April 24 (Bloomberg) -- Iran’s finance minister says his country’s economy is adapting to Western sanctions by finding new markets for agriculture and mining products after oil exports plunged by almost half.
“We had to make adjustments,” Shamseddin Hosseini, Iran’s minister of economic affairs and finance, said in an interview yesterday at Iran’s Mission to the United Nations in New York. “We will work harder and find new ways and even change our trading partners.”
The U.S. and allies are restricting Iran’s oil exports, the country’s largest source of revenue, to pressure the government in Tehran to stop enriching uranium. The sanctions have driven the value of the Iranian rial down 80 percent in the past two years.
While the country’s oil exports have fallen 50 percent in the past year, the plunge in the rial’s value has helped exporters who can sell other goods more cheaply, Hosseini said. The Islamic Republic has increased exports of both agricultural and mining products, he said.
“We have seen an increase of 20 percent in non-oil exports,” Hosseini said. “We are making structural changes to our economy to reduce the impact of sanctions.”
That’s only part of the story, said Djavad Salehi-Isfahani, a professor of economics at Virginia Polytechnic and State University in Blacksburg.
“The currency devaluation has helped Iranian exporters and domestic producers to be competitive,” Salehi-Isfahani said in a telephone interview. “However, sanctions are a big negative because they prevent Iranian companies from transferring money or get access to technology.”
The U.S. and its allies including Israel and the European Union have accused Iran of seeking to develop nuclear weapons capability. Hosseini said Iran is enriching uranium for peaceful purposes and won’t back down from developing nuclear power.
“The development of peaceful civilian nuclear program is one of our highest priorities,” Hosseini said.
Western pressure has intensified over the past two years, subjecting Iran to dozens of sanctions including curbs on financial transactions and crude oil exports that are its main source of revenue.
“When you bring the central bank under sanctions, you are bringing all banks and financial institutions of a country under sanctions,” Hosseini said.
While the central bank’s official exchange rate is 12,260 rials per dollar, the currency trades on the street at about 37,000 per dollar. Iran’s inflation hit 30 percent last year from 21 percent the year before, Hosseini said. Unemployment has been around 12.2 percent in the past two years, he said.
In the fiscal year starting March 21, Iran projects a 40 percent decline in oil revenue, according to a draft budget submitted to the Majlis, the national assembly. The country expects to earn about 660 trillion rials during the fiscal year, according to official news agencies Mehr and Fars.
Iran’s economy is deteriorating as the Islamic Republic prepares for the June 14 presidential election. Hassan Rohani, a former nuclear negotiator, who plans to run in the June presidential race, said the country’s economy was in a “critical” situation.
In March Iran exported 1.1 million barrels a day, down from 1.26 million barrels in February, the International Energy Agency said in a report. Iranian exports are down from an average of 1.5 million barrels a day last year and 2.5 million in 2011, before sanctions intensified, according to estimates from the Paris-based IEA.
Patrick Clawson, an Iran analyst at the Washington Institute for Near East Policy, said in a report dated April 2 that the role of oil in Iran’s economy had declined as the country is reorienting its exports to focus on agriculture, mining and industry.
Hosseini said he wanted to reform the government budget to reduce the reliance on oil revenue. Last year, the government froze prices of basic food ingredients such as wheat and other grains.
Hosseini who had visited Washington for a joint session of International Monetary Fund and the World Bank said Iran’s economy grew last year and he expected it to grow again this year. He declined to provide figures.
In contrast, the IMF says Iran’s economy shrank 1.9 percent in 2012 and is expected to decline another 1.3 percent this year. The IMF expects inflation to rise by 27 percent this year.
Hosseini said the country hasn’t been hurt by the drop in gold prices. Iran began buying gold four years as a hedge against U.S. sanctions. Gold futures have fallen 15 percent this year.
Iran’s foreign currency reserves remain healthy, Hosseini said. The National Development Fund, which receives at least 20 percent of the oil revenue to be used to develop the company has $48.5 billion.
“Economic sanctions have strengthened the economy,” Hosseini said. “They will not deter us from pursuing nuclear technology.”
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