Last June I was in Tehran, vividly remembering Iranians voting in massive numbers for Hassan Rouhani. Also vividly remembering Rouhani’s campaign promise; reigniting economic growth by restoring the country’s image and ties with the rest of the world during the time that many in Iran were suffering in an economy weakened and isolated by years of mismanagement and sanctions.
Since taking office Rouhani has been busy managing to stabilize the national currency- the Rial, reduce inflation and reach a temporary nuclear deal in exchange of sanctions relief. It didn’t take him long to realize that his campaign promise of economic growth would be more difficult to fulfill given the lack of foreign currency reserve and declining tax revenues after discovering that the government’s finances were in far dire condition than previously expected. Rouhani along with his diplomatic and economic teams have been working very hard in the past seven months to produce real tangible results. In fact, their efforts resulted the Iran’s economy taking a slight turn for the better. Inflation dropped from 43 percent to 33 percent while the nuclear deal allowed the country accessing a portion of previously blocked oil revenues.
While working in Iran’s financial markets, I’ve been witnessing Tehran’s stock market riding high on optimism injected by high political and economic expectations as well as the temporary nuclear deal. But in recent weeks the expectation has been declining as the market lost over 1 percent since its peak in December. Not to mention the Rial dropped about 4 percent after months of stability. And of course there has been rumors that for the first time since the elections, the government was forced to sell dollars on the open market in March to support the Rial. Right or wrong, many of my colleagues in Tehran believe the financial markets are losing faith in Rouhani’s ability to get the economy going — as many investors and market watchers are taking their money out of stocks and instead speculating on gold and foreign currency as they have done so in previous years.
Last Friday, as Iranians celebrated Nowruz or Persian New Year, Rouhani’s government initiated politically-challenging yet economically-sound measures by beginning massive cuts to food and energy subsidies. I have no doubt these measures will send the prices of gasoline, electricity and other utilities, soaring after the Noworuz holiday but the alternative — keeping subsidies in place would have been irresponsible and short-sighted policy. In fact, many people close to the Rouhani administration are very fearful of the political damage from the subsidy cuts and hoping for a miracle to happen. However, I’m more fearful that Rouhani and his team, like Ahmadinejad administration, would resort to printing money as a short-term solution to cover the budget deficit, threatening a rise in inflation which will certainly lead to more economic turmoil and turning the country’s fragile economy into total disaster.
No doubt that all the promises made by Rouhani and his campaign brought optimism to Iran, and I agree that more real action is also needed. But let’s not forget that Rouhani and his team are under a lot of domestic and international pressures, and considering their resources and authority, too much and too soon should not be expected of them. For now Rouhani is dismissing skeptics while counting on improved international relations that might lift the economy out of its current place. But this should not derail his administration’s overall effort to implement politically-demanding yet economically-rewarding policies, reduce Iran’s vulnerability to sanctions and help generate an opportunity to become more focused politically and more efficient economically.