When Hassan Rouhani was sworn in as Iran’s president this time last year, he pledged to pursue detente with the international community and bring an end to years of deadlock over the country’s nuclear program, which would lift sanctions and help him rescue an economy in crisis.
Twelve months on, a nuclear deal remains elusive and sanctions remain in place. But Iran’s business community is still supportive of the centrist president.
“We saw nothing but darkness before. Now we see light at the end of tunnel,” says one Iranian businessman, who spoke on condition of anonymity. “The currency market is stabilized. We have faced no foreign exchange shortage for imports in recent months.”
Nonetheless, the four month extension to negotiations for a permanent deal on Iran’s nuclear program with the six leading nuclear powers – the U.S., the UK, France, Russia, China, and Germany – has led to more uncertainty for Iranian businesses as they wait anxiously for increased trade with the outside world and improved access to technology.
Last year’s interim nuclear deal released $4.2 billion of Iran’s blocked funds, suspended restrictions on gold and precious metals trading, the petrochemical and automobile sectors and eased the purchase of airplane parts and medical and health-related initiatives. But business leaders say they have yet to see any benefit and complain that international banks are reluctant to re-engage with Iran for fear of U.S. retaliation.
“Transfers of money in the international banking system are still a challenge for Iranian businessmen, especially after what happened to BNP, in which another [country] played a fundamental role but Iran paid the price,” says a banker who asked not to be identified.
“[International] politicians say one thing [during negotiations with Iran] while banks act differently. Iran receives no help from international banks even for importing of medicine,” the banker adds.
Complicating the impact of sanctions is the legacy of economic mismanagement left by Rouhani’s predecessor, Mahmoud Ahmadinejad. When the president took office last year he inherited an inflation rate of about 40 percent and a national currency, the rial, which had lost more than half of its value against the U.S. dollar.
The added imposition of sanctions saw Iran’s economy shrink 6.8 percent in the fiscal year ending March 2013 and by 1.9 percent in the year ending March 2014.
Rouhani’s government has brought inflation down by about 10 percent to 27.7 percent over the past year and has stabilized the currency by tightening monetary policy. It has pledged to reduce inflation to 25 percent by the end of the fiscal year.
“Today, people feel more stability,” Rouhani said in a speech last week, adding they no longer needed to hide “currency and gold coins…inside their pillows”.
“The least this government has done is ensure we are not taken by surprise when we wake up every morning,” Majid-Reza Hariri, deputy head of Iran-China Chamber of Commerce, told the Financial Times.
The government is now trying to kick-start growth with a new two-year program to rejuvenate industry, paying off government debts to domestic banks and diverting public savings towards boosting the domestic stock market.
The package, officials say, is drafted on the basis of continued sanctions.
Masoud Nili, a senior economic adviser to the government and a leading figure in the package’s drafting, told the Financial Times that the program “will remove obstacles in the way of economic growth, except for sanctions”.
“We know that not all [economic] problems are rooted in sanctions. A major part of the woes are due to domestic inefficiencies,” he says.
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