Iran develops ‘economy of resistance’

by Najmeh Bozorgmehr in Isfahan (source: FT)
Tuesday, September 11, 2012

Iran is reducing its dependence on oil by developing an “economy of resistance” to circumvent international sanctions over its nuclear programme, according to a senior regime adviser.

Mohsen Rezaei, secretary of the Expediency Council – which drafts the country’s macro economic, political and cultural policies, told the Financial Times that the country would focus on developing self-reliance.

Imports would be replaced by locally produced goods and Tehran would push for barter deals with other countries, said Mr Rezaei, who commanded the elite revolutionary guards for 16 years. He added that the Iran would also increase investment abroad and reduce taxes in an attempt to encourage domestic industry.

“A new economic system” is “being formulated … to renovate Iran’s economy” in the next one to two years, he said.

“This is not going to be an austerity economy nor it will it be an underground economy, but an economy that will be within [recognised] economic theories to address conditions under sanctions.”

The final approval of Iran’s supreme leader, Ayatollah Ali Khamenei, is needed before the council’s recommendations can be presented to the government.

Ayatollah Khamenei recently warned that “the enemy” had targeted the economy, preventing its growth in an effort “to detach people from the Islamic system”. The solution, he said, was “the economy of resistance”.

Mr Rezaei insisted that the plan was a serious attempt to address the economic problems faced by Iran. Inflation is running at 23.9 per cent and youth unemployment at 28.6 per cent, according to official figures – which many economists believe are vastly underestimated.
Iran inflation

Public anxiety over the economy has been heightened by the plummeting value of the Iranian rial over the past year. At the end of the first week of September a dollar was officially worth 12259.5 rials. However, the black market rate hit a low of 26,000 rials to the dollar on Monday.

Mr Rezaei blamed the country’s economic problems on structural problems, including a bloated bureaucracy and heavy dependence on oil revenues and insisted that despite the hardship they have caused, sanctions presented the country with an opportunity to reduce its dependence on oil, something it has hoped to do for decades.

“If we had not faced sanctions, we would never have thought of [reducing our dependence on] oil,” he said. “Sanctions are dragging us in that direction.”

In cautious criticism of Iran’s government, Mr Rezaei said the impact of sanctions could have been curbed more effectively with “correct predictions”, such as the massive growth of liquidity in the country’s financial system, which is blamed for the high rate of inflation.

But he added that there are two government teams working “constantly” to evade sanctions, one under the direct supervision of Mahmoud Ahmadi-Nejad, the president, and the other under the authority of first vice-president Mohammad-Reza Rahimi.

These had, he said, helped mitigate the effect of sanctions but he admitted the real impact had yet to be felt and would become apparent in the next “seven or eight months”.

Mr Rezaei is considered a pragmatist within the political establishment and is a critic of Mr Ahmadi-Nejad. He is thought likely to stand as a candidate in presidential elections next June and said he expected Iran’s political scene to “move from radicalism to rationality” next year and said that this would help “foil” the impact of sanctions.

The “economy of resistance” will, he added, be the responsibility of the new government, which he described as “one of the country’s most important, whose main responsibility will be to circumvent sanctions”.

But he warned western policy makers not to expect any change in the country’s nuclear policies in the event of a victory. He also repeated that western governments should not be “naive” and rely on economic pressure to try to alienate people from the Islamic regime or attempt to politically isolate the country “like Cuba and North Korea”.

Iran has repeatedly said that threats of war by Israel and the tightening of international sanctions by the US and the European Union would not make it halt its nuclear programme which it insists is for peaceful purposes.

Mr Rezaei, who is believed by analysts to still attend the meetings of the country’s top leaders on significant security issues, said Iran’s response to an Israeli strike on its nuclear sites would be “extremely severe” and the result would be catastrophic for Israelis.

“I have heard they [the Israeli government] have estimated that 400 to 500 people in Israel would be killed [if Iran retaliates]. They are wrong,” he said. “Iran’s reaction would be so severe that nobody would ever dare think of attacking us again.”

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