Feb. 11 (Bloomberg) -- Iranian President Hassan Rouhani had foreign-policy successes to showcase when he spoke in Tehran’s Azadi Square today to mark the 35th anniversary of Iran’s Islamic revolution. The economic gains will follow, he said.
Since taking office in August, Rouhani has eased the isolation Iran endured under Mahmoud Ahmadinejad. He spoke by phone with Barack Obama, made concessions that led to a nuclear deal, and visited the World Economic Forum in Davos. The country has mended fences with the U.K., and a stream of ministers and businessmen are visiting Tehran.
Behind the optimism lies economic unease, aggravated by sanctions on oil and banks that remain in place. Millions of Iranians lined up for hours last week to get food handouts and some of them left emptyhanded. The incident prompted a rare apology from Rouhani, who promised during the election campaign that smoother diplomacy would lead to better living standards.
“He has limited capability on domestic issues or to make significant changes in the economy,” said Vali Nasr, dean of the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University. “If he is unable to deliver, all the gains could unravel.”
Rouhani said today that Iran’s situation is improving, and that the country will soon overcome stagnation. He criticized sanctions as “brutal, illegal and wrong.”
“Compared to six months ago, the situation is calmer,” Rouhani told tens of thousands of Iranians who gathered in downtown Tehran. “There is more economic, social and political stability.”
Iran’s inflation rate, which reached more than 40 percent last year, will drop to 25 percent in the next Iranian year, which starts in March, he said. The petrochemical, insurance and banking industries are already benefiting from eased sanctions, he said, promising to “bring back an economic boom.”
“The government will do its utmost and take any necessary action to shatter the brutal sanctions,” the president told his audience. It “remains committed to promises it made.”
Rouhani has faced opposition within Iran’s hierarchy, headed by Supreme Leader Ayatollah Ali Khamenei, who has alternated support for Rouhani’s diplomacy with attacks on the U.S. In a speech last weekend he accused Americans of “hypocrisy” over the nuclear negotiations and encouraged Iranians to “get to know the enemy well.”
At today’s state-sponsored rally, a large poster showed color photos of U.S. Secretary of State John Kerry and Under Secretary of State Wendy Sherman dumped into a garbage bin, an allusion to her Feb. 4 comment that “forceful” action against Iran would be an option if Iran violates the nuclear deal. Banners reading, “Down with the U.S.,” peppered the crowd.
Rahim, a disabled veteran of Iran’s 1980-1988 war with Iraq, praised Rouhani’s policies.
“We will stand firm in defending our will and preserving Iran’s self-determination,” said the 50-year-old, who uses a wheelchair. He declined to give his last name out of security concerns.
The president vowed to press on with Iran’s nuclear program, saying all allegations about its military intent are “unfounded.” Iran, he said, will continue on the path of “scientific advancement, including peaceful nuclear technology.”
Nuclear talks are due to resume next week in Vienna, and the United Nations yesterday praised Iran for its readiness to compromise.
Iran’s internal tensions surfaced last week, when a row with the state broadcaster delayed a televised interview with the president for an hour.
During the hold-up, the channel broadcast the kind of archival footage from the 1979 revolution that has filled the airwaves in the run-up to the anniversary -- protesters shouting slogans against the Shah and the U.S. Today’s event offered Rouhani a platform similar to the State of the Union address given by U.S. presidents.
Last year, Ahmadinejad used the occasion to denounce Western pressures to isolate Iran and force it to curtail its nuclear program. This year, the bellicose rhetoric was toned down, after the deal signed with world powers on Nov. 24 in Geneva. Iran agreed to halt some nuclear activities in return for a partial easing of sanctions, including the repatriation of $4.2 billion of assets.
Sanctions-weary Iranians stayed up until the early hours to hear the outcome of the Geneva talks. Their economy, though, has yet to see major benefits.
Last week, the government handed out food parcels for millions living below the poverty line. Local media reported scuffles as people shoved to the front of lines for packages containing 10 kilograms (22 pounds) of rice, imported from India, two frozen chickens from Turkey, three dozen eggs, vegetable oil and processed cheese.
The event became a public relations disaster that drove home the country’s levels of poverty, as media showed long lines of Iranians braving freezing temperatures to pick up the food. Two people died, according to the Tabnak news website, which is affiliated with Rouhani’s conservative rivals.
The International Monetary Fund estimates that Iran’s economy has shrunk in both of the past two years. While oil output rose last month, it’s still near a 25-year low.
Rouhani said on Feb. 5 that Iran is starting to reap returns from its diplomatic outreach, with $8 billion in foreign investments already agreed and $8.5 billion more due within two months. “My trip to Davos was about announcing to the world that a new atmosphere is permeating our economy,” he said.
After Rouhani addressed an auditorium packed with business leaders in Davos, a group of French companies visited Tehran, prompting a warning from the U.S. against premature deals. The Geneva accord envisions follow-up talks leading to a comprehensive agreement.
Rouhani said Iran’s economy has the potential to enter the world’s top 10 in the next three decades. “Without international engagement, objectives such as growth, creativity and quality are unattainable,” he said.
The Islamic Republic was the world’s 22nd-biggest economy in 2012, according to World Bank estimates, and would need to overtake countries including Turkey, South Korea and India to achieve Rouhani’s goal.
“Mismanagement, corruption and ideological decisions” made Iran miss out on the “emerging-market revolution” that propelled Turkey and South Korea up the world rankings, said Afshin Molavi, a Middle East adviser for U.K.-based research firm Oxford Analytica.
“Rouhani’s election was a game-changer because he understands that he has to fix the economy,” Molavi said.
The president isn’t politically strong enough to do that on his own, said Mohammad Ali Shabani, a Tehran-based analyst and doctoral researcher at London’s School of Oriental and African Studies. He’ll need internal support from judicial and security chiefs for measures such as budget reform and tackling corruption, as well as better external ties, Shabani said.
“Forming consensus to move forward is a real balancing act that will either lead to the elevation or the downfall of the Rouhani administration,” he said by e-mail. Moreover, “while domestic reforms are likely to allay many pressures, it will be difficult for Rouhani to meet people’s expectations without an end, or undermining, of the sanctions regime.”
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