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Iran’s Ahmadinejad ups rates to stem money crisis


By Mitra Amiri and Robin Pomeroy

TEHRAN | Wed Jan 25, 2012 8:29am ES

(Reuters) – Iran increased bank interest rates on Wednesday and indicated it would further restrict sales of foreign currency, hoping to halt a spiraling currency crisis after new Western sanctions accelerated a dash for dollars by Iranians worried about their economic future.

“The economy minister has announced that (Iranian President Mahmoud) Ahmadinejad has agreed with the approval of the Money and Credit Council to increase interest rates on bank deposits to up to 21 percent,” the official IRNA news agency reported.

The central bank also told Iranians they should only buy dollars if they are travelling and not hoard them to guard against economic uncertainty.

New U.S. and European sanctions targeting Iran’s vital oil exports and its central bank seriously exacerbated a slide in the Iranian currency that was already under way, creating what one senior politician described as economic instability not even witnessed during Iran’s 8-year war with Iraq in the 1980s.

The West hopes the economic pressure will force Iran to curb the nuclear work they fear is aimed at making bombs but which Tehran says is entirely peaceful.

The rial started weakening after a decision last April to cut interest paid on bank deposits to a range of a 12.5-15.5 percent, below inflation which is currently around 20 percent, prompting many Iranians to withdraw savings and buy gold and foreign currency and pushing up the price of both.

The dash for those safe havens accelerated sharply after the new sanctions were announced, resulting in the rial losing 50 percent of its value against the price of dollars available on the open market in just one month.

Monday’s decision marks a policy U-turn for Ahmadinejad, who faces a political test in March 2 parliamentary election. He previously vetoed efforts by Central Bank Governor Mahmoud Bahmani to increase rates.


Bahmani indicated the rate increase would be accompanied by further restrictions on the sale of foreign currency.

“We will provide foreign currency in any amount for people demanding it for various uses,” he said in an interview published on the website of state broadcaster IRIB.

“Travelers, university students and patients will be supplied at an appropriate rate,” he said. Importers of vital goods would also be able to buy as much foreign currency as they need.

“The government will not give foreign currency for storage,” he added, implying that Iranians will no longer be allowed to exchange their rials for hard currency unless they can prove an immediate need.

The rial’s slide is a huge risk to already rising inflation as Iran is heavily reliant on imported consumer and intermediate goods whose prices have surged as the rial has depreciated.

“Even during the war we did not witness such instability,” Alaeddin Boroujerdi, head of parliament’s foreign affairs committee, told the semi-official Fars news agency.

“Government officials and the president himself should definitely be held accountable to people and public opinion.”

Ahmadinejad’s representative in parliament – which is already highly critical of the president and may become more so after March 2 – said the new policy would burst what he called the bubble of gold and dollar prices.

“The effects of the new decision will be clear in the market very soon and the bubbles being created for foreign currency and gold will be removed,” the ISNA news agency quoted Mohammad Reza Mirtajedini as saying.

The deputy head of parliament’s economics committee criticized the government for reacting late to the crisis which he said had “no reasonable, logical basis.”

“Increasing the bank deposit interest rates is an appropriate tool for people’s investments but doing it in a hasty manner and the current inflamed situation of the market will not solve any problem,” Mostafa Motavarzadeh told the semi-official Fars news agency.

The price of 8.133-gram gold coins dropped on the news, local media reported, to 8,500,000 rials, reversing most of last week’s 45 percent increase when the price rose to 10,100,000.

The effect on the price of dollars was negligible however with ISNA saying the price had fallen on the news to 22,500 rials from 23,000 rials – still double the central bank’s official “reference rate” of 11,293 rials.

However, exchange agencies contacted by Reuters said they had no dollars to sell, reflecting either a shortage of notes or a reluctance to sell in such a volatile atmosphere.


Plan in place to deal with Iran threat

World powers have started drawing up contingency plans in case Iran close Strait of Hormuz

Regional security expert Dr Theodore Karasik says contingencies are in place should Iran follow through with threat to close Strait of Hormuz

World powers have started drawing up contingency plans in case Iran follows through with its threat to seal off the vital Strait of Hormuz.

Iranian officials have threatened to block the waterway if new sanctions, aimed at discouraging Iran’s nuclear programme, harm Tehran’s oil exports.

Tehran has announced plans for military exercises in the strait, the world’s most vital oil lane with 16 million barrels of crude passing through it every day. Gulf oil producers are now working with the West on a plan to keep supplies steady if Iran follows through with its threat. Regional security expert Dr Theodore Karasik said: “In the past Iran has made threats of closure but given the current environment the threats are being taken more seriously. All sides are preparing for the potential that Iran would launch this as an opening salvo to a much wider confrontation.”

Karasik, director of research and development at the Institute for Near and Gulf Military Analysis, added that Tehran’s latest threat to blockade the waterway showed it  “acting in a more assertive, almost belligerent way”. Reuters reported that a new oil pipeline stretching from Abu Dhabi to Fujairah could be used to transport crude outside of the Gulf, allowing it to be loaded onto tankers waiting on Fujairah’s Indian Ocean coastline.

