August 20th, 2011
05:10 PM ET

Ahmadinejad's economic savvy

By Fareed Zakaria, CNN

From the White House to London's House of Commons and beyond...few Westerners have anything nice to say about Mahmoud Ahmadinejad.

But there's one group that has glowing words of praise for Iran's President - and it's based not in Tehran, but in Washington.

The International Monetary Fund's latest report paints a pretty picture of Iran's economy.

It says growth has hit 3.2%, and will accelerate still further. Inflation has dropped from 25% to 12% in just two years.

And Tehran has managed to do what every major oil exporter can only dream of accomplishing: It's slashed subsidies on gas to recoup 60 billion dollars in annual revenue. That one-sixth of Iran's entire GDP.

Why is this happening? And how can it be despite years of economic sanctions?

What in the world is going on?

Some say the IMF's numbers can't be right.

But we have no reason to doubt their work. The fund reasserted this week that its projections were independent of the government.

The real story here is that Iran has actually begun implementing some economic reforms. For decades now, Iranian leaders have tried to wean its people off cheap oil - oil that is subsidized by the government.

Cheap oil that has no connection to real market prices is not sustainable. Iran knows it, and so does every country from Saudi Arabia to Venezuela. But in the same way that any talk of tax increases here in America is considered heresy, people in oil-rich countries believe as an article of faith that they deserve cheap oil.

So how did Iran finally cut out the freebies?

The backstory is a complex game of chess between Ahmadinejad and someone much more powerful - the Supreme Leader Ayatollah Khamenei.

One theory goes like this: The Ayatollah thought cutting subsidies would make Ahmadinejad deeply unpopular. An ensuing revolt would then remove the one man who's come to challenge the Supreme Leader's power.

Another theory is that Ahmadinejad felt confident enough to go ahead with the reforms because he's crushed the opposition Green Movement.

Either way, he's played a smart hand. He's giving back half of the 60 billion dollars in savings directly to the people in monthly deposits. So every Iranian, man woman and child, is eligible to receive the equivalent of 40 dollars a month.

That kind of money won't make any difference to Tehran's upper classes. But that's not Ahmadinejad's constituency.

On the other hand if you're poor, if you have many children, and if you make sure the whole family signs up for the deposits, you'll probably be saying "Thanks, Mr. President".

The key thing to note here is that President Ahmadinejad had no choice, and neither did the Ayatollah.

Iran could not afford the subsidies anymore. Its economy is highly dysfunctional with many massive distortions and subsidies. And Washington's recent targeted sanctions are beginning to bite.

It is now harder than ever before for Iran to do business with the world. Most of the major international traders of refined petroleum have stopped dealing with Iran. Tehran now has to rely on much costlier overland shipments for its exports.

And it is now almost impossible to conduct dollar-denominated transactions with Iran. So we were left with the bizarre case last month of China resorting to the barter system to pay Iran for 20 billion dollars worth of oil.

The IMF has a point. Iran is implementing some needed reforms and as a result its economy is doing better. The irony is that it's happening - in some part - because of our sanctions. Talk about unintended consequences.

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soundoff (177 Responses)
  1. Ron

    I got $300 from George W. Bush a few years back... right before he indebted me to the tune of a $100,000. sure with he would have kept his $300 and debt to himself.

    August 25, 2011 at 11:52 pm | Reply
  2. True Iranian

    Iranian economy is the worst it has been been for the past 50 years, unemployment well in to the high 30's low 40's, the private sector is practically dead, the dissatisfaction of the people the highest it has ever been. currently the only sector in Iran that is doing any kind of business is the SEPAH( The iranian revolutionary Islamic guard, run by Ayatollah khamenei).
    Poverty is increasing in an alarming rate , the majority of the population don't have money to pay rent, buy food or cloths
    for their kids. How can any one compare the Iranian economy to the US economy. Iranian economy at it's best during the Islamic republic, was still 1000 times worst than the US economy today!!!
    Mr . Zakaria with all due respect, you have absolutely no idea what you are taking about. If I were you I would stick to analyzing the economy of india , pakistan or Bangladesh!

    August 28, 2011 at 12:43 am | Reply
  3. Sassan

    This is a joke. This terrorist regime sends any money it makes to terrorists instead of helping the Iranian people. The Iranian people are the one's left suffering from a regime in which their welfare means NOTHING.

    August 28, 2011 at 5:25 pm | Reply
    • Eyedeen

      Very True. It seems to me that Basji thugs are the only one who have Internet access in Iran now!

      August 29, 2011 at 3:18 am | Reply
  4. Eyedeen

    Where is IMF getting its info from?! Iranian government?! The Iranian Central Bank has NOT released the inflation and growth figures for over 2 years!! Phony data perhaps based on phony reports from the Islamic regime.

    August 29, 2011 at 3:28 am | Reply
  5. sylvia richardson

    Friedmanite think tanks from Chicago Ill in last 50 years have gone global by training economists and implanting them in strategic countries. No country is immune. Possibly they have indoctrinated this fella by now – corporatist country since the "shock and awe" happened

    August 29, 2011 at 6:00 pm | Reply
  6. Sima mohseni

    Ahmed & mostafa, how much are you paid to suck mullas balls? you two must be agent of mullas, allthose mullas & ahmadinejad have brain of donkey (not even a baboon as some one says in a post).

    August 30, 2011 at 4:18 am | Reply
  7. This is one fantastic article! I am really impressed with all the work you did to gather this information and write the material. You've done a wonderful job with making this unique and engaging content.

    Can I simply say what a relief to seek out someone who really is aware of what theyre speaking about on the internet. You undoubtedly know the way to convey a difficulty to light and make it important. Extra people must read this and perceive this facet of the story. I cant believe youre not more widespread because you undoubtedly have the gift.

    November 17, 2011 at 12:49 am | Reply
  8. Emanuel Galdes

    Saeed, these Americans thinks that they are the only rich people. Libya, 200 Billion of frozen assets, 6,000,000 and there are Americans worried that America have to give money to Libyans to put them on the road to democracy and reorganise. You know what 200 Billion are: 200,000,000,000 divided by 6,000,000 – You know what? that is more than $30,000 for each Libyan citizen not to mention the oil reserves and assets in other countries. Libya is many times richer than the USA per capita and it requires neither American largesse nor pity. All these people need to do is get down to business and then you will see legions of American businessmen coming to this North African country and the Mediterranean to kiss Libyan ass for contracts – AS THEY HAVE ALWAYS DONE, from HALLIBURTON TO DOWELL.

    August 24, 2011 at 12:22 pm | Reply
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