The role Rouhani's economic record will play in Iran's presidential election

Tuesday, May 2, 2017

Rouhani’s Economic Record

The Role It Will Play in Iran’s Presidential Election

Naysan Rafati

NAYSAN RAFATI is a TAPIR Fellow at the United States Institute of Peace.

 

Iran will hold a presidential election in less than three weeks. The six candidates approved on April 20 by the country’s Guardian Council will likely center their campaigns on what matters most to voters: the Iranian economy [1], and especially its performance since the completion of the July 2015 nuclear agreement [2] between Iran and six world powers.
Iranian President Hassan Rouhani, who is running for a second term [3], is the man to beat on May 19. His opponents will likely zero in on the economy’s mixed performance since the signing of the nuclear deal, appealing to the many Iranians disappointed with the dividends that the agreement has paid so far. Iran has made some economic progress under Rouhani, but the unemployment rate is higher than it was a year ago, and foreign investors are still wary of doing business in the country. To win, Rouhani will have to defend this uneven record. So the president has been broadcasting his economic successes and appealing to voters who have not benefited from them.
IN FROM THE COLD, SLOWLY
The Joint Comprehensive Plan of Action, as the nuclear deal is formally known, is the flagship accomplishment of Rouhani’s four years in office. That is partly because it lifted the nuclear-related sanctions on Iran—an outcome that the president suggested would help rehabilitate the country’s weakened economy. “The implementation of the Vienna nuclear agreement,” Rouhani told [4] his cabinet shortly after the accord was struck, “is the best opportunity for the development of domestic production and the revival of global markets.”
At the time, most Iranians shared Rouhani’s optimism. In August 2015, the month after the deal’s completion, some 57 percent of Iranians felt that the economy was improving, and just 29 percent held a negative outlook, according to a survey [5] conducted by the University of Maryland and the research group IranPoll. Yet by December 2016, likely as a result of Iranians’ excessively high expectations for quick, noticeable improvements after the deal’s signing, their hopes had waned. That month, just 42 percent of Iranians thought that the economy was on the right track, and the majority—51 percent—thought it was deteriorating.

Raheb Homavandi / TIMA / REUTERS

At a currency exchange in Tehran, January 2016.

Since taking power in August 2013, Rouhani’s administration has sought to defend its economic record with three main arguments. The first is that Iran was dealt a poor hand [6] by Rouhani’s predecessor, President Mahmoud Ahmadinejad, whose government failed to capitalize on high oil prices and pursued wasteful projects. The second is that, although nuclear-related sanctions have been removed thanks to the JCPOA, the legacy of those restrictions, together with the sanctions that remain, are still discouraging foreign firms from doing business with Iran. This is particularly the case with respect to international banking, Iranian officials suggest [7]: many major financial institutions are still keeping their distance from backing deals tied to the country.
Finally, Rouhani argues that his administration’s policies have led to some economic improvements, especially since the JCPOA’s implementation in January 2016. Inflation has been tamed [8] to single digits for the first time in a generation. Foreign direct investment is on the rise [9]. Debts that had gone unpaid because of sanctions are being recouped [10]. Oil exports, which had been hard hit by international sanctions, have been reaching heights [11] not seen since the time of the Shah. Rarely does a week pass without the financial press reporting on the arrival of a visiting trade delegation or the dispatching of an Iranian envoy to secure contracts or memoranda of understanding abroad. Even exports to the United States have been creeping [12] up. America is now the largest buyer [13] of Iran’s most emblematic export: the handmade rug.
Yet by a few important measures Iran’s economic progress has been underwhelming. Consider employment. Between March 2016 and March 2017, the country’s jobless rate increased, from 11 percent to 12.4 percent. Among women, the unemployment rate is almost 21 percent, and among Iranians between the ages of 15 and 29, it stands at nearly 26 percent. Little surprise, then, that respondents to a recent poll resoundingly [14] indicated that unemployment should be the next administration’s top priority.
Part of the problem is the outsized role of oil in Iran’s economy. A recent study by the International Monetary Fund pegged [15] GDP growth at a solid 7.4 percent—but when the oil sector is excluded from those calculations, the figure drops to below one percent. That is why the International Monetary Fund [16] and a number of Iranian observers have called [17] for Iran to strengthen its private sector by facilitating financing and cutting red tape, which would widen the country’s economic base and create more jobs. It’s not without reason that in his New Year address in March, Iran’s Supreme Leader Ali Khamenei set [18] the theme for the twelve months ahead as “Resistance Economy: Production and Employment.”
There are other areas of concern as well. Iran ranked [19] 131rd out of 176 countries on Transparency International’s most recent ranking of public perceptions of corruption, and Rouhani has tussled with critics over claims [20] of financial impropriety. Reform [21] of the troubled banking sector remains a concern. And a scandal which broke [22] last year over the hefty wages paid to high-level Iran public servants still rumbles [23] on.
SHOW THEM THE MONEY
Rouhani’s rivals suggest they can do better. Mohammad Bagher Ghalibaf, the Tehran mayor who is making his third run for the presidency, has pledged [24] to create millions of new jobs and has argued that Rouhani’s administration serves the “four percent” at the top of Iran’s wealth distribution. Another contender, Mostafa Mirsalim, entered the race with a sartorial nod to Iran’s workers: he registered his candidacy while wearing [25] a blue coverall, a hard hat tucked under his arm. Ebrahim Raisi [26], who is seen as perhaps Rouhani’s strongest [27] challenger, has attacked the president [28] over issues such as corruption and banking. “Our program is to save the country’s management and economy,” he said in late April. No surprise, then, that the first presidential debate [29] on April 28, which was billed as a discussion of social issues, repeatedly circled back to Rouhani’s economic record, particularly with respect to jobs.

