Since the establishment of the Islamic Republic of Iran, the art of economic management has never been the strength of the country’s leaders. Iranian politicians, especially conservatives, have always believed that the stability and survival of Iran mainly depend on political and ideological factors. Therefore, they have been reluctant to focus their energy and political speech on economic recovery and development beyond the minimum demand level.
The founder of the Islamic Republic, Ayatollah Ruhollah Khomeini (Ayatollah Ruhollah Khomeini) even famously said that the Islamic Revolution of 1978-79 was about great ideas, not “the price of watermelon.”
On June 18, Ibrahim Raisi, the conservative Attorney General, was elected as the eighth president of Iran. Although in many respects Raisi is a stereotyped conservative politician, he puts ideology before any economic problems, but all indications are that he will not be able to think of the economy as an afterthought during his tenure.
It’s all the price of watermelon
Today, the survival of Iran’s political system is more dependent on the economy than ever before (at least, since the end of the post-war reconstruction in the late 1990s).
Since the 1980s, the Iranian regime has been using a complicated system of direct and indirect subsidies to buy off the loyalty of the Iranian people. However, over time, these subsidies have become a heavy burden on the state budget. In the past ten years, the regime has tried many times to alleviate this burden, but it has never been successful. By 2020, the amount of energy subsidies alone will be estimated at US$7.5-80 billion, one of the highest in the Gulf region.
As Iran’s economy has been affected by US sanctions and the coronavirus pandemic, which has exacerbated decades-long infrastructure problems caused by local mismanagement, there is an urgent need to restructure the subsidy system to promote economic development while ensuring that the regime retains purchases Ability to people’s loyalty. Therefore, Lai Xi has no choice but to make economic reconstruction the main goal of his government.
So far, Iran’s economic policy has been aimed at establishing and maintaining the so-called “resistance economy”-a partially self-sufficient economic system with a strong state presence, the main goal of which is to ensure that the regime is in an unfriendly environment.
Over the years, the system has achieved its goals many times. Despite the severe sanctions imposed in 2018-20 and the negative impact of the COVID-19 pandemic, the Iranian economy remains strong.
But Iran also paid a heavy price for its “resistance economy” success. Although this model succeeded in preventing economic collapse, it also hindered the prospects for sustainable economic development accompanied by significant improvements in social indicators.
According to data from the International Monetary Fund, the country’s economy shrank by 6% and 6.8% in 2018 and 2019, respectively. In 2020, it shows the smallest positive growth trend (+1.5% according to IMF data and +0.7% according to independent consulting company data), which is mainly related to rising oil prices and Iranian oil exports. By 2021, the annual inflation rate is expected to reach 36% (expected to increase further in 2021-2022), the unemployment rate will remain at 10-12%, and at least 33% of the population will live below the poverty line.
As the country’s economic situation deteriorates rapidly — which has triggered civil unrest and widened the trust gap between the people and the regime — Lai Xi may be forced to make major changes to the “resistance economy” model.
Finally, due to political reasons, Raisi will have the motivation to resolve Iran’s economic problems as president. Iran’s conservatives have long criticized their moderate opponents for failing to develop the economy and improve the people’s living standards during their administration. Therefore, as president, Lai Xi will face tremendous pressure not only to achieve economic growth, but also to achieve a better standard of living. If he fails to do so, the Iranian people may lose their remaining trust in conservatives and the entire political system. In addition, ensuring economic success is also important to Raisi’s own political future, as he is currently the first person to become Iran’s next supreme leader. If he has achieved successful economic results as president, he can use it as proof that he will become a successful supreme leader.
Economic considerations will affect Raisi’s domestic and international policies
Under such circumstances, there is no doubt that economic considerations will determine the steps that the Lai Xi government will take on the domestic and international stages.
Internationally, the new president may continue to push for the restoration of JCPOA, because this will lead to the lifting of sanctions and ease the Iranian economy. He is also likely to work to strengthen Iran’s relations with countries such as China and Russia, which can help Iran’s troubled economy to revive through investment. Raisi will also avoid further confrontation with the GCC because he believes that the rich Gulf countries may be the key to Iran’s re-entry into the international trade and financial system.
Domestically, the first few years of Raisi’s presidency are likely to be determined by inertia.
The new president has very little experience in economic management. From his own perspective, in economics, he intends to follow the example of his predecessor and continue to rely on the “resistance economy” model.
This “more of the same” strategy will work for at least a few years. It is expected that the partial lifting of sanctions before the end of the year will automatically improve key economic indicators. In addition, the gradual recovery of the global economy from the COVID-19 pandemic will also have a positive impact on Iran’s economic situation. All of this will make Raisi mistakenly believe that the resistance economy is still working.
However, these positive trends will undoubtedly prove to be temporary, and soon Raisi will face the need to modify its national economic route.
After signing the JCPOA in 2015 and lifting most of the sanctions, Iran experienced a similar economic upturn. However, the regime failed to implement much-needed reforms to put the country on the track of sustainable development. As a result, within a year after the sanctions were lifted, the country’s macroeconomic indicators began to drop significantly.
In the next few years, this history is likely to repeat itself. In addition, at this stage, the restoration of the comprehensive agreement is unlikely to end all sanctions. Therefore, after the agreement is restored, Iran’s difficulties in acquiring new technologies and the international financial system will still exist. Even after the most severe sanctions are lifted, Iran will continue to be regarded as a country “toxic” to business.
More importantly, lifting the sanctions will not solve many of Iran’s deep-rooted economic problems, such as excessive state intervention in the economy, inefficient financial system, underdeveloped market institutions and private sector, a large number of dark and gray markets, cronyism, customer service, and corruption. .
In addition, if he chooses to continue his current economic policy after the sanctions are lifted, Ressi may fall into the same trap his predecessor Hasan Rouhani did a few years ago. From 2015 to 2016, the easing of external pressures on the national economy drove economic growth. However, this growth has not been translated into an improvement in social conditions. Sanctions and relief will only enrich the upper echelons of society, further deepen Iran’s social stratification, and make most of the population oppose the moderate Rouhani government.
In this case, in a few years (most likely by 2023), Lacey’s conservative government will be forced to formulate new economic policies. For any success, this new policy needs to be based on more liberal principles and promote socially-oriented economic growth. It also needs to encourage employment and income growth, while allowing subsidies to be reduced.
However, Lai Xi was unable to achieve such a major policy change on her own. The economic model of resistance has long been an important part of Iran’s ideological structure and can only be abandoned with the approval and support of the current supreme leader Ali Khamenei.
Therefore, improving the economy will inevitably become the primary goal of Lai Xi’s presidency. But his success will depend on whether Khamenei is willing to let the country change course eventually.
The views expressed in this article are those of the author and do not necessarily reflect Al Jazeera’s editorial stance.