Currency Protests & Crackdowns in Iran, Rial Down 60 Percent YTD
Iranian riot police clashed with demonstrators in central Tehran on Wednesday in the wake of a strike by bazaar merchants and currency traders prompted the first public protests over the swiftly devaluing rial, reports FT. Teargas was fired at demonstrators who set traschcans on fire and chanted “death to the dictator” and other slogans against President Mahmoud Ahmadi-Nejad. Marking the first demonstrations in the capital for more than a year, fears have been raised in Iran of political instability in the face of the swiftly crashing rial. State-owned buildings, including banks, were damaged during the demonstrations. There was no business in the area, as influential merchants and other businessmen stood by their closed shops. They appeared determined to stay closed for business until the rial ceased to fall. One shoe shop owner foretold of coming layoffs in Iran: “This means I have to expel 70 workers of my shoe factory,” he said. “And then a long chain of people who are all connected to each other falls apart.”
So far this year, the rial has declined by 60 percent. This is due to US tightened banking sanctions as well as an oil boycott of Iran by the European Union. The official inflation rate in Iran is 23.5 percent, and youth unemployment has officially reached 28.6 percent, both of which are considered major underestimates by Iranian economists.
Meanwhile, a clampdown in Iran of merchants closing their shops in Tehran’s main bazaar and money changers on Wednesday has been part of an effort to halt the plunge of Iran’s currency, which has shed more than a third of its value in the less than a week. Officials are very concerned over the destabilization of Iran’s currency, which has been in part blamed by officials in the region on Western sanctions over Tehran’s nuclear programs. In the traditional business hub in Tehran, merchants appeared to stage a mass demonstration via widespread closures of their business.
Early on Wednesday, Mehr news agency reported that the bazaar was closed for security reasons, only then to later quote police Col. Khalili Helali as saying that the bazaar was not officially closed, and that the authorities will take actions against many of the merchants who close their shops. ”The Tehran bazaar isn’t closed. Police will deal with the guilds that have closed their shops to cause (economic) disruption,” Mehr quoted Mr. Helali as saying.
Anti-riot police were already patrolling the streets at the time of the second broadcast, combing central Tehran for freelance money dealers. There were unconfirmed reports of arrests, but Iranian officials have not issued a formal statement. Public anger has grown in the country over a falling currency and rising prices, which have put some staples such as chicken and lamb about of reach of many low-income Iranians. Rekindled internal political strife between President Mahmoud Ahmadinejad and his powerful rivals over the falling rial has raised the stakes, with the latter claiming government monetary policies are partially to blame for the devalued rial.
Iran’s currency hit a record low of 35,500 rials against the US Dollar Tuesday on the unofficial street trading rate, which is widely followed in Iran. It was about 24,000 to the dollar just one week ago, and close to 10,000 rials for $1 as recently as 2011. On Wednesday, exchange houses were closed as well as currency websites, which were blocked from providing updates on the currency trade.
The currency’s decline has hurt Iran’s already flailing economy. Struggling with tougher sanctions targeting its crucial oil exports and measures blocking it from key international banking networks, the US and its allies have backed Iran into a virtual corner in attempt to gain concessions over its nuclear program. The rial’s sharp decline is due to such sanctions, and has forced Iran to fuel inflation by increasing the money supply, whilst also holding down bank interest rates, just as has transpired in many western countries. Over the past month, many Iranians have exchanged their rials for foreign currencies. Just yesterday, Ahmadinejad maintained that Iran’s economy was sound and stable, although blamed the rial’s fall on “psychological pressures” from sanctions and currency speculators.
He spoke of the sanctions as a “heavy battle” against Iran that has succeeded in driving down oil exports “a bit”, without giving precise figures. Some oil analysts estimate exports have fallen by more than 30% since July, when the 27-nation European Union halted purchases of Iranian crude.