforming energy subsidies, offering incentives for families to have more children, and amending the family laws to tighten the conditions governing temporary marriage. These initiatives and a general form of policy paralysis following the political upheavals of last summer have prevented the government from addressing young people’s problems.

Studies show that Iranian youth face difficult transitions through school, from school to work, and to marriage and family formation. These and other studies of Iranian youth have documented how the period between adolescence and adulthood has over time become longer and filled with more frustration and anxiety, a condition common enough in the Middle East to have received its own expression – “waithood”. The old panacea that promised youth better futures through more education no longer seems to work in Iran; educated youth often find transition to adulthood more difficult than less educated youth. They seem to wait longer to find their first job after graduation, to delay marriage more, and to stay longer in their parents’ home. Unfortunately, these long periods of waiting are not spent in building human capital, saving for a home, or other activities that signal hope. For youth with the means, these periods are largely spent in idleness, in seeking degrees and diplomas that may not add to their productive skills, or in preparing for greener pastures abroad. Those without the means to pursue such options, leave school earlier to take up temporary jobs that neither provide stepping stones to future careers nor improve their chances of marriage and family formation.

In this paper, I review the evidence on youth transitions in Iran, using recent survey data for 2007 and 2008, to show how the economic crisis since 2008 has affected youth transitions to employment and to marriage. I also show how transitions differ by family background and by region of residence – rural and urban. While in many ways “waithood” is a phenomenon that cuts across social classes in Iran, disadvantaged youth sometimes face greater challenges in transitions to employment and marriage.

The next section begins with a presentation of Iran’s rapidly changing demography, which is a major influence on young peoples’ lives. Thanks to a baby boom in the early years of the Islamic Revolution, roughly around 1979-1984, the cohorts of young people reaching adulthood in the last few years have been by far the largest in Iran’s history. Iran boasts the highest share of 15-29 year olds in total population of any country in the world. Even a well-functioning economy would have difficulty absorbing new cohorts into the labor market when they outnumber the retiring cohorts 6 to 1. Iran’s peculiar demography has also affected the marriage market in adverse ways. The baby boom women of Iran have reached marriage age several years before the men from the same cohorts, thus facing the smaller older cohort of marriage-age men, causing a classic “marriage squeeze,” or a shortage of men – about four men for every five women of marriage age. The sections that follow present an analysis of the transition from school to work and to marriage.

Read the full report at Dubai School of Government » (pdf)

Authors

Djavad Salehi-Isfahani

Publication: The Dubai Initiative

Constructing "Life Histories" for Iranian Youth in Transition

Diana Greenwald and Djavad Salehi-Isfahani — Wed, 07 Jul 2010 10:51:00 -0400

Editor’s Note: The Middle East Youth Initiative has released a new study that explores youth transitions in Iran in depth, exploiting longitudinal data to track youth preferences and outcomes as they move from the education system into the labor and marriage markets. Diana Greenwald interviewed coauthor Djavad Salehi-Isfahani to discuss some of the paper’s main findings.

Middle East Youth Initiative (MEYI): How does your new study with Daniel Egel – “Youth Transitions to Employment and Marriage in Iran: Evidence from the School to Work Transition Survey” – improve our understanding of youth transitions from previous work on the subject?

Djavad Salehi-Isfahani: The big difference is in the type of data we use. Our previous study used cross-sectional data; this paper relies mainly on retrospective information. What we learned from our earlier study was a series of snapshots of youth in transition. In this paper we are actually able to follow individual youth (up to age 29) as they leave school, change jobs, and get married.

MEYI: This study confirms your earlier findings that educated young men in Iran suffer from the highest unemployment rates. Besides the demographic pressures – with Iran experiencing one of the most severe youth bulges in the region – what are some other institutional and behavioral reasons for this? Do you think the appeal of a university education for younger generations is being reduced as they witness the experiences of this cohort that is now facing challenges in the labor market?

Salehi-Isfahani: As we have previously noted, the reasons for the stalled transitions are several. First, the sheer size of the new cohort that is entering the labor market is much greater than Iran’s labor market could absorb, even if it were more efficient. Second, the inflexible labor market favors older, employed workers (insiders) over younger, new entrants, even though the latter are more educated and perhaps better equipped with new skills. Only 5 percent of those over 30 are unemployed, compared to 25 percent for those under 30. Third, the skills that young workers bring to the labor market are out of sync with what employers need. This is because of the emphasis that public sector employers and the education system place on degrees rather than skills.

