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WEEKLY NEWSLETTER
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Iran
Index
Oil revenues in the mid-1970s brought Iran a foreign exchange
surplus. But when oil revenues fell sharply in 1978, an economic
crisis resulted. Iran went from being a long-term lender in the
1970s to a short-term borrower in the 1980s, with the acquisition
of foreign currency a perennial problem. The revolutionary
government resorted to barter with several countries in the
mid-1980s, but some customers soon insisted on receiving payment
from Iran before shipment because of disagreements over the terms
of payment. Problems arose when countries wanted to renegotiate
barter contracts in 1986, to reflect the lower cost of oil, and
Iran insisted on the original terms. Also, barter did not improve
the foreign currency situation; to maintain a foreign exchange
balance, Iran would have had to earn at least US$1 billion more
than the sums received from civilian non-oil exports.
Another method used by the government to improve its balance of
payments was the collection of funds owed to Iran by foreign
suppliers and governments. The Iranian government estimated in 1986
that several countries, chiefly Egypt, the United States, and
France, owed Iran US$5 to US$6 billion. Clearly, the continued
costs of the war coupled with falling oil revenues afforded the
economy little elasticity.
Iran had a US$5.4 billion balance of payments deficit during
1986, largely as a result of low oil prices and the disruption of
oil shipments caused by Iraqi bombing. Oil prices fell from US$27
per barrel in November 1985 to US$12 in February 1986. Although
prices rose in the fall of 1986, the average price of oil for the
year was US$13 per barrel, half that in 1985. The estimated US$10
billion in export earnings in 1986 was the lowest since 1973.
As a result of its high balance of payments deficit and foreign
exchange shortage, Iran reduced its imports and divested itself of
foreign financial assets acquired by Mohammad Reza Shah. For
example, in 1986 it sold 25.6 percent of its holdings, worth
approximately US$150 million, in the West German engineering firm
Deutsche Babcock. Iran's efforts to cope with its economic crisis
by making barter agreements, repossessing funds, cutting imports,
and divesting itself of foreign financial assets were superficial
responses to deeper structural problems within the economy, such as
the need for land and agricultural reforms and the redistribution
of income.
The country's balance of payments looked bleak for the final
years of the 1980s. The continuing war with Iraq, declining oil
revenues, high unemployment, reduced consumer imports, severe
inflation, a rising foreign debt, and a severe foreign currency
shortage tested the economic policies of the revolutionary regime.
The economy produced essential products and addressed in some
measure the problems facing the national budget, a remarkable feat
given the war, but failed to address basic structural issues.
* * *
Despite the disruptive influences of war on all aspects of the
national life, a surprising number of good publications on the
Iranian economy were readily available in the late 1980s. The
Central Bank (Bank Markazi) of the Islamic Republic publishes
reliable annual statistics on the state of the economy, the budget,
finances, and balance of payments. A publication from Tehran called
Iran Press Digest has a superb weekly update of economic and
political events. Iran Monitor, a monthly publication based
in Switzerland, provides an up-to-date account of international
financial and trade issues. Iran Times, an independent
weekly newspaper with sections in English and Persian, details
current economic developments and statistics. Two other sources of
consistently good coverage of Iran are the Middle East Economic
Digest (MEED), published in London, and Middle East Research
and Information Project (MERIP) Reports, published in
Washington.
Eric Hooglund provides an understanding of land reform issues
in Land and Revolution in Iran, 1960-1980. For concise
reports on the economic situation in Iran, the following sources
are helpful: Patrick Clawson's "Islamic Iran's Economic Policies
and Prospects"; Sohrab Behdad's Foreign Exchange Gap, Structural
Constraints and the Political Economy of Exchange Rate
Determination in Iran; and Wolfgang Lautenschlager's "The
Effects of an Overvalued Exchange Rate on the Iranian Economy,
1979-1984." (For further information and complete citations,
see
Bibliography.)
Data as of December 1987
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