An End to Iranian Dreams

The Shah of Shahs, ruler of Iran's Peacock Throne, once dreamed of lifting his country's backward economy at breakneck speed into the 21st century. Now that dream has been battered by months of rioting and country-wide strikes. The economy that Iranians confidently predicted would soon match that of West Germany or Japan now seems destined to compare with that of Turkey or Southern Italy.

Striking workers paralyzed key industries: power, communications, transport and, the heart of the nation's wealth, oil production. At the same time, the ravaging mobs concentrated their destructive efforts on the banks, which Islamic extremists see as symbols of Western decadence and leftists view as outposts of capitalistic exploitation. On Nov. 5 alone, 400 banks were damaged or destroyed by rioting. In 1978, 1,400 of the nation's 7,000 banks have been attacked.

The combination of strikes and street violence has brought a crisis of confidence. Tehran airport has been jammed by wealthy Iranians trying to get out, carrying with them an estimated $20 million to $50 million in savings a day. Poorer villagers, hurriedly withdrawing money from the suddenly vulnerable banks, have been stuffing their mattresses with currency and buying gold. On the black market the value of the Iranian rial has plunged.

Foreign confidence is dwindling. American firms with Iranian operations are cutting commitments. The once bulging Hilton and Inter-Continental hotels are less than half full. The U.S. embassy in Tehran has drawn up mass-evacuation plans in case the troubles grow worse. Foreign workers have been quitting the country, and almost overnight Iran's five-star credit rating on the international capital markets has disappeared. Says one U.S. banker: "You don't lend when the tanks are in Constitution Square."

Even before the riots, economic troubles were brewing. The quadrupling of oil prices in 1973-74 gave Iran many extra billions of dollars, but its heady expansion went too fast. By 1976 the government was borrowing against expected oil profits in order to spend nearly $50 billion a year on military hardware, port expansions, roads, railways, electric-power grids and new industries. Though supply bottlenecks were common, prices were soaring and commercial bribery was a fact of life, the crunch did not come until the weakening world demand for oil began cutting into funds that the government had already borrowed and spent.

This year the government was forced to reduce the growth of spending and hold down spiraling wages. The Shah's austerity plan, mixed in with the rising expectations and rising prices, produced an economic Molotov cocktail. Government workers, their salaries ravaged by inflation unofficially estimated at more than 50% last year, went on strike. They were soon followed by 67,000 workers in the oilfields and employees in the post office, national airline, customs, telephone and steel companies and power stations.

The cost was staggering. Oil production dropped from a normal 6 million bbl. per day to 1.2 million bbl. By last week it was back to 5.4 million bbl.; but Hassan-Ali Mehran, the economic chief of Iran's new military government, suggests that this year the country will lose the equivalent of at least one month's output, worth about $2 billion. In addition, Iran's balance of trade will be severely in deficit.

To get production rolling again, the Shah agreed to 40% to 50% wage increases for workers in oil, other industries and public services. Says Mehran: "The people want a share of the oil income now and not in the future. So you cut from the future and spend now."

The spending-for-now will force a wrenching shift in Iranian priorities. To pay the higher wages, the government intends to take $7 billion to $10 billion out of its planned $42 billion budget. Consequently, the Tehran-Persian Gulf six-lane superhighway and the $20 billion railroad electrification program will probably be delayed.

French contractors have been hit by the cancellation of orders for Tehran's subway system, and U.S. companies lost business when the plan for 24 nuclear power plants was cut to four plants. A copper industry smelter, a liquid natural gas plant and at least $3.5 billion in arms purchases from France, Britain and the U.S. have been canceled. So have projects for producing Iranian perfumes, processed foods and color TVs.

In spite of its economic plight, Iran will not press for a sharp oil price rise at next month's OPEC meeting. The Shah, conscious of the weak world oil demand and desperate to keep the solid support of the U.S., promised visiting Treasury Secretary Michael Blumenthal last week that his country will remain "neutral" on prices and go along with the majority OPEC vote. With Saudi Arabia and the United Arab Emirates calling for a price freeze while Iraq and Libya demand a 25% price rise, Iran's stand increases the chances that the cartel will vote an increase of 5% to 10% Iran's military leaders are working to restore confidence, but their policies may well create future problems. To replace the cash depleted by hoarding and lost to overseas transfers, government presses are busily printing more and more money--$20 billion in rials over the past seven months. Inevitably that will lead to new bursts of inflation. But as one expert on Iran's economy says, "Long-term economic planning now means the day after tomorrow. The day of reckoning has just been put off."

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