The increasing unemployment of educated youth does not seem to have reduced the appeal of university education. Instead it seems to have ratcheted up the desire for credentials. This year, nearly one million youth took part in the entrance examinations for Master’s degrees, compared to 1.3 million for undergraduate education! Production of Master’s degrees is the fastest growing industry in Iran, with active participation from the private sector.

MEYI: One of the surprising findings in this study was the high degree of job mobility between the informal and formal sector among Iranian youth (and here you were specifically looking at the data for young men). To what extent do you think this mobility is voluntary?

Salehi-Isfahani: I wish we knew, but we cannot tell from the data. But if I had to guess, I would say that it is to a large extent involuntary. The higher mobility is mainly due to the response of employers to the high cost of laying off workers. They have exploited the labor law that allows employers to offer short-term contracts, which they renew periodically. These type of contracts do not provide either party—employer or the employed—to fully invest in the job or, as economists would say, firm-specific human capital. The incentive is simply not there when the contract is for less than a year. So, turnover for these jobs is high. Overall turnover is still low, though, because older workers have tenure.

MEYI: Your paper presents a complex picture of how marriage affects young women’s propensity to join the labor force in Iran. In looking at the reported activities of young women in the Statistical Center of Iran’s School to Work Transition Survey five years before and two years after marriage, you find that the share of these women who are employed does not change with the onset of marriage. Yet, in looking at their responses to the “willingness to work” questions and their actual reported labor force participation, you find that married women are less likely to want to work and less likely to be participating in the labor market. What could account for these seemingly divergent stories?

Salehi-Isfahani: This is an excellent question. I think the answer is that those who are employed are different from the general female population, to whom the attitude question is posed and who participate less. Presumably, the employed women have higher preference for work and have demonstrated that by working. The other interesting thing we learn from the fact that the employment rate remains constant before and after marriage is that marriage is not career ending for Iranian women. I believe that in Egypt similar evidence points in the opposite direction, that marriage reduces the probability of working.

MEYI: The study concludes by noting that there is still much research to be done to identify causation in some of the observed relationships, such as those between employment and marriage, for example. How can new research begin to tackle these questions, and what methodologies should be used?

Salehi-Isfahani: The difficulty in this type of work is that the data reveals the outcome of several decisions which are jointly made. For example, we find that, for men, being employed increases the probability of marriage. But what we do not know is whether men who want to marry are more likely to seek employment, so the causation could be the opposite of what we expect. We need to find an exogenous source of variation in employment, such as a jobs program that affects some but not all youth, to be able to infer the causal effect of employment on marriage. This type of answer is much more useful for policy than correlations because it offers insight into where the binding constraints are, say, for marriage. Is it really employment, housing, or age imbalance in the marriage market?

Authors

Diana Greenwald
Djavad Salehi-Isfahani

Youth Transitions to Employment and Marriage in Iran

Daniel Egel and Djavad Salehi-Isfahani — Wed, 30 Jun 2010 00:00:00 -0400

Introduction

Iran’s young men and women face serious challenges in their transitions to employment and marriage. The authors study the factors that affect these transitions using the 2005 School to Work Transition Survey (SWTS). As this survey contains detailed retrospective data of education, employment, and marital outcomes for youth ages 15-29, it provides a new and valuable tool for exploring the challenges facing these youth. In the authors’ analysis of the transition to employment, which employs discrete-time hazard models and probit models of women’s desired and actual labor force participation, they find that (1) the duration of unemployment increases secularly with men’s but not women’s education, (2) parental background significantly affects men but not women, and (3) labor force participation of a mother is the strongest predictor of a daughter’s labor force participation. For the transition to marriage, they find that job stability is the most important determinant of the age of marriage, as both years of employment and high quality employment contracts accelerate the marriage transition. Among women they find that the transition to marriage is delayed significantly by both work experience and increased education. The study discusses the relevance of these findings in designing policies to help these youth in their transitions.

