A jump in poultry prices sparked Iran’s protests of the past several days according to media reports. If this is true, the spark landed on long-prepared tinder. Iranian authorities claim that the 40% jump in egg prices in some Iranian cities was a temporary effect of an outbreak of avian flu, although egg prices had already risen by nearly 30% year-on-year as of November. The Iranian rial’s black-market exchange rate declined to 42,000 per dollar from 39,000 per dollar during December, portending a significant but hardly extreme rise in the overall inflation rate, which now stands at around 11%, far below the 35% rate of 2013.
Higher egg prices are an annoyance, but don’t explain the ferocity of the protests. The location of some of the most violent protests, though, is revealing. Radio Farda, an affiliate of America’s Radio Liberty, posted a disturbing smartphone video Jan. 2 showing a mob burning down the police station in the Iranian town of Ghahdarijan, 24km from the ancient city of Isfahan and too small to be found on Google Maps. It seems unlikely that the reach of Western intelligence agencies stretches into this central Iranian hamlet. But the villagers did have a grievance: the river Zayandeh Rud (“life-giver”) which gave rise to Isfahan dried up before reaching the city, the victim of Iran’s mismanagement of its dwindling water resources. Canals to distribute water to the city’s periphery were built by the Savafid dynasty in the 17th century and fostered a green city in the midst of the central Iranian desert.
Ghahdarijan’s protests have been long in the making. Two years ago, an adviser to Iran’s environment ministry, Issa Kalandari, warned 50 million Iranians would be left without water, due to the exhaustion of 70% of Iran’s groundwater and the ill-considered diversion of rivers to compensate. Agriculture consumes 92% of Iran’s water. Capital-intensive farming methods could conserve water, but they also would drive peasants off the land into cities already suffering from about 30% youth unemployment.
For the past year, numerous observers have been warning of an impending economic crisis. “Estimates of Iran’s military expenditure in Syria vary from US$6 billion a year to $15-$20 billion a year. That includes $4 billion of direct costs as well as subsidies for Hezbollah and other Iranian-controlled irregulars,” I wrote last March 14. “Assuming that lower estimates are closer to the truth, the cost of the Syrian war to the Tehran regime is roughly in the same range as the country’s total budget deficit, now running at a $9.3 billion annual rate….The Iranian regime is ready to sacrifice the most urgent needs of its internal economy in favor of its ambitions in Syria. Iran cut development spending to just one-third of the intended level as state income lagged forecasts during the three quarters ending last December, according to the country’s central bank.”
According to SIPRI (Stockholm International Peace Research Institute) and various other sources, Iran military expenditures in 2016 were $12.4 billion; by comparison, those of Saudi Arabia amounted to $61.4 billion (2016) and the UAE $23.7 billion (2014 figure). The 2017-18 budget deficit was estimated by the central bank of Iran at $9.6 billion (2.1% of GDP). By comparison, the Saudi deficit in 2017 was $57 billion (8.9% of GDP). The off-balance sheet liabilities of the Iranian state, however, are huge even by the dodgy accounting standards of emerging-market governments.
For nearly four decades, Iran has cannibalized its physical and human capital, leaving the Islamic state with multiple crises and a deep sense of malaise. Water management is only one of several hidden deficits that the Islamic state has accumulated since the 1979 revolution. Large parts of Iran’s pension system face bankruptcy in the short term, and the government’s annual arrears to its underfunded social security system are many times the size of its official budget deficit. With the world’s fastest-aging population, Iran’s demographics will make an already-critical problem much worse during the next several years. Iran is the first country to get old before it got rich, setting in motion a pension crisis more acute than any other in the world.
Iran’s banking system, moreover, is insolvent, in part because of economic strains and partly because of massive insider lending to real-estate investors connected to the regime. The cost of a bailout might be as high as 50% of GDP, the costliest in recent financial history. Alireza Ramezani wrote last year in Al-Monitor, “Toxic assets account for 40-45% of total banking assets in the country, economic newspaper Donya-e Eqtesad reported Nov. 9, citing official data. Nearly 15% of these assets consist of immovable assets such as land and buildings. The rest consists of nonperforming loans and government debt. No official data is available about the banks’ fixed assets, but a report by Serat News website in December estimated the total value of immovable property owned by 31 Iranian banks and credit institutions at 448 trillion rials ($13.8 billion), without it providing any details on the surplus properties.”
Iran is riddled with wildcat banks offering deposit interest of up to 30%. Early in 2017 the regime capped the deposit rate at 15%, but few banks complied, the economic daily Donya-e Eqtesad reported June 8. The government responded by allowing 10 private credit institutions to fail, wiping out the savings of scores of millions of small depositors. Eurasia Diary reported Jan. 2, “A major groundswell of anger has also been building over the collapse of unauthorized lending companies that left millions of investors out of pocket. These companies mushroomed in the financial free-for-all under former president Mahmoud Ahmadinejad, lending wildly during the construction boom and collapsing when the bubble burst. Rouhani said in December that such lending companies had captured a quarter of the financial market with three to four million accounts by the time he took power in 2013 and started shutting them down.”
