Iran's Ahmadinejad Finds Himself A Bit Overextended

Iran's provocative president is finding it difficult to pay for his long wish list. Ahmadinejad wants to be the Middle East's biggest of big men, but he has not done well with his domestic economy.

According to the Central Bank of Iran (CBI), monthly inflation rates since January 2006 have varied between 2.8 and 3.2 percentage points, making for an annual rate that could reach the 30 per cent mark next year. Theoretically, in an oil-based economy the government has a built-in interest in inflation. The problem, however, is that Ahmadinejad has presided over a massive increase in public expenditure. Part of this is due to an estimated 21 per cent rise in the budgets of military and security services in preparation for a war with the United States.

....Ahmadinejad has also increased expenditure on his so-called “exporting the revolution” programme. Syria has received almost $3 billion in cash and cut-price oil. The Lebanese branch of Hezbollah has been rewarded with $1.8 billion while the Palestinian Hamas movement has collected almost $1 billion. A further $3 billion has been spent on financing anti-US political and armed groups in Iraq and Afghanistan.

The government has also made provisions worth $4 billion to cope with emergencies in its quest to dominate Iraq in case the Americans run away.

....Fears that the nation’s economy may be heading for the rocks prompted 57 of Iran’s best-known economists to publish an open letter to Ahmadinejad, warning that his policies were making for disaster. The letter, circulated and widely discussed throughout the country, forced Ahamdinejad to invite the signatories to a debate.

In the event, some 40 economists turned up but there was no debate. Instead, Ahmadinejad treated them to a gallimaufry in which obscurantist religious beliefs were mixed with half-understood economic concepts. He told the critics that his administration feared no economic meltdown for two reasons. The first was that the “Hidden Imam” would not abandon “the world’s only truly Islamic regime,” at a time it faced a war with the American “Great Satan.” The second was that the government was launching a massive privatisation programme to raise billions of cash.

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Unfortunately for the common Iranian, Ahmadinejads "privatisation plan" is eerily reminiscent of Vladimir Putin's privatisation plan in Russia--a corrupt "giveaway to presidential cronies" at the expense of the public.

One is forced to wonder what the mullah-kings of Iran think about the upstart president's plan. Their high living style depends upon the profits of state-owned enterprises. If Ahmadinejad sells some of the more profitable businesses to his friends, that would represent a significant shift in power for the Islamic Revolutionary state.

30% annual inflation will not destroy the government, but it will not make it more popular with common Iranians on fixed incomes. With popular dissent steadily increasing, the clumsy and corrupt handling of Iran's economy may make for more interesting domestic times than Ahmadinejad is planning for.