This working paper is an electronic version of an article published as “Youth Transitions to Employment and Marriage in Iran: Evidence from the School to Work Transition Survey,” Middle East Development Journal, Vol. 2, No. 1, (2010) 89–120. DOI: 10.1142/S1793812010000198. (c) copyright World Scientific Publishing Company. http://www.worldscinet.com/medj/.

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Authors

Daniel Egel
Djavad Salehi-Isfahani

Iran Sanctions: Who Really Wins?

Djavad Salehi-Isfahani — Wed, 30 Sep 2009 12:00:00 -0400

U.S. and Iranian representatives meet this week at a time when trust between the two countries is at a low ebb following the revelation last week of a previously undisclosed Iranian nuclear facility under construction and the test firing of Iran’s long-range missiles on September 28. Meanwhile, the Obama administration’s policy of engagement with Iran has emerged as little more than the old policy of “carrots and sticks.”

The focus of the debate in the U.S. has shifted from Iran’s internal political crisis to its economy. The group of 5+1 (the five UN Security Council members plus Germany) is weighing the costs and benefits of additional sanctions on Iran as a way of pressuring the Ahmadinejad government to change its position on the nuclear issue.

The discussion on sanctions takes place under considerable uncertainty about their effectiveness and the state of Iran’s economy. The emerging consensus in Washington that new, “crippling” sanctions could persuade Iran to change its nuclear policy seems in part based on the lack of a better alternative. But it is also based on two assumptions that I find questionable: first, that the existing sanctions are largely responsible for the weak state of Iran’s economy and second, that the weak economy has helped fuel the popular discontent that boiled over in Tehran’s streets this summer.

The premise of the first assumption – Iran’s weak economy – was revealed last week to be truer than most people (including myself) had anticipated. Survey data released by the Statistical Center of Iran indicate that the performance of the economy last year was the worst in recent memory. Last year incomes fell by a whopping 20 percent in rural areas and 10 percent in urban areas. Such annual declines in consumer incomes have not been seen before, even during the worst years of the Iran-Iraq war. Confirmation that the economy did actually shrink must await the publication of the national accounts for last year by the Central Bank, which has delayed their release. These figures are unlikely to change the bleak picture painted by the survey data, because private consumption accounts for about 55 percent of Gross Domestic Expenditures (GDE) and investment, which accounts for another third of the GDE, likely took a similar hit. Investment was probably the first to drop, as the private sector lost confidence in government policy and the public sector diverted its own investment funds to pay for its populist programs.

Proponents of sanctions need to prove that sanctions were responsible for the weak economy in 2008. This is difficult to do, because the same sanctions were in effect in 2007 when the economy enjoyed a robust growth rate of about 7 percent. True, the sanctions may have taken time to bite, but the government’s own policies are a major source of Iran’s economic woes. A case in point is the banking crisis in Iran which contributed to the economic downturn in 2008. In principle, this crisis could be attributed to sanctions that prohibited U.S. and participating banks in other countries from doing business with Iranian banks which, in effect, severely disrupted financial flows that connected Iran to the outside world and scared off private investment. However, the most crippling blows actually came from inside Iran. The Ahmadinejad government lowered interest rates by fiat and, as a cornerstone of its redistributive policies, at the same time pushed for a massive expansion of credit to small and medium sized enterprises, forcing banks to lend at interest rates 5 to 10 percent below the rate of inflation. In an attempt to restrain the expansion of bank credit and the resulting inflation, the Central Bank stepped in and effectively stopped the program. Ahmadinejad dismissed two central bank governors, but tight money prevailed and inflation dropped sharply, from 25 percent in 2008 to the current annual rate of about 15 percent. The cost has been the present deep recession.

The problem with the argument that sanctions have inflicted damage to the Iranian economy goes beyond a problem in attribution of cause and effect and to simple misreading of data on Iran’s economy. Descriptions of the economy as “dilapidated” or “teetering” are misleading, because Iran’s economy has been on a growth trajectory for the past decade. Over this time, it has doubled per capita incomes, expanded basic services like water and electricity to over 95 percent of the population, and helped expand the country’s systems of health care and education, which are the envy of its neighbors. Even as the economy was in serious decline last year, the proportion of urban Iranian households with a cell phone jumped from 64 to 79 percent (from 31 to 50 percent for rural households).