Parviz Aghili, chief executive of Middle East Bank, estimated that a full re-organisation of the Iranian banking sector’s roughly $700 billion balance sheet would cost $180 billion to $200 billion, or 50% of Iran’s GDP. “And we cannot afford it,” he said, according to an October 2017 Reuters report. Iran’s GDP is a bit over $428 billion.
Iran’s pension funds are running enormous losses. At most immediate risk is the Civil Service Pension Fund, with a million insured. The Iranian Financial Tribune reported Nov. 21 that CSP “has more than one million first named insured while the number of its pensioners exceeds 1.2 million, suggesting that pensioners outnumber the employed insured population… which is horrific.” The Social Security system still has four insured for every pensioner, but in fiscal year 2016-2017, “premiums made up only 21% of pension funds’ revenues and the profits gained through investment of funds and sale of assets only accounted for 8% of resources, leaving the government to shoulder the costs of the funds. Currently, the government owes more than 1,400 trillion rials ($35 billion) and counting” to Social Security.
Less than 10% of Iran’s population is over 60, the result of a surge in the country’s fertility rate to a peak of seven children per female in 1979. Fertility since has declined to between 1.6 and 1.8, the lowest in the developing world. As the present generation ages, the ratio of Iranians over 60 will jump to 35% by around 2045 and to 45% later in the century.
Iran has talented people but can’t employ them. Youth unemployment stands at 20%, but that does not take into account disguised youth unemployment in the form of 4.7 million undergraduate students: “According to the UNESCO Institute of Statistics, the number of students enrolled at the tertiary level increased by 258 percent in the past 15 years – from 1.3 million in 1999 to 4.7 million in 2014,” World Education News reports. But “only 6 percent of approximately 900,000 applicants to master’s degree programs and merely 4 percent of 127,000 doctoral applicants reportedly got admitted to a program in 2011.” Undergraduates account for 30% of Iran’s total population aged 15-30. If we estimate conservatively that half of the students are warehoused in mass diploma mills like the Islamic Azad University system with 1.7 million students, the true youth unemployment rate is 45% rather than the official 30%.
Iran has several top engineering schools, but the vast majority of their graduates emigrate. In all, 3.5 million Iranians are preparing to leave the country, according to Masoud Khansari, head of the Tehran Chamber of Commerce.
Adding together the costs of recapitalization the banking system, bailout out the pension funds, and repairing the country’s water system put the government’s off-balance-sheet liabilities far above its GDP. Although direct government debt is small, the Iranian regime is drowning in unfunded obligations.
It is not at all clear how, or whether, the present regime or any successor regime will resolve these interlocking crises. Iran requires an anti-corruption program as tough as Xi Jinping’s, and the marshalling of public and private resources to reverse what some analysts call its “water bankruptcy.” It must open its closed and kleptocratic financial system to domestic and foreign entrepreneurs who can put its young people to work and persuade the talented few who graduate from its elite engineering schools to remain in the country. It cannot sustain foreign military adventures and an ambitious ballistic missile program at the same time.
The present regime is incapable of carrying out this complex and costly transformation, and no opposition is available with a clear vision of how to replace it. The street protests indicate that regime has lost credibility, which will make it all the more difficult to maneuver.
Faced with problems on this scale, third world governments typically reduce their liabilities through devaluation and inflation. Iran’s pension and financial liabilities are owed to its people, but the government earns money in hard currency. Currency devaluation and inflation represent a transfer of wealth to the regime from the people. During the past year, the Iranian rial has lost more than 10% of its value, falling from 36,000 to the US dollar to 41,000. The likeliest outcome is a prolonged period of instability punctuated by sporadic but violent street protests, and further economic deterioration.
We offer online financial help to those in need of funds for the following reasons, pay bills, starting of various business, personal funding building of home and other financial needs. Apply here it’s very easy, just email us and your financial problem is solve withing a short period of time with affordable interest rate of 3% contact us now fast and durable funds raising for all email us now
Contact us Today, For Quick Loan
Call / Whatsapp: +971-54-495-1982
Email: fastlaneloanservice@gmail.com
Website: http://www.fastlaneloanservice.webs.com
For more information kindly suggest, if you have any questions in this regard, please feel free to give us a message on our whatsapp channel or email. //
If Iran devalues against the RMB it will have precisely the same effect.
Branka Alhamdy I advocated no such thing; I merely pointed out that Iran’s boast that it could survive a nuclear counterstrike by Israel was false.
