An article in the June issue of Le Monde Diplomatique detailing Iran's economic woes leads me to question whether the excitement surrounding the upcoming Iranian elections is not a rouse. Will the Mullahs follow in Mao's footsteps and use this"let a thousand flowers bloom" as way to identify their enemies and, eventually, destroy them? A continued rise in the price of oil, caused at least in part by the collapse of the dollar, will certainly enable them to do so.

In Iran, the campaign heats up the WSJ reports excitedly:

The campaign leading up to Iran's presidential election Friday has turned the country on its head in terms of political debate and public discourse. It also has offered a glimpse of what a freer Iran might look like. . . .

Candidates from across the political spectrum are ripping one another apart, targeting wives and personal wealth during heated debates aired live on state-run television and in news articles published in newspapers and on Web sites. Many Iranian voters -- also from across the spectrum -- are mesmerized and invigorated by the sparring.

Young men and women have been dressing in more relaxed garb -- tight jeans on the men and women still in scarves but not as tightly wrapped as before. They wave campaign posters and dance in the streets from midnight until dawn. Women-rights activists, typically persecuted, distribute pamphlets that list their demands for the new president.

Ramine Motamed-Nejad, an economist and senior lecturer at the Centre d’économie de la Sorbonne, report in Iran: Money and the Mullahs that official unemployment is 15% Officially inflation"for 2008 was 25% (though other estimates put it at 50%) and it stood at higher than 60% for the first quarter of 2009." And 12,000 Iranians are currently in prison for failing to pay their debt!

Much of this is the bursting of the Iranian housing bubble:

The government’s ongoing efforts to direct credit towards the real economy combined with the growing appeal of speculation in some sectors prompted the private – and public – banks to turn their backs on financing industry. Instead, they engaged in mortgage and property lending on a massive scale. In doing so, they contributed to the creation in 2005 of a property bubble, the likes of which had never been seen before (3). This encouraged the emergence of what one monthly referred to as an Iranian “propertied bourgeoisie” (4).

The bubble finally burst in May-June 2008, when a government initiative obliged the whole banking system to suspend offers of credit, including funds already promised to house purchasers which were in the process of being released. Since then, Iran has seen a drastic fall in the demand for housing, a collapse in property prices and a partial devaluation of housing stock which the public banks had recently acquired.

The resulting crisis has had two consequences. The banks are no longer able to grant new funds to the economy, as demonstrated by the 67% plunge in banking credit in the 12 months to December 2008. This contraction in turn fed a decline in demand for goods and investment, the erosion of industrial production and profitability, and the massive under-utilisation of production capacity.

Also, as a result of the loss of value in their assets, the banks have been unable – or unwilling – to keep up debt repayments to the central bank. In the year to September 2008, debts owed to the central bank (and therefore to the state) rose by 106%. Meanwhile, economic output has been adversely affected by unpaid debts racked up by companies, some of which is owed to their own employees.

Privatisation has made the fortunes of some people, but it has also exposed a large proportion of the workforce to unemployment (5) and an ever more precarious financial situation. Numerous owners of privatised businesses deliberately sold off their companies’ assets then filed for bankruptcy, left salaries unpaid or simply sacked their workers. Inflation is again rising sharply: the official figure for 2008 was 25% (though other estimates put it at 50%) and it stood at higher than 60% for the first quarter of 2009.

Since September 2005, faced with the falling purchasing power of the middle classes and the least well-off, the government has focused on credit redistribution to support consumption and provide outlets for business. The lengthy list of different forms of officially guaranteed credit on offer shows the reach of this policy: it includes pensioners, newlyweds, students, home-buyers and farmers.

Over the past 20 years, many Iranians have been plunged into debt with the erosion of their incomes in real terms. The increasing number of people imprisoned for debt is a clear sign of this: there are currently 12,000 debtors behind bars and 20,000 others have gone through the prison system in the last 10 years. These penalties imposed on the least well-off run counter to the egalitarian ideals of the Islamic revolution. And at the same time, the powers-that-be are unable – or unwilling – to recover their debts from the people who do have economic power in Iran.