It is a further misreading of Iran to believe, as many proponents of sanctions do, that the tensions that boiled over into Tehran’s streets this summer were proof of mass dissatisfaction with rising poverty and economic stagnation. The sharp economic decline in 2008 no doubt contributed to dissatisfaction, but for the most part what was on display in Tehran after the disputed election was more the fruits of improvements in living standards than economic decline. The economic growth of the last decade, boosted by effective health and education policies since the Islamic Revolution, has doubled the size of the middle class and reduced the ranks of the poor by two-thirds. Sanctions that reverse these trends may hurt rather than help the cause of moderation in Iran. These considerations lead to a different view of sanctions.

The case for sanctions as an effective foreign policy tool is strongest when the country in question is brimming with internal political tensions caused by years of stagnation or decline in living standards, which sanctions can intensify to bring about the desired policy shift by the country’s rulers. This is not the situation in Iran.

The sizeable majority of Iran’s economically disadvantaged population that supports the Ahmadinejad government is not poor in the sense of lacking food and shelter. Its support for the current government signifies a clear choice between a populist leader with oil money to distribute and his liberal opponents, who criticize his redistributive policies for being inflationary and dismiss them as mere charity. In this political atmosphere sanctions are likely to cement the authoritarian pact between the conservatives and the economic underclass and at the same time weaken the voices calling for greater social, political and economic freedom. Heavy sanctions are likely to strengthen the hands of the Iranian leaders who have opposed the liberal economic reforms of the Rafsanjani and Khatami era and favor a return to the controlled economy of the 1980s, when the government rather than markets decided on the allocation of foreign exchange, credit, and even basic necessities. The sanctions on gasoline imports under review may be a godsend for President Ahmadinejad, who would use the sanctions as an excuse to raise gasoline prices to the middle class and use the proceeds to expand his popular base.

Crippling sanctions could still change the balance of power against the Ahmadinejad government if the stresses caused by badly run government services and waiting in long lines for basic necessities were to bring the middle class into greater conflict with the government. But the principal victim of sanctions would not be the middle class, but the lower classes who may rally around the government in greater numbers. Economic pain caused from the outside is unlikely to weaken a populist government.

If general sanctions are blunt tools for foreign policy, can smart sanctions help change the balance of power inside Iran by targeting specific industries and sections of the population? As with smart bombs, we should expect the case being made before their deployment to be rosier than the actual outcome.

Against this backdrop, engagement, as originally espoused by President Obama, may have a better chance of diffusing the crisis. First, if Iran is as close to nuclear capability as it is claimed, it should have a strong interest in non-proliferation. Making it difficult for a newcomer to join the nuclear club would enhance the value of its own potential membership and dissuade rivals from taking a similar path. If a major goal of sanctions against Iran is to dissuade other countries from taking the path to nuclear capability that Iran has taken, the possibility to make that case with “Iran as a partner” should be kept in mind if the strategy of “Iran as a victim” falls apart. Second, the U.S. and its allies should emphasize positive inducements, and expect to learn during the negotiations what those are rather than decide in advance. U.S. help for Iran to join the World Trade Organization (WTO), which has been offered before and which would benefit some sections of Iranian society while not others, is not a priority for the Ahmadinejad government. Third, it would help the engagement process if the U.S. acknowledged that Iran has something to offer the region in terms of lessons for economic development and building infrastructure – roads, electricity, education and health. This would have the added benefit of shifting the focus from Iran’s military role in the region to economic development, which is the long term road to regional stability that both countries seek.

Djavad Salehi-Isfahani is a Dubai Initiative research fellow at the Belfer Center for Science and International Affairs at Harvard University.

Authors

Djavad Salehi-Isfahani

Political and Economic Woes Thwart Return to Normalcy in Iran

Djavad Salehi-Isfahani — Thu, 30 Jul 2009 12:00:00 -0400

Editor's Note: Djavad Salehi-Isfahani speaks to Kai Ryssdal on National Public Radio's "Marketplace" about the economic issues underpinning the ongoing political crisis in Iran. Salehi-Isfahani also spoke to “Marketplace” on June 24, 2009 from Tehran.