Tasnim News Agency / Handout via REUTERS

Mostafa Mirsalim registering his candidacy for the presidency, Tehran, April 2017. 

Such pressure is one reason why Rouhani’s administration has been using the last few weeks of its term to push the story of Iran’s post-nuclear-deal economic recovery. On April 16, for example, Rouhani attended the inauguration  [30]of several energy projects at South Pars, a massive gas field off of Iran’s southwestern coast. The occasion marked the culmination of some $20 billion in spending that officials expect should pay out half that amount every year [31]. “Putting the biggest investment of the country in the field of energy is a source of honor for us,” Rouhani said. Hard-liners, meanwhile, grumbled [32] that 90 percent of the work on the projects that Rouhani unveiled had already been completed before he took office. (In general, the nuclear deal did open the door for international firms to work with Iran’s energy sector, and Tehran is now discussing [33] developing more than two dozen energy projects with foreign partners.)
Rouhani has also borrowed an economic tactic from his predecessor. Ahmadinejad introduced reforms to Iran’s subsidy system so that some Iranian citizens would receive cash handouts to offset higher prices on various goods. Rouhani’s administration significantly shrank [34] the list of Iranians who qualified for those subsidies, saving the government hundreds of millions of dollars each year. But as of mid-April, the poorest enrollees, comprising more than two million Iranian households, are due to see their cash allowances increase by as much as 50 percent. The move has drawn accusations that Rouhani is playing electoral politics, making a populist gambit [35] to gain favor with the nation’s poor.
Finally, Rouhani’s government has played up the trickle of new foreign aircraft [36] that are joining the aging Iranian fleet. The planes offer some of the most visible symbols of the nuclear deal’s benefits. When the first of one hundred Airbus jets that Iran had ordered arrived at Tehran’s Mehrabad Airport in January, local media described [37] an “elaborate ceremony” in which the “national anthem … [was] played by a regiment of uniformed staff.” None of the 110 jets ordered by Iranian carriers from Airbus’s American rival Boeing seems set to arrive before election day. But the first handful of 20 turboprops worth half a billion dollars from Toulouse-based ATR are expected [38] to join Iran Air in the coming weeks. Such economic flourishes promote the perception of progress, but they do little to relieve ordinary Iranians of their problems. On substance–especially job creation–Rouhani’s challengers think they have a chance of winning over the electorate [39].