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. Arash Parsi

    IMF would analyze economic situation from statistics obtained from their sources. In Iran's case, all statistics are phony, fabricated by regime and its proxies. There is no in dependent source in Iran to gather such data. In best case scenario, the IMF report could be a bureaucratic output of using false inputs. The statistics are conveniently given to IMF economists by regime operatives (if not sweetened by a gift of Persian Rug or Caviar!). From what we here from relatives living in Iran give us completely different picture. The price of food have risen four fold in one year. The cost of utilities has risen 10 fold after removal of subsidies. Most people have not paid their Electric and Gas bills in last three months. The government has not disconnected the services in fear of major uprising. The 90% of factories are closed. The economic situation is not definitely sustainable. Infusion of $40 per citizen (even if can continue) cannot cure an ill mismanaged economy. It is a ticking bomb that will certainly dismantle mullahs regime (as it did USSR which was far more sophisticated).

    August 23, 2011 at 11:44 pm | Reply
    • parsa

      Exactly. Thanks Arash. The fact is that Zakari Fareed is out of touch with Iran's reality and he is nor an economist or political analyst. He is just a plain reporter. Read my post down below please and comment. Thanks!

      August 24, 2011 at 11:02 am | Reply
    • Eyedeen

      Thanks! Where is IMF getting its info from?!

      August 29, 2011 at 3:22 am | Reply
  2. wajid

    Zakaria (CNN) can't help, to distract positive news about Iran, through so called theories....

    August 24, 2011 at 12:33 am | Reply
  3. Garth

    Ahmedinejad was asked by reporters as to why he brings sandwiches made by his wife for his lunch. His answer was what is wrong with my wife'e sandwiches. Maybe if a few western leaders did the same they may solve their own economic problems.

    August 24, 2011 at 3:50 am | Reply
  4. parsa

    To the writer of this article:
    The subsidies have actually been working with the subsidies people were able to buy gasoline, bread, meet, etc but the most important thing to survive.
    Now that subsidies are removed people are not able to buy 1kg of ground beef which is $25/kg. Or one bread which is $1. Before when there was subsidies 1kg of meet=$8 and one bread was $ got the picture?

    Now on the note of rivalry between Ahmadinejad and this is important get low to this...not to many people know about have to be a political analyst and a damn good one. I am but you are not!

    Last month the $40 help per head of house hold that Iranians get ever 2 months was later by 7 days!! and People were about to get into streets...Ahmadinejad and his team control the subsidie cash we all know that Ahamadinejad's right hand man Mr. Mashai has publicly said that Khameni is in office for two more years...

    Now, what they will do and what Khameni is fearing is that if they don't give people's money after two months...everyone will blame Khameni and they will go after him...because everyone in Iran thinks Khameni is the one behind all this...which is kinda of true...he was dumb enough to approve Ahmadinejad's economical reforms and plans!

    August 24, 2011 at 10:29 am | Reply
  5. Kass

    31 years ago there was a same movement, not far from Libya. People with automatic weapons were walking down the streets searching for the Shah’s supporters to kill them. Same people with AK47, G3’s, Uzi’s, and Colt 45’s were looting and killing other people. They thought they had a great revolution, they thought Ayatollah Khomeini was their savior!! They thought wrong…
    31 years later these so-called men of god are still killing, torturing, and looting a whole country. I hope Libyan people learned something from this history. I hope this a different revolution, different movement. I wish the best for all freedom fighters around the world. May there be lasting peace and freedom for all who seek it.
    Time is near for the Persian people to take what was taken from them 31 years ago.

    August 24, 2011 at 12:55 pm | Reply
  6. roy

    Jesus is the way

    August 25, 2011 at 7:22 pm | Reply
  7. 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
  8. 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
  9. 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
  10. 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
  11. 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
  12. 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
  13. 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.

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    November 17, 2011 at 12:49 am | Reply
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