Kai Ryssdal: There's been more violence in the streets of Tehran. This is the end of the mourning period for people killed in the protests that followed Iran's presidential election last month. And today police fired tear gas to break up crowds reported to be in the thousands. Just after those elections, we spoke with Djavad Salehi-Isfahani. He's an economics professor at Virginia Tech. He was in Tehran at the time. And we've gotten him back on the line to ask how politics might play out in the Iranian economy. Professor, good to speak with you again.

Djavad Salehi-Isfahani: Great to be back with you.

Ryssdal: You've been back from your trip what three weeks or so now, yes?

Salehi-Isfahani: Yes, about four weeks.

Ryssdal: What was the mood economically when you left?

Salehi-Isfahani: I think people were not at that time thinking really about the economy because it was at the beginning of the political tensions. I think I left three weeks after the elections. The mood was still focused pretty much on politics. And the economy was the way it had been before, which is high inflation and high unemployment.

Ryssdal: And in terms of their daily lives amid the protests in the streets, people in Tehran could get what they need. They could go to the market, they could buy and sell if they had to.

Salehi-Isfahani: Yes, actually that's a very good question that you ask me. Because since I've been back, and I'm watching the news, I'm beginning to get the feeling that everyone gets up in the morning thinks about where to go to protest. But when I was there, the days when were protests, you actually had to work hard to find out where it was. When you stepped outside your home, the grocery stores were open, the banks were open. The people you talked to were all pretty much concerned about their daily lives, and my impression is that that's very much the case still.

Access the full interview on the Marketplace Web site »

Authors

Djavad Salehi-Isfahani

Publication: Marketplace, American Public Media

After the Iranian Uprising

Djavad Salehi-Isfahani — Mon, 29 Jun 2009 12:00:00 -0400

Editor’s Note: This commentary was originally published as part of an interview conducted by Greg Bruno, Staff Writer at the Council on Foreign Relations, with four Iran experts on June 29, 2009. Access the full feature.

Economic Outlook

TEHRAN -- Even before the crisis over the election outcome broke, the prognosis for Iran in the coming year was not good. Back in October oil prices had started to fall and the contractionary measures taken by the Central Bank several months earlier to rein in inflation had slowed the economy. Last year, Iran's imports had soared above $70 billion, flooding the market with cheap imports that hurt domestic production in agriculture and industry. The economy was in need of policies that would allow it to continue to grow while it adjusted to lower oil prices. Anticipating the need for adjustment, Ayatollah Khamenei, Iran's supreme leader, called the new Iranian year 1388 (2009/2010) last March the year of "reforming the consumption model."

Oil prices have recovered some, but barring a supply disruption, they will remain well below last year's prices. For more than six months, the government has faced large potential trade and budget deficits, but to help his reelection, [President Mahmoud] Ahmadinejad's government continued to spend, raising salaries and giving transfers to the poor.

All three opposing candidates heavily criticized Ahmadinejad's spending policies, especially for the high inflation they caused. The hope before the election was that a new government would use its political capital to limit spending and to attract foreign investment and credit.

Ahmadinejad's reelection and the growing political crisis that it has unleashed have dashed those hopes. Economic growth averaged more than 6 percent during his first term (something that his opposition never acknowledged) but this year it will be at most half as high. Depending on how this crisis develops--whether or not it spreads to strikes and disrupts production--the growth rate could become negative.

The economic policies of the first Ahmadinejad administration were characterized by redistribution. There were handouts, such as sharp increases in salaries of retired and low-income civil servants, and "justice shares" worth up to $1,000 per person (about four months of minimum wage) that were distributed to lower-income individuals in rural and urban areas. Those shares are expected to pay about $80 per year. There was also a large credit program for small enterprises, which was run through the banks but was in part thwarted by the Central Bank's effort to bring down inflation.

Ahmadinejad's second term will likely face difficulties of two sorts. First, heightened expectation among his base will bring enormous pressure to continue his redistributive policies. Many who have received benefits expect them to continue, and many more are waiting in line to receive them. Turning the spigot off now, especially at a time when his popularity among the middle class is at a low, would be politically very costly. Second, economic recovery without the cooperation of the same middle class is very difficult. They are the trained workforce that runs the government, operates schools and hospitals, and manages industrial production. The modern middle class, which has grown substantially in size and importance thanks to economic growth, went into this election hoping for greater political representation. What they got was an election result they could not trust and an ultimatum to stop questioning those results.

