What can the West offer the Islamic
Republic of Iran in return for giving up its
nuclear ambitions and kenneling its puppies of
war? The problem calls to mind the question
regarding what to give a man who has everything:
cancer, AIDS, Alzheimer's, diabetes, kidney
failure, and so forth. Iran's economy is so
damaged that it is impossible to tell how bad
things are. Except perhaps for the oilfields of
southern Iraq, and perhaps also northern Saudi
Arabia, there is nothing the West can give Iran to
forestall an internal breakdown.
Iranian
dissidents put overall unemployment at 30% and youth
unemployment at 50%.
Government subsidies sustain a very large portion
of the population; 42% of the non-agricultural
population is employed by the Iranian state,
compared with 17% in Pakistan.
Within
fewer than 10 years, Iran will become a net
importer, at which point the government no longer
will be able to provide subsidies. Iran's economic
implosion is a source of imminent strategic risk.
What most analysts, including
this writer, foresaw as a medium-term problem
seems to have confronted Iran much sooner than
expected. The present inflation rate of about 20%,
driven by a 40% rate of monetary expansion,
suggests that government resources are already
exhausted. Governments resort to the printing
press when they no longer can raise sufficient
funds through taxation, sales of state-owned
commodities such as oil, or borrowing. That is
surprising, considering that Iran reported a
current-account surplus of US$13 billion last
year. The fact that Iran cannot stabilize its
currency suggests a breakdown of political
consensus within the regime, and a scramble by
different elements in the regime to lay hands on
whatever resources it can.
Another possibility is that the official
numbers are entirely false, and that Iran already
has fallen into a current-account deficit. In a
May 19 statement reported by the official Islamic
Republic News Agency (IRNA), President Mahmud
Ahmadinejad denied a report that Iran's imports
now exceed $60 billion, against an official
estimate of $45 billion. This sort of discrepancy
typically occurs when capital flight is disguised
as imports through fraudulent invoices and similar
devices. A small current-account deficit would be
of little concern for a nation with normal access
to world capital markets, but Iran is unable to
borrow.
That is the background to
Ahmadinejad's decree last week reducing private
and state bank lending rates to 12% from 14%, that
is, 5-10 percentage points below the rate of
inflation. If Ahmadinejad were in the pay of a
hostile intelligence service, he could not have
found a more effective way to sabotage Iran's
economy. If the price of goods rises faster than
the cost of money, everyone who can will borrow
money to purchase and hoard goods. The result will
be higher prices and reduced economic activity,
and the eventual prospect of hyperinflation, which
no government ever has survived. Last week's rate
reduction augmented the incentives for capital
flight.
Ahmadinejad took this foolhardy
step against the explicit advice of Iran's
economic authorities, which suggests that the
economic suffering of his political base commanded
his undivided attention. After increasing gasoline
prices earlier in the month, he evidently found it
necessary to throw his constituents a bone.
Iran's prospective demographic implosion,
I have argued for two years, pushes Tehran toward
imperial expansion. [1] It is difficult to see a
way out for Persia's pocket empire; the country
exports nothing but oil, carpets and dried fruit
(excluding the growing human traffic in Persian
women), and manufactures nothing the world will
buy. Its most pressing problem, unemployment among
the 60% of its population now under the age of 30,
will turn into a much worse problem as this
generation ages. In two decades Iran will have
half as many soldiers and twice as many
pensioners.
If a future catastrophe is
inevitable, its impact has a way of leaping back
into the present. Monetary disorder of the
magnitude we now observe suggests an internal
collapse of confidence.
What strategic
consequences ensue from Iran's economic misery?
Broadly speaking, the choices are two. In the most
benign scenario, Iran's clerical establishment
will emulate the Soviet Union of 1987, when
then-prime minister Mikhail Gorbachev acknowledged
that communism had led Russia to the brink of ruin
in the face of vibrant economic growth among the
United States and its allies. Russia no longer had
the resources to sustain an arms race with the US,
and broke down under the pressure of America's
military buildup.
The second choice is an
imperial adventure. In fact, Iran is engaged in
such an adventure, funding and arming Shi'ite
allies from Basra to Beirut, and creating clients
selectively among such Sunnis as Hamas in
Palestine.
I continue to predict that Iran
will gamble on adventure rather than go the way of
Gorbachev. A fundamental difference in sociology
distinguishes Iran from the Soviet Union at the
cusp of the Cold War. Josef Stalin's terror saw to
it that the only communist true believers left
alive were lecturing at Western universities. All
the communists in Russia were dead or in the
gulags. By the 1980s, only the most cowardly,
self-seeking, unprincipled careerists had survived
to hold positions of seniority in the communist
establishment. Only in the security services were
a few hard and dedicated men still active,
including Vladimir Putin. These were men who saw
no reason to fight for communism 70 years after
the Russian Revolution.
Iran, however, is
not 70 years away from its revolution, but fewer
than 30 years away. Ahmadinejad typifies the
generation of Revolutionary Guards who followed
the ayatollah Ruhollah Khomeini in 1979, and now
hold senior positions in the state and military.
Ahmadinejad blames the country's economic
problems on "certain elements", presumably his
opponents within the regime, alleging that
government agencies have falsified statistics to
discredit him. As noted, he denied reports that
imports were fully a third higher than officially
reported, an astonishing statement for a head of
government to have to make. The president also
claimed that unemployment had declined to 11.3%
from 11.5% in 2006, adding, "The government is now
striving hard to provide employment opportunities
for the country's jobless people." The IRNA report
concluded with this less-than-confidence-building
comment about inflation:
On [the] inflation rate, he said the
government is quite successful in controlling
[the] spiraling inflation rate while other
factors such as the country's development
projects and worldwide price hikes should be
taken into consideration.
"Unfortunately, certain elements are now
issuing fabricated statistics and try to tarnish
reality, but we strive to remove all existing
weaknesses," said the president.
"Certain elements" no doubt refers to
Ayatollah Akbar Rafsanjani, his opponent in the
2006 presidential election and leader of the
faction more inclined to compromise with the West.
Rafsanjani continues to maintain excellent
contacts in Germany, and European diplomats have
placed their hopes on the prospect of his
replacing Ahmadinejad. It would not be out of
character for Rafsanjani and his allies to make
matters more irksome for Ahmadinejad by diverting
large amounts of money out of state revenues into
their own pockets.
As a way of changing
the Tehran regime, however, pushing Iran toward
hyperinflation would be akin to cutting the brake
lines of a car to spite its driver, when one is a
passenger in the same car. It is easy to hasten
the deterioration of Iran's economy, for it is
headed downhill in any event, but very difficult
to reverse the process.
An old piece of
diplomatic wisdom states that one always should
give one's enemy a way out. But I see no way out
for the pocket empire of Persia. Ahmadinejad and
his generation of Revolutionary Guards will fight,
and cautious old men like Rafsanjani will not be
able to stop them.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
