Minister of Finance Yuval Steinitz's remarks to the effect that the Iranian economy is about to collapse fail to persuade Israeli experts on Iran.
Prof. Meir Litvak, director of the Center for Iranian Studies at Tel Aviv University, agrees that Iran's economy is in trouble, but adds that it is still an exaggeration to say that it is on the brink of collapse. "There are several examples of the difficult position of the Iranian economy," Litvak told "Globes this afternoon. "For instance, the Iranian currency, the riyal, has lost more than 50% of its value in the past five months. The central bank's interest rate is 21%, and the inflation rate has climbed to 22% there this year, 10% higher than last year."
Litvak stressed that these are official figures, and that it is reasonable to suppose that the figures are actually much worse. "The cause of Iran's difficult economic situation is a combination of the sanctions applied against it by Western countries, and failed economic policy by the state. Until two years ago, the Iranians spent $90n billion a year on subsidies for food and fuel. Today, they spend a similar sum of monthly compensation payments to low-income families. This compensation cancels out the saving achieved by the abolition of the subsidies."
Nevertheless, Prof. Litvak says that the Iranian economy is still far from general collapse. "The situation in Iran is still not the end of the world. You must remember that in the past Israel experienced annual inflation of 400%, and didn't collapse, and Turkey too has experienced much higher inflation, and today its economy flourishes."
According to Litvak, although Iran's oil exports have fallen because of the international sanctions, the rise in the price of oil benefits the Iranian economy and offsets some of the losses caused by the sanctions.
Another source of encouragement for Iran, Litvak says, is that it had been flooded with cheap imports from China, which hurt its economy, "but precisely now, after the riyal has depreciated, Iran's ability to compete with the Chinese has improved."
Doesn't Iran's spending on defense in general and on the nuclear project in particular weigh on its economy?
Litvak: "Iran's spending on its nuclear program and on defense is peanuts compared with the rest of state spending, and doesn't affect its economy."
Prof. Uzi Rabi, chair of the Department of Middle Eastern and African History at Tel Aviv University, expresses a similar view of the minister of finance's remarks to that of Prof. Litvak. He too thinks that Steinitz's comment that the Iranian economy is on the brink of collapse goes too far. "The expression Steinitz used is colorful and exaggerated. The economic situation in Iran is woeful, but the Iranian economy is still not in a state of collapse."
In Rabi's view, the Iranians have some tough problems, their situation is growing worse, and the international pressure is hurting them, but it is doubtful whether it will topple them. "It could well be that Iran will continue to survive in the coming years. The Chinese and the Russians aren't boycotting them, and the Indians recently agreed to buy oil from Iran, and they thus have pretty much broken the international embargo."
Rabi says that what could really bring about a collapse of the Iranian economy is a total international embargo on buying oil from it. "The meetings between heads of government on Iran are therefore very important. An oil embargo could land a severe blow on the Iranian economy," Rabi concluded.
Published by Globes [online], Israel business news - www.globes-online.com - on April 9, 2012
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