Given the unprecedented political crisis the government faces, the looming budget and trade deficits are unlikely to be filled by foreign investment or borrowing. Furthermore, as a result of the course of events [following the contested vote], Iran's middle class, which plays a critical role in the country's development, feels snubbed and rejected by the country's political leadership. Unless a political settlement is reached that can ease these constraints, the prognosis is for the return of high inflation and very low economic growth.

From CFR.org. Reprinted with permission. For more analysis and interviews on Iran and foreign policy, visit CFR.org.

Authors

Djavad Salehi-Isfahani

Publication: Council on Foreign Relations

How the Economy Plays into Iran's Turmoil

Djavad Salehi-Isfahani — Wed, 24 Jun 2009 00:00:00 -0400

Editor's Note: Djavad Salehi-Isfahani speaks from Tehran to Kai Ryssdal on National Public Radio's "Marketplace" about the economic issues underpinning the current political crisis in Iran.

Kai Ryssdal: Street protests continued in Iran today. There are reports of confrontations between riot police and protesters near the parliament building in Tehran. There are no signs of political compromise coming, so we turn now to how the Iranian economy might recover. Djavad Salehi-Isfahani is on the line from Tehran. He's a professor of economics at Virginia Tech. As I said, he's in Tehran right now. Good to have you with us professor.

Djavad Salehi-Isfahani: Good to be with you.

Ryssdal: Obviously these protests that are happening in the streets of Tehran and across the country are intensely political and social in nature, but once things calm down, there will be an economic context in which Iran has to function. Could you frame that context for us? What is happening there in the Iranian economy?

Salehi-Isfahani: There are two issues that come to mind. One is the fact that oil prices are lower. And even without any disturbance, the new government would face huge problems in terms of limiting demand so the budget deficit would be manageable and the trade deficit would be manageable. The second issue that is really important now is that the technical elite, and I'm thinking of doctors, engineers, lawyers, teachers, are quite disheartened by this turn of events, and it's going to be difficult to get them back to work with the same full purpose as before.

Ryssdal: So what will President Ahmadinejad or whoever winds up running the new administration in Iran, how will they get the middle class, the backbone of a growing economy, to buy in and to participate then?

Salehi-Isfahani: That's a big challenge for them. I suspect very strongly that President Ahmadinejad is going to continue. Very few people bet that he's going to be out of government, so I hope that they are thinking hard about finding a way to deal with the crisis in a more peaceful way. This is a complex economy. It's been doing relatively well. And it's been providing basic services to people: health, education. So things are working in some way, and to throw that away to win political hegemony. I think that would be very unproductive.

Access the full interview and show on the Marketplace website »

Authors

Djavad Salehi-Isfahani

Publication: Marketplace, American Public Media

Iran's Election: Economic Fears and Discontents

Djavad Salehi-Isfahani — Tue, 23 Jun 2009 12:00:00 -0400

Editor’s Note: This commentary is the third in a series on the Iranian elections and their aftermath. Writing from Tehran, Middle East expert Djavad Salehi-Isfahani analyzes the mood on the ground and comments on the prospects for future reform to heal Iran’s economic divisions.

A friend in Tehran has stopped going to work this week because of the crisis in the streets. He is staying at home not to protest the killing of demonstrators but to make sure his youngsters do not join them. He is part of 1.3 million families throughout Iran who are biting their nails waiting for this week’s national entrance exams to universities, the concour, to be over. (Many more have children taking exams in grade schools and universities.) These families had planned for a quiet week of no TV or socializing to keep their young contestants undisturbed.

Iran’s entire education system is centered around the concour. It is the reason why students work hard in school as well as the source of disappointment for the vast majority who fail to get into a good public university. About 80 percent of Iranians finish high school and take part in the “Big Test,” but few of whom are rewarded later with a good job and the chance to set up a family.

Nearly a quarter of people in their 20s are unemployed and half live with their parents. One would think that the strong restrictions against pre-marital relations would make them want to marry earlier, but lack of employment has forced the marriage age above that in other countries.

The sudden surge of support for Mr. Moussavi, the reformist candidate who has come to lead the protest movement, owes a lot to the desperate search of Iran’s youth for meaning in their lives. This new generation is highly educated and has ambitions for a middle class life that neither the economic nor the social system is able to fulfill.

