The economics of negotiating with the West
I published this post on Lobelog today in which I raise a theme familiar to the readers of this blog: there is a deep misunderstanding of Iran’s economy in the West, exemplified by the NY Time story of last week that invoked the collapse scenario. I have been hearing the “collapse” theory of Iran’s economy lately, something that I thought people gave up after the economy recovered (sort of) from the huge shock of rial devaluation last October. Inflation is coming under control and unemployment has a real chance of declining thanks to a producer oriented (as opposed to merchant-oriented) Rouhani administration.
But years of negative reporting on the economy (“inflation and unemployment are always double what official data say”) had created the impression of a teetering economy and the temptation in the West to be tough with Iran and extract more concessions. I argue that this could be a big mistake and shows ignorance of the facts about Iran.
Returning to the global economy, this time as producer rather than shopper, is extremely important for the future of the country. The time is right in many ways, and Rouhani’s team have done a good job to show they are serious about rapprochement with the US, but the more charm is brought in the more people think Iran is desperate and the less the West should change its position. At the center of this is the lack of a credible story about the dynamics of Iran’s economy. How bad is it really and where is it heading.
The freeze on national income data in the last few years has hampered the effort to put such a story together for Iran. The online data banks of most government agencies (Iran’s Statistical Center and the Central Bank, in particular) have little new data past 2008. Numbers are slowly coming out in the Persian-language press in Iran, but unless they are available in English, it is difficult to make the case that Iran’s economy is not about to collapse and the West should approach these negotiations wisely.