Posted on 07/26/2007 7:35:01 AM PDT by Valin
What would you do when faced with a cash flow problem? You might try to curb expenditure, work harder to earn more, borrow money, or, when all else fails, put up the family jewels for sale. The latter is precisely what President Mahmoud Ahmadinejad’s administration is trying to do as it faces a cash shortage. Signs that the government may be running out of money have multiplied in recent months. Tens of thousands of civil servants, including school teachers, have not been paid since January. Bills from private contractors working for the government are piling up, threatening the survival of many businesses.
The key oil industry, which accounts for more than 75 per cent of the government’s income, is being starved of cash. Efforts to attract some $15 billion in foreign investments in the oil and gas industries have borne no fruit. Foreign investors are wary of violating United Nations sanctions or running afoul of the US Treasury’s plans to put the financial squeeze on the Islamic Republic.
All this may seem surprising if only because Iran has earned almost $150 billion from oil exports since Ahmadinejad won the presidency in 2005. So, were did the money go?
Part of the answer lies in the hike in inflation rates. According to the Central Bank of Iran (CBI), monthly inflation rates since January 2006 have varied between 2.8 and 3.2 percentage points, making for an annual rate that could reach the 30 per cent mark next year. Theoretically, in an oil-based economy the government has a built-in interest in inflation. The problem, however, is that Ahmadinejad has presided over a massive increase in public expenditure. Part of this is due to an estimated 21 per cent rise in the budgets of military and security services in preparation for a war with the United States.
Another big expenditure item is the ever-lengthening list of handouts by Ahmadinejad during his tours of the provinces - mockingly known as “The Ruin the Economy Road Show”.
According to estimates, some $10 billion has been pumped into pork-barrel projects that often fuel inflation further. Ahmadinejad has also increased expenditure on his so-called “exporting the revolution” programme. Syria has received almost $3 billion in cash and cut-price oil. The Lebanese branch of Hezbollah has been rewarded with $1.8 billion while the Palestinian Hamas movement has collected almost $1 billion. A further $3 billion has been spent on financing anti-US political and armed groups in Iraq and Afghanistan.
The government has also made provisions worth $4 billion to cope with emergencies in its quest to dominate Iraq in case the Americans run away.
The biggest rise in public expenditure, however, has come from increases in imports, as the government tries to stockpile “strategic goods” in anticipation of war with the US.
Iran buys more than half of its food and some 42 per cent of its gasoline from abroad, and is now busy importing as much as it can to beat future sanctions.
Iran’s industries also depend on imports of foreign raw material, parts and technology. Iranian imports from Germany, for example, have risen by some 17 per cent since 2005. Because of rising political tension many of Iran’s trading partners are exacting higher prices and demanding cash on delivery.
Fears that the nation’s economy may be heading for the rocks prompted 57 of Iran’s best-known economists to publish an open letter to Ahmadinejad, warning that his policies were making for disaster. The letter, circulated and widely discussed throughout the country, forced Ahamdinejad to invite the signatories to a debate.
In the event, some 40 economists turned up but there was no debate. Instead, Ahmadinejad treated them to a gallimaufry in which obscurantist religious beliefs were mixed with half-understood economic concepts. He told the critics that his administration feared no economic meltdown for two reasons. The first was that the “Hidden Imam” would not abandon “the world’s only truly Islamic regime,” at a time it faced a war with the American “Great Satan.” The second was that the government was launching a massive privatisation programme to raise billions of cash.
The economists had no comment about the role that the “Hidden Imam” might play in the Iranian economy. But they were critical of Ahmadinejad’s privatisation programme that they described as “a cover for bestowing free gifts on a few hundred individuals.” The privatisation programme has been debated for a decade.
Until recently, however, it was assumed that the government would privatise only loss-making public businesses. This was partly because Article 44 of the Constitution of the Islamic Republic imposes almost insurmountable hurdles on selling public businesses.
The virtual abolition of Article 44 is a major political victory for Ahmadinejad, something that his two immediate predecessors as presidents failed to achieve.
His hands are no longer tied by the Constitution; Ahmadinejad is now putting up public businesses for sale that could be regarded as family jewels.
Among these are 17 of the 32 companies that together make up the National Iranian Oil Company (NIOC), the nation’s single biggest holding corporation.
At a time that the government is imposing gasoline rationing, the privatisation programme is offering key refineries, including those of Isfahan and Tabriz, for sale. This marks the start of a process at the end of which the NIOC could become an empty shell.
Also for sale are four of Iran’s most profitable petrochemical businesses. Five major gas companies and the nation’s biggest gas refinery at Bidbolabd, which has been plagued by strikes, are also to be sold.
A start has also been made to privatise the metallurgical industries, regarded both by the late Shah and the late Ayatollah Khomeini as “strategic”. The Khuzestan Iron and Steel Corporation is to be completely sold while an unknown portion of the giant Mubarakeh Steel Complex in Isfahan is also on offer. The programme further envisages the privations of the banking and insurance sectors, first nationalised in 1979. This will be achieved through public selling of shares in tranches of five per cent.
The problem with all this is a total lack of transparency.
No one knows how the businesses have been evaluated or who would be allowed to buy them. The suspicion is that highly profitable units would be transferred to elements from the Islamic Revolutionary Guard Corps (IRGC) and their bazaari partners organised in the so-called Islamic Coalition. The government’s own banks will then provide the cash needed to buy the businesses.
Ahmadinejad’s garage sale may make a few thousand military men, mullahs and hajis of the bazaar immensely wealthier than they are today. But it is unlikely to help solve his cash flow problem for any appreciable length of time. It might also anger the so-called “mustazafeen” (the dispossessed) whom he has tried to court.
Good, let them starve.
That would be a lot better than having up pre-emptivate them. Then they can’t blame us, and it would be a lot less costly.
Sounds like Condi and George are about to give Iran money like they did Hamas.
I don’t think Iran has the balls to go through with this.
From the title, I thought this article was going to be about technical breakthroughs in organ transplants.
“The Ruin the Economy Road Show” pong
ping
This is the way the Soveit Union collapsed.
:~ )
No, when all else fails go whining to the US for another hand out.
What is wrong with them?
If the account is indeed factual, it can't bode well for petrol supply in the near future.
This just reinforces my belief that Ahmanutjob and his supporters are not planning for a future. They are planning to instigate a worldwide conflagration that will bring about the return of their 12th Imam who will bring about peace and a world ruled by Islam through their ‘benevolent’ administration of Allah’s will. Selling soon to be destroyed businesses today to raise a little holocaust capital makes for wise invelstment in their jihadist world.
Ahmadinejad is an incompetent idiot in more ways than one.
And who is to say they will not nationalize them again? Won't get fooled again...
Nice target those gasoline stockpiles make.
Who knows? Maybe this could show the people what a failure this government really is and cause regeime change.
If Iranian banks agree to loan me the money, I’ll buy everything.
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