This election was seen by youth and their families as a chance for change within the rules of the Islamic Republic. Despite the vetting of candidates by the Guardian Council, recent presidential elections have offered real choices, so voters’ optimism reflected by high turnout was not entirely misplaced.

However, this election brought a more polarized electorate to the polls than any in the past. On one side is the middle class, which has doubled in size since the reformist victory in the 1997 election of President Mohammad Khatami. Rapidly expanding health and educational opportunities since the revolution have transformed the Iranian family from traditional to modern, turning women from mothers and housewives into spouses, the Persian word for which — hamsar — literally means equal.

With the decline of patriarchy at home, demands for equal rights for women in society and greater social freedoms in general have grown. This is why Mr. Moussavi’s call to remove the morality police from the streets resonated so strongly with youth and the larger middle class even though he had little to say about jobs, housing and youth problems. The more productive members of this class also saw a Moussavi government as good for the economy because he promised to promote the rule of law and greater equality of opportunity for private business, which is now in unequal competition with the large public and semi-public sector.

On the other side is the country’s poor whose numbers have been shrinking, but whose demands for more economic justice have been increasing, thanks in no small part to the oil boom of the last few years. Post-revolution Iranian politics have been characterized much more by demands for redistribution than for more effective government and rule of law. The election of Mahmoud Ahmadinejad in 2005 tightened the populist grip just as the oil boom was reaching full force and demands for redistribution were growing. As it did in the 1970s, this oil boom increased inequality because it trickled from government coffers down an unequal power structure.

This trickling has further polarized society because of its strong urban bias. All money is first spent in Tehran and larger cities before reaching small towns and rural areas. Mr. Ahmadinejad promised to change this system, and tried to deliver on this promise through trips to provincial areas and handing out benefits. These populist policies came under attack from his opponents for having hurt economic growth, but may have convinced many among the poor and others in small towns and rural areas that he was at least trying.

Even in a country with a well functioning political system, the democratic process would fall short in reconciling such divergent demands. Iran’s deteriorating political atmosphere leaves little chance of going back to the business of daily life any time soon. A sizable minority — if not a majority — believes that the election was rigged, but has been banned from voicing its outrage. In the short run, given its overwhelming force, the government is likely to succeed in winning the street battle.

But its problems are much deeper than calming the streets. It must go beyond redistribution in order to grow the economy and create jobs. For this it needs the confidence of young people and the larger middle class, who are essential for building Iran’s future, but who feel snubbed by the stern sermon that Ayatollah Khamenei delivered last Friday and by the heavy hand of the security forces in restoring order. This week’s events are anything but encouraging.

Authors

Djavad Salehi-Isfahani

Publication: Room for Debate, New York Times

Iran's Economy: Trouble in Tehran

Djavad Salehi-Isfahani — Mon, 22 Jun 2009 12:00:00 -0400

Editor's Note: Djavad Salehi-Isfahani assesses Iran's recent economic performance in Foreign Policy magazine, arguing that the country’s policymakers have amassed a mixed record. While government spending in the past year was based on safe estimates of oil prices, high levels of social spending will be hard to maintain and the private sector will struggle to revive the Iranian economy in 2009. This was originally published under the title "Trouble in Tehran".

When the U.N. Security Council slapped a third round of sanctions on Iran for its nuclear program in March 2008, the country's economy, bolstered by record crude prices, still looked set to roar. Oil revenues had helped Iran grow at a healthy 6.9 percent clip during the previous year. Even poverty levels were down, according to the World Bank. So how could the country jump 11 ranks in the Failed States Index this year?

The index correctly penalizes Iran for macroeconomic mismanagement. Inflation doubled in annual terms from 15 to 30 percent in 2008 after President Mahmoud Ahmadinejad boosted social spending to "bring the oil money to people's dinner tables." As demand expanded, prices for nontraded goods such as housing rose sharply, squeezing the poor and the middle class. A flood of cheap imports kept inflation from going even higher, but jobs were lost as imports undercut local industries. The central bank restricted credit sharply to reduce inflation, hurting businesses further and putting more people out of work. Inflation did come down to below 20 percent by December, but unemployment probably increased. Iran's jobless rate hovers around 12 percent, with three out of four unemployed Iranians under age 30.

