Viewpoint

Iran Election Protests Foretell Economic Downturn


As hundreds of thousands of Iranians protest the results of the June 12 presidential election, businesspeople worry about instability—but they're nonetheless cheering quietly from the sidelines. After four years of rule by the mercurial Mahmoud Ahmadinejad, few in the Tehran business community have much good to say about the President. "I don't think this guy knows what he's going to do when he gets up in the morning," a former government official now working as an investment banker told me when I visited Tehran two months ago. During that 10-day trip, I met with fund managers in suits, shoemakers eating fried trout in a grubby restaurant, real estate developers in shiny new office towers, and others involved in business at every level. Virtually all of them said they preferred Ahmadinejad's chief rival, Mir Hossein Mousavi. Some thought U.S. economic sanctions were more likely to be eased with Ahmadinejad out of office. And most believe he's a lousy steward for the economy. So far, though, the outcome—for business, at least—seems to be even worse than a simple victory by Ahmadinejad. While the incumbent was declared the winner, Mousavi's supporters believe the vote was rigged. The turmoil will surely be bad for the economy, and a prolonged downturn seems likely. After years of strong growth fueled by high energy prices and government spending, Iran was already heading for a slump this year because of lower oil prices and a real estate bust. "Business is almost dead for everybody," one Tehran communications executive told me in an e-mail on June 17. If Ahmadinejad prevails, his incoherent economic policies aren't likely to change. He'll probably expand profligate spending programs such as cash payments and subsidies for the poor, his main supporters. Economists worry such handouts will stoke inflation, already running at 24%, and strain Iran's public finances. He's also likely to continue allowing imports of cheap goods from China and elsewhere in Asia, putting more heat on struggling Iranian manufacturers—and spurring higher unemployment. Many businesspeople wonder whether it's safe to remain in Iran. One contact I met during my visit, economic analyst—and frequent government critic—Sayeed Laylaz, was carted off to jail on June 17. And a prime target of Ahmadinejad's campaign rhetoric was former President Hashemi Rafsanjani, one of Iran's wealthiest citizens. "If they can start witch hunts against people like Rafsanjani, then who is safe here?" a Tehran businessman mused on June 16. Stable U.S. Policy? Iran's crown jewel, the oil industry, badly needs foreign knowhow to develop gas reserves and offset declines at aging oil fields. But Royal Dutch Shell, Total, and others with years of experience in Iran are reluctant to go ahead with long-pending projects while Tehran is at loggerheads with Washington. That's not to say an Ahmadinejad victory would rule out any kind of accommodation with the West. The White House has said the outcome of the election won't change U.S. policy much, so that means talks could still go forward. But any negotiations will be extremely difficult, with tightened sanctions and escalating tensions likely. So for now, things have taken a turn for the worse for businesspeople, investors, and anyone else trying to make a living in Iran.
Stanley_reed
Reed is a reporter-at-large for Bloomberg News and Bloomberg Businessweek.

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