Effect of Iran’s politics on its economy

Marketplace Staff Jul 30, 2009

Effect of Iran’s politics on its economy

Marketplace Staff Jul 30, 2009


Kai Ryssdal: There’s been more violence in the streets of Tehran. This is the end of the mourning period for people killed in the protests that followed Iran’s presidential election last month. And today police fired tear gas to break up crowds reported to be in the thousands. Just after those elections, we spoke with Djavad Salehi-Isfahani. He’s an economics professor at Virginia Tech. He was in Tehran at the time. And we’ve gotten him back on the line to ask how politics might play out in the Iranian economy. Professor, good to speak with you again.

Djavad Salehi-Isfahani: Great to be back with you.

Ryssdal: You’ve been back from your trip what three weeks or so now, yes?

Salehi-Isfahani: Yes, about four weeks.

Ryssdal: What was the mood economically when you left?

Salehi-Isfahani: I think people were not at that time thinking really about the economy because it was at the beginning of the political tensions. I think I left three weeks after the elections. The mood was still focused pretty much on politics. And the economy was the way it had been before, which is high inflation and high unemployment.

Ryssdal: And in terms of their daily lives amid the protests in the streets, people in Tehran could get what they need. They could go to the market, they could buy and sell if they had to.

Salehi-Isfahani: Yes, actually that’s a very good question that you ask me. Because since I’ve been back, and I’m watching the news, I’m beginning to get the feeling that everyone gets up in the morning thinks about where to go to protest. But when I was there, the days when were protests, you actually had to work hard to find out where it was. When you stepped outside your home, the grocery stores were open, the banks were open. The people you talked to were all pretty much concerned about their daily lives, and my impression is that that’s very much the case still.

Ryssdal: What about the population’s general interaction with the government on economic issues. Taxation and things like that.

Salehi-Isfahani: Because Iran is an oil-rich nation, that relationship between the government and the people isn’t working the way it works in Western democracies. Where you pay taxes, and you expect services from the government. In Iran you don’t pay taxes, and you expect services from the government. And the relation is basically the government gives money to the people and then it expects them to behave. And when they don’t behave it gets very upset.

Ryssdal: Yeah, let me ask you about that behavior. You mentioned the political chatter and how people are still thinking about that. What will it be like in, say, a year when in theory some of this political chatter has died down, and people are trying to get by.

Salehi-Isfahani: Well, it’s a very difficult time from the economic point of view for Iran because oil revenues have dropped already by about 50 percent. And that’s probably going to continue for the rest of the year, compared to previous year. And that means the government has a deficit to worry about. And the economy has got a trade deficit to worry about. And so I think people are very concerned at this point that because of the lack of planning this landing back to reality basically to lower oil revenue is not going to be as soft as it should be, and it could be a hard landing.

Ryssdal: Do you think it’s possible economic problems in near term future could lead to more political unrest?

Salehi-Isfahani: It could. It could. I think if the government under these circumstances tries to adjust prices, reduce subsidies… The experience of all developing countries, especially the Middle East, if you try to raise the bus fair, it’s a small part of people’s expenditures, but if there’s an underlying political discontent, you will get the whole city erupt. So this political discontent that exists now is about the election, but it could turn into economic issues if the government tries to implement its plans to raise gasoline prices and to remove other subsidies.

Ryssdal: Djavad Salehi-Isfahani is a professor of economics at Virginia Tech University. He’s also a guest scholar at the Wolfensohn Center for Development at the Brookings Institution. Professor, thanks so much for your time.

Salehi-Isfahani: Thank you very much.

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