Festering discontent about inequality helped inspire Ahmadinejad's drive to redistribute the oil cash. But on this score, the results were also disappointing. Between 2005 and 2007, the income of the top 20 percent rose more than four times as fast as that of the bottom quintile. The influx of oil revenues, which trickle down Iran's unequal structure of access to power and position, always seems to worsen the distribution of income.

But Iran's economic weakness should not be exaggerated. The Failed States Index, for instance, too harshly critiques Iran for deficit spending and price controls. The government's 2008 budget was tied to a predicted oil price of $39.70 a barrel, far lower than the actual price for much of the year—meaning that "deficit spending" was probably well paid for. And though Iran began to limit purchases of subsidized gasoline, plenty of fuel was available at a higher—but still well below market—price. Finally, any rise in poverty will be cushioned by Iran's free education system, universal basic health insurance, and income assistance.

What the index claims happened in 2008, however, may already be occurring in 2009. Much lower oil prices will cause a massive deficit. If the government tries to keep up its expenditures, inflation will return with near certainty. If the government gives in to the temptation to control key prices, the exchange rate, or interest rates, it would hurt exports. Unless a new administration reverses some of the worst policies of recent years, it is unlikely that the private sector will revive in time to help the economy this year.

Authors

Djavad Salehi-Isfahani

Publication: Foreign Policy Magazine

What if Ahmadinejad Really Won?

Djavad Salehi-Isfahani — Tue, 16 Jun 2009 12:00:00 -0400

Editor’s Note: This commentary is the second in a series on the Iranian elections and their aftermath. Writing from Tehran, Middle East expert Djavad Salehi-Isfahani examines what’s at stake, the voters, and how the debate is addressing the needs of the Iranian people.

Iran's young people helped energize this election with the hope that it would bring relief to their twin problems of unemployment and social restrictions.

Young people ages 15-29 make up 35 percent of the population but account for 70 percent of the unemployed. In addition, they feel constantly harassed by restrictions on how to dress and who they can hang out with. In the weeks before the election, they had come to believe that, thanks to their sheer numbers (40 percent of the voting age population) and strong determination, they could take control of their destiny by electing a new president. Their optimism was underscored by the fact that though they have no memory of the Islamic Revolution, its founder, Ayatollah Khomeini, or of the 8-year war with Iraq, they chose as their leader — Mir Hussein Moussavi — a well-known figure with strong ties to all three.

Now that the results have gone completely contrary to their expectations, they are naturally very disappointed, and, as the world has witnessed, they are taking great risks to express it.

So far, protests are confined to Tehran and a few large cities, and smaller towns and rural areas have been very quiet. True, large crowds in large urban centers offer a degree of safety that is lacking in rural areas and small towns. But, behind the difference in reactions to Ahmadinejad’s election may lie real divisions among the young Iranians in large cities and in small towns and rural areas. Mr. Moussavi’s main appeal to them was on social, not economic, issues, which are more important to the more affluent youth in Tehran and large urban centers. Indeed, he confined his campaign to Tehran and a few large cities.

By contrast, Mr. Ahmadinejad spent the last four years traveling across the country courting the rural and small town votes. There is even evidence that his programs to distribute income and wealth more evenly have begun to bear fruit. The so-called “justice shares” that entitle each individual to receive about $1,000 worth of equity in public companies pay out about $70 a year have been distributed to many in rural areas, and many more are waiting for their turn. Others are waiting to receive funds for housing and marriage from various funds that his administration has established.

Once these factors are taken into account, it is not so implausible that Mr. Ahmadinejad may have actually won a majority of the votes cast, though not those cast in Tehran. The well-to-do urbanite Iranians and their political leaders would do well to allow room for the possibility that a recount may reduce but not eliminate Mr. Ahmadinejad’s lead, and, in that case, respect the voters will and prepare for a comeback in 2013. After all, as the Moussavi camp has correctly pointed out, while Mr. Ahmadinejad’s policies have put money in poor people’s pockets, they have failed to provide more jobs for their young. If his critics are correct, the next four years will be difficult years for Mr. Ahmadinejad and may well see the undoing of his populist majority.

Authors

Djavad Salehi-Isfahani

Publication: Room for Debate, New York Times