All problems listed here are just small part of Iran’s problems. Nothing is in order in Iran apart from corruption, inequality, injustice, hypocrisy …
I have great respect to the author, but we can’t use Western scale to measure Iran.
The existing regime is strong enough to survive, especially with the gifts from obamas. Therefore, we have to look forward and deal with nuclear armed theocracy.
Pay the P-U no mind.
It takes no great ability to make fun of a funny name.
And even less to use that tired "conspiracy fantasy" bleat.
After a long long time you have shown empathy for Iran,very objective and incisive op-ed is the result.God Bless You,Mr Goldman
Shahrooz Cyrus Tabibnia Now I wish this was true. Goldman has a great talent for economics, finance and the implications to the ordinary world. He has the talent of making obscure economics understandable, and well explained.
But he has also a fatal flow. His fanatical Zionism transforms him from a rational, intelligent and talented being into a blind, cult like partiality and unquestioning allegiance to his cause. I am still shocked at one of his articles about Lebanon and Iran, where, without blinking, he advocated killing all Shia in Lebanon, and nuking Iran. For the good measure, he advocated poisoning Iran’s waters. Makes me sad — hearing him descrie the struggle with water in Iran, and remembering his genocidal plan for Shia population. If an issue has nothing to do with Israel, then Goldman is worth reading. Otherwise, he is a lose cannon.
Well, hopefully this time the poltergeist of cyberspace would spare my comment. This article is too full of inacuracies and is politically so supercharged, that the objectivity is out of question. Sufice to say, Radio Farda, US paid outfit, the subsidiary of Radio Libery, fully paid US government media — has suddenly got a scoop. In a little town of no consequence, between the second and the third cup of tea, a few local policemen saw the spectacle of masked, armed guys setting their little station on fire.
And all that presumably, because locals were pissed off over water mismanagement — a problem that has been dragging on for a few years. In Iran, problems of economic nature are just like in China out in the open, loud and not filled with high level politics. They are after their local honchos that due to incompetence of corruption screwed up — in their view. To jump to the level of blaming the "system" — from such a small town issue — is laughable. And such techniques have been tried before.
Little Nazi skinheads taking over by surprise some small city halls in Ukraine, or surprise attacks by Turkish Kurds on some unsuspecting military outpost. Or more recent, Ronhigya militants attacking about two dozen unsuspecting police stations in a single night. It is the reaction that always counts, and Western media scribes are on the ready to sharpen their propaganda wits against some inferior creatures around the globe that need to be tought some manners. How tiresome, how boring.
And while most readers who have not yet become disguisted by Goldman and his never ending Zionist pitches — expect at least a good economic analysis. This time, not surprisingly, it is a sloppy hatchet job. Not one thing related to Iran’s economy, the debt, social security, pensions and other unfunded mandates — is not much different then what you find in Greece or Spain. In fact, Greece is by FAR in worse position, as average Greek lives much more precariously then an aveage Iranian. Unemployment if measured around the world by the statistical innovations Goldman introduced here, would be rather interesting. What would Spain’s be? Is not it rather clear that it is the economy that prompted secessionism in Spain, and that the repression following its putdown — is astounding by any measure, never mind Europe.
What we see is that by far the protests in support of the "regime" have outnumbered anything the few violent groups have been able to muster. And the economic issues that prompted some protests have evaporated as soon as Iranians got the wind of the Western "concern" for their wellbeing, and the attempt to interfere in their domestic affairs. Or is US going to blame Russia, again?
The outcome of this attempt at undermining the Iranian system will have similar consequences as the attempted coup in Turkey. It will result in examining the role of various foreign sponsored NGO, media, university programs, etc. What happened is the genuine protest against Rouhani’s neoliberal reforms, that Goldman so studiously tries to pin on Ahmedinejad. But we know better. It is the threat of dismantling Ahmedinejad programs that are making people mad, hence, Rouhani. They are not in the least against Iran’s help to Syria and Iraq in beating back ISIS — and the credit goes to those that beat them on the ground, like Iraqi and Syrian armies, not to Syrian Kurds who let them walk away, armed. To Iranians as well as Russians it is clear who is funding terrorism, and who is the terrorism aimed against. Thus, there is no national disagreement on that issue. The bottom line, Rouhani — who saw first hand how US avoids meeting its responsibilties under agreement — is not an unhappy person. All the neoliberal
concessions are going to be rolled back, as US signed the agreement in bad faith. However, this is not news to Iran. The trade that Iran has forged with Asia is bound to grow. Iran intends to join EEU (Eurasian Economic Union), whose primary benefits are the standardized legal and tarrif infrastructure from China to the borders of EU.
