World Bank: Iran Likely to Suffer Worse Recession Than Previously Thought
June 05, 2019 7:40 PM
By: Michael Lipin
WASHINGTON —The World Bank says Iran is likely to experience an even worse recession this year than previously thought, as U.S. sanctions largely choke off oil exports that have been Tehran’s main revenue source.
In its latest Global Economic Prospects report published Wednesday, the Washington-based institution that provides loans to countries said it expects Iran’s Gross Domestic Product to shrink by 4.5% this year, a steeper contraction than its earlier estimate of negative 3.6% GDP growth for 2019.
“The oil industry is an important part of Iran’s economy, and its oil production is clearly going to drop because of the new U.S. sanctions,” said Patrick Clawson, research director for the Washington Institute for Near East Policy, in a VOA Persian interview on Wednesday.
The Trump administration imposed a total, unilateral ban on Iranian oil exports on May 2 as part of its campaign of “maximum pressure” on Iran to negotiate an end to its perceived malign behaviors. It had issued sanctions waivers to eight of Iran’s oil customers in November to allow them to keep importing Iranian crude for six months, but later said it would not renew those waivers and would require those customers to reduce such imports to zero.
U.S. economist Steve Hanke of Johns Hopkins University in Baltimore told VOA Persian in another Wednesday interview that Iran’s internal economic problems also are to blame for its worsening recession. “Iran is very corrupt, has very little economic freedom, and it’s hard to start a business there because Iran is not really a free market or liberal economy,” Hanke said.
Transparency International, a Berlin-based civil society organization that monitors global corruption, has ranked Iran 138 out of 180 countries in its Corruption Perceptions Index.
Iran’s other low global economic rankings include 155 out of 180 nations in the Economic Freedom Index of the Washington-based Heritage Foundation, a conservative public policy institute, and 128 out of 190 governments in the World Bank’s Ease of Doing Business index.
The World Bank’s new report also said Iran’s year-on-year inflation rate has risen sharply from about 10% in the middle of last year to about 52% in April. It said the depreciation of Iran’s rial since May 2018, when the U.S. announced it would re-impose sanctions on Iran, has contributed to the rising inflation. The rial’s slump versus the dollar in Iran’s unofficial currency market has made dollar-denominated imports more expensive for Iranians.
Clawson said Iran’s inflation is high primarily because it is relying on printing money to finance its spending. “The Iranian government is not bringing in enough revenue to pay for its expenses, so it is borrowing money from the banking system to cover the difference, and that is driving inflation,” he said.
Hanke, who says he is the only economist outside Iran to measure its inflation with high frequency, told VOA Persian that he calculated Iran’s actual inflation rate to be 113% on Wednesday, much higher than the World Bank’s latest reading.
The World Bank’s projection of a 4.5% contraction in Iran’s GDP this year is not as bad as the 6% contraction predicted by the International Monetary Fund, another global lending agency, in its latest report from April. The World Bank also said it expects economic growth in Iran to return next year “as the impact of U.S. sanctions tapers off and as inflation stabilizes.” It projected a 0.9% rise in Iran’s GDP for 2020.
Hanke declined to make his own predictions for Iran’s economic performance, saying any forecasts for a nation such as Iran are problematic because they rely on guesswork.
This article originated in VOA’s Persian Service.
By JOHN R. BOLTON
July 15, 2008; Page A19
Iran’s test salvo of ballistic missiles last week together with recent threatening rhetoric by commanders of the Islamic Republic’s Revolutionary Guards emphasizes how close the Middle East is to a fundamental, in fact an irreversible, turning point.
Tehran’s efforts to intimidate the United States and Israel from using military force against its nuclear program, combined with yet another diplomatic charm offensive with the Europeans, are two sides of the same policy coin. The regime is buying the short additional period of time it needs to produce deliverable nuclear weapons, the strategic objective it has been pursuing clandestinely for 20 years.
