Originally Published 2013-08-01 11:34:16 Published on Aug 01, 2013
When Dr. Hassan Rouhani takes charge as the new President of the Iranian republic on 4th August 2013, there are two most important challenges before him -- the mismanaged economy and the intractable nuclear negotiations that seem to have hit a road block.
Challenges before the new Iranian President
"When Dr. Hassan Rouhani takes charge as the new President of the Iranian republic on 4th August 2013, there are two most important challenges before him; one left over by his predecessor and the other caused by the obstinacy of the clerical regime. First, is the mismanaged economy and, second is the intractable nuclear negotiations that seem to have hit a road block.

There are indications that Dr. Rouhani would pick a team of technocrats for his Cabinet and introduce them to the Majlis on the very first day of his inauguration. He has already held a meeting with the newly formed Majlis and has assured to work in tandem with the elected representatives. This would be in sharp contrast to the style of his predecessor, Mohd. Ahmedinejad whose last term was marked by a series of confrontations with the Majlis that ended in a disgraceful display of abusive insults being exchanged between him and the Speaker Ali Larijani.

Dr. Rouhani, in his first meeting with the Majlis members, told them that the picture of the economy painted by Ahemdinejad and his team was far too optimistic and it differed widely from the assessment of his own team. He added that the inflation rate, officially listed at 32%, was actually at 42%. He further stated that Iran’s economy actually contracted during the past two years, for the first time since the Iran-Iraq war in the 1980s. Talking about unemployment among educated young people, Dr. Rouhani said, "we will have 4.5 million unemployed university graduates four years from now."

Referring to the dismal state of the economy, a former Agricultural Minister, Issa Kalantari has said "Unfortunately, Rouhani will inherit the country with empty warehouses, an empty treasury, empty ports, and an empty central bank".

Let us look at some of the broad parameters. Iran’s oil production has come down by over a million bpd from a high of 3.1 million bpd in late 2011 to 2 million bpd in July 2012, and its oil exports have come down even further from 1.2 million bpd in September 2012 to 740,000 bpd in April 2013. Inflation is hovering around 40%, unemployment rate around 35%, the cost of all essential commodities have shot up, from 100% to 800% in some cases and the country’s forex reserves have hit the danger mark. The precarious state of its hard currency reserves has pushed Iran to enter into barter agreements with China, India, Pakistan and Turkey. The country was also forced to buy ship-loads of wheat from abroad on payment of gold bars. Its currency, the Rial that went into a free fall from December 2012 losing over 80% of its value, is still trading around 32,000 to 35,000 to a US$. There were reports that the Rial and the Tehran stock market index rose markedly in the weeks after the victory of Rouhani. The upswing was temporary and the situation is back to where it was - bleak.

The economy has been battered not merely due to the harsh regime of western imposed sanctions, but also due to the wanton and utterly misguided management by Ahmedinejad and his team of advisors. He first discarded the existing institutional framework to run the economy and then introduced two disastrous measures that wrought havoc on the peoples’ lives.

First was the withdrawal of subsidies on certain essential goods and services, such as gas, petrol, electricity, public transport, etc., and the other was to provide cash subsidies to the poorer households. While the first measure was meant to create an emergency fund of over $100 billion to tide over the cash crunch caused by the falling oil revenues, the second measure was to deposit $80 cash, every two months, into the account of all Iranian households below the poverty line. The second measure drained out the first. The Majlis seriously questioned the wisdom of both policies and refused to approve the 2012 budget of Ahmedinejad until all receipts and expenditures of both these measures were placed on the table of the House.

Repairing such an economy, merely by better planning and management, is a small part of the story, but until the sanctions are lifted, there is no way the economy will recover significantly. That’s where the nuclear negotiations come in.

Positive signals are coming both from Tehran and Washington in this regard. Besides Rouhani’s own stated desire to heal the wounds of a hurting relationship with the US, now there is an added urging from the Iraqi Prime Minister Nuri al- Maliki to the US President to have direct talks with the new President of Iran.

Two parallel tracks are also going ahead in the US Congress. While 131 members of Congress, former diplomats and Middle Eastern experts have petitioned President Obama to do everything he can to have an accord with the new government in Iran, about 360 co-sponsors in the 435-member body are planning to move a resolution against Iran after the August recess of the Congress. Media pundits suggest that the administration isn’t happy about the idea of yet more sanctions, which are aimed at shutting down Iran’s entire oil and gas industry. The legislation would blacklist Iran’s mining and construction sectors, effective next year and would also commit the US to the goal of ending all Iranian oil sales worldwide by 2015. The latter report, highlighted by the Jerusalem Post is obviously meant for a specific audience and there is quite a lag between a Congressional resolution and Presidential approval in the US.

The last round of talks between the Iranian nuclear negotiator Saeed Jalili and the P5+1 was held in the first week of April in Almaty this year and there is likelihood of a fresh round of talks soon after Rouhani’s assumption of Presidency. Much is expected from the next round and of any possible direct talks between Tehran and Washington, prior to that.

India’s decision to have External Affairs Minister Salman Khurshid represent the country at the swearing in of Dr. Rouhani is a strong signal of support at this critical stage of Iran’s transition. Coming as it does so soon after his bilateral engagement with Tehran, just a few months ago, it is indeed a reiteration of our abiding relationship with Iran.

(The writer is a Visiting Distinguished Fellow at Observer Research Foundation, Delhi)

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Anjali Birla

Anjali Birla

Anjali Birla is an Indian Civil Services Officer(Batch 2020) working in the Ministry of Railways and has done her graduation in Political Science from Delhi ...

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