NewsIran: World PressIran’s economic crisis hard to mend - expert

Iran’s economic crisis hard to mend – expert

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Iran Focus

London, 24 Sep – Iran needs massive investments to rebound from its economic chaos. In the absence of a robust domestic economy, that investment can only be obtained from external sources, a prominent expert on Iranian affairs wrote in TownHall.com.

Mohammad Amin, a senior research fellow for the Paris-based Fondation d’Etudes pour le Moyen-Orient, FEMO, (Foundation for the Study of the Middle East), wrote in an op-ed in Town Hall

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Will the Iran nuclear deal jump-start a wider rapprochement with the West? Some capitals have placed their bets on the strengthening of economic ties as a means to lure the theocracy into respecting international norms. With the expansion of commerce and trade, the theory goes, Tehran will gradually acquiesce to the prevalent international order, moderately changing its behavior and permanently abandoning old destructive habits, including its insistence on nuclear armament. But this overly optimistic assessment is vitally flawed.

Despite the hopeful optimism, Iranian economy and politics are not the epitome of stability and strength, which foreign money needs. With growing popular demands and the ruling clique’s inherent inability to satisfy those demands, political unrest in Iran will only increase. Bickering factions within the regime will not obfuscate or diminish that trend; they will aggravate it.

The bulk of western interest in Iran is motivated by anticipated returns of exports – feeding consumption – rather than direct investment.

Take Germany as an example, which even during the recent oil embargo exported roughly $3 billion worth of goods to Iran. Despite the recent visits by commercial delegations, “Most companies will probably hold back on building up their own production facilities in the country,” saysHubertus Bardt of the Institute of the German Economy. In other words, they will primarily push to sell more goods to Iran rather than promising direct investments.

But after decades of economic mismanagement, the purchasing power of the average Iranian consumer has been drastically reduced. If there ever was anything that came close to a middle class in Iran, it has now been all but decimated.

In 2012, the Iranian economy shrank by 6.8 percent, even before sanctions hit. The contraction is unprecedented in Iranian history and has produced irreversible consequences. After years of being coddled by surging oil prices, Iran is now in serious trouble. The economy, which is not even moderately industrialized, needs a whopping 6% growth to overcome the current recession. According to the International Monetary Fund, Iran needs oil prices to reach at least $100 to be able to balance its budget.

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