October 17, 2008


Iran's Economy Runs Out Of Steam (Michael Rubin 10.17.08, Forbes)

Non-oil sector production is stagnant. Factories may remain open but many do not pay workers. On Oct. 2, for example, tire factory workers staged a protest in front of the Ministry of Labor seeking six months' unpaid wages. In recent weeks, wild cat strikes have occurred in Tehran, Isfahan, Qazvin and Sanandaj. Purchasing power has plummeted.

To mitigate such trends, the government has imposed price controls. On June 11, the daily Resalat reported that the paramilitary Basij, a subdivision of the Islamic Revolutionary Guard Corps, would enforce low prices. Over subsequent days, the Iranian press featured photos of Basij beating merchants whose prices were too high.

The combination of high liquidity, sparked by Ahmadinejad's arbitrary decree lowering interest rates to single digits, no-interest banking and inflation has led wealthy Iranians to pour money into real estate. Housing costs have skyrocketed; Tehran real estate prices rival New York's. The average Iranian family now pays 60% of its income for rent, while the Ministry of Housing estimates 1.5 million Iranians are homeless.

To fight economic malaise, Ahmadinejad has raided Iran's foreign reserves. In the past two months alone, Iranian papers have reported more than $15 billion in withdrawals from the reserves to import refined gas and several additional billion dollars to subsidize industrial schemes. Ahmadinejad's reinstatement of subsidies has meant Iran once again must import 40% of its refined petroleum needs.

He will need to continue spending. Last winter, Iran ran out of gas. Food prices more than doubled and the Revolutionary Guards had to deploy on the streets of towns and cities to keep order. On Oct. 1, the Parliament's Energy Commission predicted another "severe gas shortage" again within months.

Crude's Drag on Russian Growth Poses Test for Putin (GREGORY L. WHITE, 10/17/08, Wall Street Journal)
The prospect of sharply lower prices for oil and other commodity exports -- on top of plunging stock markets and a seized-up financial system -- threatens the economic recovery that's been a foundation of Vladimir Putin's rule in Russia.

Falling prices for crude oil played a role in driving down Russia's benchmark RTS stock index 20% this week to the lowest level since June 2005.

Despite a $160 billion Kremlin bailout package, the market is off 73% from its record high set in May, and Finance Minister Alexei Kudrin warned legislators Friday that the declines are likely to continue. Unable to raise cash, Russia's heavily indebted billionaires have been forced to give up prime assets pledged as collateral or beg for bailouts.

Economists have cut forecasts for growth next year to around 3%-4%, down from a 7.7% rate in the first nine months of this year. Central bank reserves have fallen $66.9 billion since early August as investors and ordinary Russians have fled the ruble.

...gas prices at the pump fell 60 cents here this week.

Posted by Orrin Judd at October 17, 2008 6:27 PM
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