As sanctions crush rial's value, Iranians point fingers at Ahmadinejad

Western leaders may finally be seeing the result of stringent sanctions as Iranians blame their government, not the US and EU, for the precipitous economic decline of the oil-rich country.

Focus

Parinaz could see the growing impact of Iran's deepening economic chaos every day while riding the Tehran subway. To make ends meet, more and more Iranians had gone underground to sell cheap Chinese goods to passengers.

But it was one particular sight that illustrated for Parinaz the depths to which US-led sanctions and Iran's economic mismanagement have brought financial hardship: A young woman who once had the money to pay for a nose job – the plastic surgery was obvious – was selling trinkets in a subway station, and being told by a policeman it was illegal to do so.

"What should I do? I need to live, right?" she shouted loudly at the policeman, heard by all the daily commuters in the station. "Should I sell myself then? If I can't make money this way, I would have nothing but my body...."

The embarrassed officer let the woman continue selling, but her words shook Parinaz, who requested that only her first name be used.

"The peddler looked like a respectable woman," the pharmaceutical researcher recalls. "I was sure that if she had any other way of earning money, she would not have chosen this. It was obviously an effort for survival."

A host of US and European sanctions targeting Iran's oil exports and its banking system over its disputed nuclear program have put a chokehold on the economy. The value of the national currency, the rial, plummeted 40 percent in early October, and inflation stands officially at nearly 24 percent. Experts say the real figure could be double that or more.

"I heard a proverb from my grandfather that 'the high pressure of rising prices is going to break our backbone,' " says Heydar, a retired civil servant. "Honestly speaking, I never felt it and never could sense it, but these days I easily witness that the backbone of many people like me in the middle class is breaking. I can hear the horrifying sound of people squeezed by the economy."

The US-led sanctions are just one target of blame for the hardship. More and more, lawmakers and ordinary Iranians blame the high inflation and unemployment as much on the government's mishandling of the oil revenue windfall of recent years as on sanctions.

Even supreme leader Ayatollah Ali Khamenei admitted this Oct. 10, acknowledging that while the sanctions may cause problems, "mismanagement may even increase these problems."

As an oil exporter during a period of high oil prices, Iran should be flush with cash from pre-embargo sales that it could use to shield Iranians from the worst of the adverse effects of the sanctions. Instead, the government's spendthrift ways on costly projects and cash handouts have left little protective buffer.

Some 102 parliamentarians have signed a letter demanding a chance to question President Mahmoud Ahmadinejad on his economic policies, and more than half of the elected body voted to reexamine his landmark subsidy reforms. Parliament Speaker Ali Larijani – long a political rival of the president – has said mismanagement accounted for 80 percent of Iran's financial woes.

Falling behind

The contrast between Iran and other oil-exporting nations could not be greater – an unsavory fact for many disgruntled Iranians.

The International Monetary Fund is forecasting that Iran's 2012 gross domestic product will fall 0.9 percent, producing the first economic contraction in Iran since 1994. That shrinkage contrasts sharply with the IMF's overall growth forecast of 6.6 percent for all oil-exporting countries in the Middle East and North Africa in its semiannual World Economic Outlook report, according to Reuters.

Iran is losing $133 million per day in revenue due to sanctions – an annual total of $48 billion, or 10 percent of the economy – according to an August estimate by Bloomberg. Just one month after sanctions that banned Iran oil deals came into effect July 1, shipments from Iran were down 1.2 million barrels per day, or 52 percent.

In early October, the US dollar exchange rate that had held steady for years at just under 11,000 rials per dollar went as low as 38,000 rials per dollar on the street, hitting Iranians hard. Protests erupted around the Tehran bazaar, which partially closed for days.

"The current economic chaos is a result of irregularities, corruption, and wasting resources, not the negative impact of sanctions," says Saeed Laylaz, an economist in Tehran who has done prison time on security charges.

Government economic policies are "malfunctioning," he says. "I do not foresee any regime change as a result of unrest now and then; these riots could cause instability but not the collapse of the regime."

'The Americans are making me poor'

Iranians speak about limiting purchases of food and even critical medicines; about working several jobs – if they can be found – to make ends meet; and for those wealthy enough to send children outside the country for higher education, about trouble transferring funds to pay tuition.

"We are now paupers. It's official and irrevocable," says one Iranian trying to pay for school abroad for a son. "The Americans are making me poor. Can I love them for liberating me from my cash? Will they win my heart and mind?"

Limited though it was, the unrest prompted by the rial's tumble brought thousands of riot police into the streets, witnesses said, creating a tense atmosphere. Discontent in the bazaar is dangerous for Iran's Islamic regime, which has always counted on bazaar traders for support.

"I can't say that it is a coordinated strike to close the bazaar, but the point is that we are all suffering from the same issue. This terrible instability is harmful for all of us," says Mohammad Reza, a bazaar shopkeeper who, like others interviewed for this story, did not want to be further identified by family name.

Ahmadinejad's 'erroneous policies'

Religious leaders dismissed the financial problems as temporary and not as dire as portrayed. But they also seized on the opportunity to cast some of the blame on Mr. Ahmadinejad.

Ayatollah Khamenei brushed off the protest. "For an hour or two a number of people set two or three garbage cans on fire in a couple of streets in Tehran, and they [the Westerners] started to celebrate and said there are protests in Iran," Khamenei said Oct. 10. "Our enemies should know that Iran will overcome these problems and will defeat them again."

In Tehran, Friday prayer leader Ahmad Khatami sought to calm fears, telling Iranians that they had been through this before, when they had refused to "capitulate" to the United States during the 1980-88 Iran-Iraq War.

"The circumstances in the country are normal, and there is no crisis," Mr. Khatami said from the pulpit at Tehran University, according to a translation by the Tehran Bureau website.

"Today, the people, trusting in divine promises, will endure the pressure," Khatami said.

But he also put blame on Ahmadinejad.

"While some of the pressure is due to sanctions, we must not ignore other factors.... Bad policies are also to blame," he said.

Other Friday prayer leaders echoed that criticism of the government, such as the ayatollah in Mashhad, who said "only a small portion" of economic problems were because of sanctions; "the main cause is the [government's] erroneous policies," according to Mehr News Agency, as quoted by Tehran Bureau.

Feeling the hurt in the household

The hardships are felt in many Iranian households at an unprecedented level, many say.

"The trend of rising prices this time is harsher and worse than ever. It is not difficult to sense it," says Jalal Bidgoli, a shopkeeper in Kashan, a city surrounded by desert 120 miles south of Tehran. "But people in Iran have learned, and somehow are experts in how to deal with it. God is with us."

Mandana, a homemaker and cashier in a large store, works two days a week. Her husband works long hours six days a week. Still, they can't afford necessities, like meat and fruit, she says.

"Since my childhood I always used to hear that the economy is bad, prices are going up, [and] I considered it nagging," Mandana says. "But [now] it is almost impossible to afford and keep the same level of life."

Her husband's company stopped giving milk to workers, although it is considered "necessary" because of the chemicals they deal with, and it now provides fewer overtime benefits despite making employees work longer hours, Mandana says.

"We can't blame them because they are earning less than before.... It is a chain. The domino effect seems to be inevitable," she says.

Some believe the economy must be set on firmer footing, a task made more difficult by sanctions. "The very simple fact is that the economy is terribly bad. The gap between poor and rich is getting wider and wider," says Zahra Mohammadi-Far, a woman buying books in Tehran. "Prices are crazy," she says. "Something you bought last week is today doubled [in price]. Who can afford a decent life?"