And yet, true to form, State Department comments to Congress last week – even as Iran’s missiles were ascending – downplayed Iran’s nuclear progress, ignoring the cost of failed diplomacy. But the confident assumption that we have years to deal with the problem is high-stakes gambling on a policy that cannot be reversed if it fails. If Iran reaches weaponization before State’s jaunty prediction, the Middle East, and indeed global, balance of power changes in potentially catastrophic ways.
And consider what comes next for the U.S.: the Bush administration’s last six months pursuing its limp diplomatic efforts, plus six months of a new president getting his national security team and policies together. In other words, one more year for Tehran to proceed unhindered to “the point of no return.”
We have almost certainly lost the race between giving “strong incentives” for Iran to abandon its pursuit of nuclear weapons, and its scientific and technological efforts to do just that. Swift, sweeping, effectively enforced sanctions might have made a difference five years ago. No longer. Existing sanctions have doubtless caused some pain, but Iran’s real economic woes stem from nearly 30 years of mismanagement by the Islamic Revolution.
More sanctions today (even assuming, heroically, support from Russia and China) will simply be too little, too late. While regime change in Tehran would be the preferable solution, there is almost no possibility of dislodging the mullahs in time. Had we done more in the past five years to support the discontented – the young, the non-Persian minorities and the economically disaffected – things might be different. Regime change, however, cannot be turned on and off like a light switch, although the difficulty of effecting it is no excuse not to do more now.
That is why Israel is now at an urgent decision point: whether to use targeted military force to break Iran’s indigenous control over the nuclear fuel cycle at one or more critical points. If successful, such highly risky and deeply unattractive air strikes or sabotage will not resolve the Iranian nuclear crisis. But they have the potential to buy considerable time, thereby putting that critical asset back on our side of the ledger rather than on Iran’s.
With whatever time is bought, we may be able to effect regime change in Tehran, or at least get the process underway. The alternative is Iran with nuclear weapons, the most deeply unattractive alternative of all.
But the urgency of the situation has not impressed Barack Obama or the EU-3. Remarkably, on July 9, Sen. Obama, as if stumbling on a new idea, said Iran “must suffer threats of economic sanctions” and that we needed “direct diplomacy . . . so we avoid provocation” and “give strong incentives . . . to change their behavior.” Javier Solana, chief EU negotiator, was at the time busy fixing a meeting with the Iranians to continue five years of doing exactly what Mr. Obama was proclaiming, without results.
John McCain responded to Iran’s missile salvo by stressing again the need for a workable missile defense system to defend the U.S. against attacks by rogue states like Iran and North Korea. He is undoubtedly correct, highlighting yet another reason why November’s election is so critical, given the unceasing complaints about missile defense from most Democrats.
Important as missile defense is, however, it is only a component of a postfailure policy on Iran’s nuclear-weapons capacity. In whatever limited amount of time before then, we must face a very hard issue: What will the U.S. do if Israel decides to initiate military action? There was a time when the Bush administration might itself have seriously considered using force, but all public signs are that such a moment has passed.
Israel sees clearly what the next 12 months will bring, which is why ongoing U.S.-Israeli consultations could be dispositive. Israel told the Bush administration it would destroy North Korea’s reactor in Syria in spring, 2007, and said it would not wait past summer’s end to take action. And take action it did, seeing a Syrian nuclear capability, for all practical purposes Iran’s agent on its northern border, as an existential threat. When the real source of the threat, not just a surrogate, nears the capacity for nuclear Holocaust, can anyone seriously doubt Israel’s propensities, whatever the impact on gasoline prices?
Thus, instead of debating how much longer to continue five years of failed diplomacy, we should be intensively considering what cooperation the U.S. will extend to Israel before, during and after a strike on Iran. We will be blamed for the strike anyway, and certainly feel whatever negative consequences result, so there is compelling logic to make it as successful as possible. At a minimum, we should place no obstacles in Israel’s path, and facilitate its efforts where we can.
These subjects are decidedly unpleasant. A nuclear Iran is more so.
Mr. Bolton, a senior fellow at the American Enterprise Institute, is the author of “Surrender Is Not an Option: Defending America at the United Nations” (Simon & Schuster, 2007).