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News Analysis: Firing Tightens Iranian President's Economic Circle

By Iraj Gorgin

For some 33 months, as Iran's economy minister, he was either silent or supported the president's economic policies. But on April 22, in a farewell speech that ended in tears, outgoing Economy Minister Davud Danesh-Ja'fari blamed President Mahmud Ahmadinejad and his close associates for being directly responsible for Iran's economic crisis.

Danesh-Ja'fari's sacking was interpreted by some media in Tehran as a victory for Ahmadinejad in his bid to rid his cabinet of officials who disagree with key government policies. And disagree Danesh-Ja'fari did.

Amid skyrocketing inflation that some experts say is closer to 30 percent than the official rate of 18.5 percent, Danesh-Ja'fari opposed the president's policies of lower interest rates and granting more loans to help industries and the poor. Many reform-minded economists blame that policy for Iran's inflation rate.

In his farewell speech, Danesh-Ja'fari said government economic policies involved too much politics, an apparent reference to Ahmadinejad's efforts to use economic populism to attract votes in next year's presidential polls, and contradict internationally accepted economic theories. At least five influential clerics or grand ayatollahs with millions of followers have also recently expressed concern over inflation.

Moreover, given Western economic sanctions on Iran over its nuclear program, international banks and financial institutions have been reluctant to do business with Tehran, compounding the country's economic crisis.

Mohamed Reza Behzadian, the former head of the Tehran Chamber of Commerce, told Radio Farda that the conduct of international financial institutions toward Iran is understandable.

“The reaction of international banks to Iran's demands is rational," Behzadian said. "It is toward Ahmadinejad's behavior and his actions at the international arena."

In the past, Ahmadinejad has denied that international sanctions have had any impact whatsoever on Iran or its economy. But in a much discussed speech in the religious city of Qom last week, the Iranian leader for the first time appeared to acknowledge the sanctions as one of the factors behind the country's economic crisis. "Any time our economy is on the verge of a great leap, they [the West] sanction us," Ahmadinejad said.

In his Qom speech, which was part of a provincial tour ahead of next year's elections, Ahmadinejad also declared "open war" against "economic Mafia" and "financially corrupt" people in high positions. And he blamed some ministries and government offices as well as foreign "enemies" for all the economy’s shortcomings.

Many observers have called the Qom remarks "an introductory election speech" aimed at cementing his position long before the official start of the campaign next year.

"Mr. Ahmadinejad's speech in Qom was but [part of] an election campaign, and the president is adopting the same style he has implemented in the past: the policy of 'escaping ahead' and utilizing equivocal matters such as mafia and economic corruption so that he can evade direct response to questions," Tehran journalist and columnist Isa Saharkhiz told Radio Farda.

Iran's economy is going through one of its worst stretches in recent memory. The price of food and commodities is increasing daily. Foreign trade has nearly ground to a halt, and under the terms of United Nations sanctions, almost no credible international financial institution will give loans or credit to Iranian banks or merchants.

But Fereidoon Khavand, an economics analyst and a university professor in Paris, believe that sanctions are only a part of the problem.

"Although the West's economic sanctions have a negative impact on Iran's economy, the fundamental element that contributes to confusion and instability is the Ahmadinejad administration's economic policies and the lack of harmony among the ideas of his economic policy designers," Khavand said.

It was known to most observers that Danesh-Ja'fari and a few others in high positions, such as Central Bank Governor Tahmasb Mazaheri, have different opinions on economic policy and are in constant disagreement with the president.

Last week, Mazaheri ordered lenders not to rely on central funds for their loans and to reset interest rates based on the inflation rate. Ahmadinejad immediately blocked his order.

The president has promised single-digit lending rates, which are currently at 12 percent. Analysts say failure to deliver on that vow could damage his reelection hopes.

On April 22, the president named Hossein Samsami as the next economy minister. Like the president, Samsani is seen as supportive of further lowering interest rates and making credit easier to come by.

Radio Farda broadcaster Fereidoon Zarnegar contributed to this report

Copyright (c) 2008. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org

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