Last month UAE energy minister Mohammad bin Dha’en Al Hameli said the strategic pipeline would be ready “soon”, and Reuters quoted one industry source as saying: “It’s now only a matter of pushing a button.” However, Karasik said that any use of the UAE pipeline, and a similar plan to shift some of Saudi Arabia’s oil to its Red Sea coast, would not compensate for a full closure of the strait.

“The creation of these alternative routes is part of a strategy to have less of a reliance on the strait itself, but these lines are not mature enough to offset the potential losses,” he said. Britain also said yesterday it was sending its newest warship – Royal Navy destroyer HMS Daring – to the Gulf.

“The rhetoric has reached such a feverish pitch now that you have to take every word that is being said as being serious, and there is too much move­ment ongoing now in terms of military exercises and manoeuvres to rule that this is a normal situation,” said Karasik.


Why is the west funding Iran’s deadly war on drugs?

Iran‘s counter-narcotics programme results in hundreds of executions each year, yet western powers still support it


An ogre floats behind 30 tonnes of narcotics, as they are burned in Tehran on World Anti-Drug Day. Photograph: Vahid Salemi/AP

Fazel Hawramy, Tuesday 6 December 2011 04.09 E

Representatives of more that 50 countries will meet in Vienna shortly to determine the level of international support that Iran receives for its continuing war on drugs.

This comes amid concern about the increasing number of executions for drug-related offences in Iran. Six more people were recently hanged in the city of Kermanshah – executions that a senior figure in the judiciary described as “one of the triumphs of Iran”.

As part of the counter-narcotics programme, Iran receives a constant flow of technical support from the UK, the US and other western governments, either directly or through the United Nations Office on Drugs and Crime (UNODC).

Last month, Yury Fedotov, head of the UNODC, said he would “encourage the international community to bolster counter-narcotics” efforts in Iran, Afghanistan and neighboring countries. However, he made no mention of the consequences of supporting the current Iranian government in this way.

The UNODC started its work in Iran in 1998 – one year after the reformist president Muhammad Khatami came to power on a platform of respect for civil society and the rule of law. It played a crucial role in supporting Iran’s health ministry from 2002 to 2005 to implement a “harm reduction” programme to tackle rising rates of drug addiction and HIV.

But progress was reversed when Mahmoud Ahmadinejad became president in 2005. One of his first acts was to appoint a new interior minister: Mostafa Pourmohammadi, an infamous cleric who had ordered and supervised the execution of several thousand political prisoners in 1988.

Ahmadinejad’s brother-in-law, Esmail Ahmadi-Moghaddam (the former head of the Basij paramilitary force, and now head of the national police), was put in charge of the technical assistance received by the UNODC. Senior health ministry officials were sacked and many medical professionals, including the world-renowned Alaie brothers, were imprisoned.

Others, like Dr Bijan Nassirimanesh, the founder of the Persepolis NGO clinic, were forced out of Iran. Academics were banned from participating in international conferences and clinics dealing with drug users at a grassroots level have either closed down or had their activities dramatically reduced.

Ahmadinejad also tried to change the nature of Iran’s relationship with the UNODC. According to Roberto Arbitrio, a former UNODC field representative in Tehran, Iran made a request in July 2006 to the UNODC for equipment worth $500m, which was “riddled with requests for dual-use items”.

It is not clear if Iran received any of these items but a confidential cable released by WikiLeaks appears to show that the head of Iran’s drug control department blackmailed the UNODC’s representative by suggesting that if the agency did not meet the wishes of Iran, the Islamic republic might “reconsider the scope of its own efforts against the traffickers”.

The UNODC and the EU, UK and US seem to have missed the changes Ahmadinejad has made as they have continued to provide invaluable support for its counter-narcotics programme.

Two years into Ahmadinejad’s presidency, the UNODC brokered a new deal through the Paris Pact to launch the Triangular Initiative – a programme of support for Iran, Afghanistan and Pakistan in reducing the flow of drugs to the west. As a result, Iran has managed to bypass the sanctions imposed by the UN, the EU and the US to receive body scanners, drug detecting kits, drug catalysts, sniffer dogs, vehicles, night-vision devices and radio communication equipment. It cannot be ruled out that some of this equipment was used by the police to crush the pro-democracy demonstrations in 2009.

In 2010, the British Foreign Office stated in a report that “for … drug-related and political cases, reliable reports continued to emerge of forced confessions, staged trials and a lack of access to independent legal counsel”. Despite this, just a few months later, the foreign secretary, William Hague, met Iran’s foreign minister and sought “deeper co-operation” between the two countries on counter-narcotics.

This illustrates the systemic contradictions at the heart of the west’s approach in dealing with Iran and the wider “global war on drugs”. When the head of the UNODC visited Iran in July, he concluded his trip by praising Iran’s counter-narcotics strategy as “one of the world’s strongest” and called on the international community to assist Iran in its fight. While he was visiting, several more people were executed on drugs charges.

The European parliament has warned against the funding of counter-narcotic programmes that “result in human rights violations, including the application of the death penalty”. Given that funding to Iran has increased in recent years, it would seem that in our pursuit to stop the flow of drugs into Europe, these concerns are being overlooked.

If the west is serious about supporting reform in Iran, it must rethink whether it’s right for taxpayers to continue funding a programme that leads to the execution of hundreds of people every year.


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