Experts: Steinitz exaggerates on Iran economy

According to Israeli academic experts on Iran, its economy is suffering, but a long way from collapse.

April 10, 2012 09:33
2 minute read.
Finance Minister Yuval Steinitz

Finance Minister Yuval Steinitz 390. (photo credit: Marc Israel Sellem)

A number of Israeli experts on Iran disagreed Monday night with Finance Minister Yuval Steinitz's remarks Monday that the Iranian economy is about to collapse.

Prof. Meir Litvak, director of the Center for Iranian Studies at Tel Aviv University, agrees that Iran's economy is in trouble, but adds that it is still an exaggeration to say that it is on the brink of collapse.

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"There are several examples of the difficult position of the Iranian economy," Litvak told Globes this afternoon. "For instance, the Iranian currency, the riyal, has lost more than 50% of its value in the past five months. The central bank's interest rate is 21%, and the inflation rate has climbed to 22% there this year, 10% higher than last year."

Litvak stressed that these are official figures, and that it is reasonable to suppose that the figures are actually much worse. "The cause of Iran's difficult economic situation is a combination of the sanctions applied against it by Western countries, and failed economic policy by the state. Until two years ago, the Iranians spent $90 billion a year on subsidies for food and fuel. Today, they spend a similar sum of monthly compensation payments to low-income families. This compensation cancels out the savings achieved by the abolition of the subsidies."

Nevertheless, Prof. Litvak says that the Iranian economy is still far from general collapse. "The situation in Iran is still not the end of the world. You must remember that in the past Israel experienced annual inflation of 400%, and didn't collapse, and Turkey too has experienced much higher inflation, and today its economy flourishes."

According to Litvak, although Iran's oil exports have fallen because of the international sanctions, the rise in the price of oil benefits the Iranian economy and offsets some of the losses caused by the sanctions.

Prof. Uzi Rabi, chair of the Department of Middle Eastern and African History at Tel Aviv University, expresses a similar view of the minister of finance's remarks to that of Prof. Litvak. "The expression Steinitz used is colorful and exaggerated. The economic situation in Iran is woeful, but the Iranian economy is still not in a state of collapse."

In Rabi's view, the Iranians have some tough problems, their situation is growing worse, and the international pressure is hurting them, but it is doubtful whether it will topple them. "It could well be that Iran will continue to survive in the coming years. The Chinese and the Russians aren't boycotting them, and the Indians recently agreed to buy oil from Iran, and they thus have pretty much broken the international embargo."

Rabi says that what could really bring about a collapse of the Iranian economy is a total international embargo on buying oil from it. "The meetings between heads of government on Iran are therefore very important. An oil embargo could land a severe blow on the Iranian economy," Rabi concluded.

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