It should not go unnoticed that Hezbollah is not an Iranian irregular militia, but a legal armed force of Lebanon. President of Lebanon commands its armed forces, and Hezbollah is part of the Lebanese defence. Goldman, as the rest of the Zionists would never forgive Hezbollah for the 2006 defeat — when for the third time Israel tried to occupy Lebanon. Iran is geographically in an ideal place to offer transport infrastructure to landlocked countries of Central Asia. Thus, the "Iranian" Shia connection across Iraq and Syria to the Mediterranean, is nothing more then the desire by Kazakhstan, Turkmenistan and others, to connect their trade to Middle East and Europe. Israel cannot control it or benefit from it. So, it must wreck it. US stupidity is not Israel’s fault.
George Pugh Your trademark quick jump to personal insults does identify your ilk..
And you think you have the experience? Or Goldman does?
The article is the same old rubbish promoted by Zionists, especially such a feverish one, as Goldman. His fame will never die, advocating as he did the nuking of Iran, and poisoning his waters. But just to make sure I do not just have it in for Goldman, his assertions deserve close scrutiny or else some may be deceived by the pseudo-economic appearance of a throough research.
Again, Mossad agents such as "Spengler", "Goldman" won’t miss an opportunity to disburse disinformation where in fact if he was doing real analysis and wanted to inform the users, he would have touched on the items below:
1) This is economic issue raised by internal groups within the regime and the fact that all this started in Mashad should have given an Iran analyst a clue.
For those who are not familiar, City of Mashad is the pillar of Islamic regime along with Qom.
2) He completely ignores the role of Mike Pompeo (aka. Ayatollah Mike) and CIA. Providing arms and finances to hoodlums.
3) Even Erdogan returned the favor and updated Iran on the role of Israel, Saudi Arabia and US in performing Chaos using the same tactic they performed in Syria.
Iran’s issues are in fact less dramatic then what has been happening in Israel with the corruption case of Natanyahu and the Jerusalem issue. In fact more people have been murdered by Israeli regimen that in Iran. If you want to worry about Regime change, lets take a look at the Israeli regime’s Bibi Satanyahu.
Iran will be pushed around during the Trump the Idiot’s rein as long as Yidistan’s henchmen are occupying the White House. These events will only strengthen Iran’s relationship with China and Russia and will only backfire on US and Yidistan.
And get rid of the US$, which is what will hurt most
Well whatever you say Klop, but you obviously have no personal experience with anything.
Stuff like this does not happen unless there is fertile, very fertile ground.
Leave you conspiracy fantasies for those who believe as you do.
If this was a movie, it would be called The Syrian apocalypse II Iran.
Like most nations Iran have its problems. Years of sanctions gas hurt the economy, so has the Iranian help to liberate the Middle East from Daesh terrorism. Nice to see Iran have no problems allowing demonstration. Try to do demonstrations in Saudi Arabia, then the demonstrators would be flogged, stoned, or worse.
Iran will become a victim of US supported and encouraged demonstrations and US supported terrorism is likely. In Saudi Arabia and Bahrain, we will see a crackdown on “alleged” Iranian supported rebels. Israel will once again be the one benefiting from the chaos created by Israel, US, and Saudi Arabia.
Iran and Russia should continue to increase their oil production capacity to get more revenues, use oil as a peaceful “weapon”, and be ready to supply the world with the needed oil in case there will be turmoil/civil war in Saudi Arabia.
I am not familiar enough with the Iranian economy to say whether your comments are valid or not. But there is one point I dare to dispute.
"Currency devaluation and inflation represent a transfer of wealth to the regime from the people. During the past year, the Iranian rial has lost more than 10% of its value, falling from 36,000 to the US dollar to 41,000. The likeliest outcome is a prolonged period of instability "
I doubt enough trade is carried out in dollars for such an exchange rate decline to make any difference as far as inflation is concerned.
David Goldman, thks for the very documented figures. What if Iran didn’t spend that money to free Syria from the US/NATO terrorists ? And the same US/NATO/Rothschild terrorists are behind the sanctions keeping the Mullahs in power and hurting badly the Iranian people – and not only Iranians -. What if Russia didn’t find the guts and the money to help Syria ? Without all those efforts, Syria, Iran, Iraq, and the Russian "soft belly" would be flooded with blood now ( it seems you care more abt water than blood…). But let’s remain on the money trail Spengler: now the US are broke, like the EU and the Saudis. Who could finance Syria’s and Iraq’s reconstruction and help Iranians get their water back and the Mullahs go for a pleasant retirement ? Only the Rothschilds or the Chinese; guess who will win in the medium run ? Both of them. And if you can look at a longer run: the Chinese with Russia, Iran, Turkey. Yes, Civilization seems to be getting back
The Iranians have a lot of problems, to be sure, but the timing and militancy of these manifestations is rather suspect.
And I’d not underestimate the reach or resources of Western intelligence services. Nor their incentives, considering the beating that Western plans in the Levant have taken of late.