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Iran
BALANCE OF PAYMENTS
Oil revenues in the mid-1970s brought Iran a foreign exchange
surplus. But when oil revenues fell sharply in 1978, an economic
crisis resulted. Iran went from being a long-term lender in the
1970s to a short-term borrower in the 1980s, with the acquisition
of foreign currency a perennial problem. The revolutionary government
resorted to barter with several countries in the mid-1980s, but
some customers soon insisted on receiving payment from Iran before
shipment because of disagreements over the terms of payment. Problems
arose when countries wanted to renegotiate barter contracts in
1986, to reflect the lower cost of oil, and Iran insisted on the
original terms. Also, barter did not improve the foreign currency
situation; to maintain a foreign exchange balance, Iran would
have had to earn at least US$1 billion more than the sums received
from civilian non-oil exports.
Another method used by the government to improve its balance
of payments was the collection of funds owed to Iran by foreign
suppliers and governments. The Iranian government estimated in
1986 that several countries, chiefly Egypt, the United States,
and France, owed Iran US$5 to US$6 billion. Clearly, the continued
costs of the war coupled with falling oil revenues afforded the
economy little elasticity.
Iran had a US$5.4 billion balance of payments deficit during
1986, largely as a result of low oil prices and the disruption
of oil shipments caused by Iraqi bombing. Oil prices fell from
US$27 per barrel in November 1985 to US$12 in February 1986. Although
prices rose in the fall of 1986, the average price of oil for
the year was US$13 per barrel, half that in 1985. The estimated
US$10 billion in export earnings in 1986 was the lowest since
1973.
As a result of its high balance of payments deficit and foreign
exchange shortage, Iran reduced its imports and divested itself
of foreign financial assets acquired by Mohammad Reza Shah. For
example, in 1986 it sold 25.6 percent of its holdings, worth approximately
US$150 million, in the West German engineering firm Deutsche Babcock.
Iran's efforts to cope with its economic crisis by making barter
agreements, repossessing funds, cutting imports, and divesting
itself of foreign financial assets were superficial responses
to deeper structural problems within the economy, such as the
need for land and agricultural reforms and the redistribution
of income.
The country's balance of payments looked bleak for the final
years of the 1980s. The continuing war with Iraq, declining oil
revenues, high unemployment, reduced consumer imports, severe
inflation, a rising foreign debt, and a severe foreign currency
shortage tested the economic policies of the revolutionary regime.
The economy produced essential products and addressed in some
measure the problems facing the national budget, a remarkable
feat given the war, but failed to address basic structural issues.
* * *
Despite the disruptive influences of war on all aspects of the
national life, a surprising number of good publications on the
Iranian economy were readily available in the late 1980s. The
Central Bank (Bank Markazi) of the Islamic Republic publishes
reliable annual statistics on the state of the economy, the budget,
finances, and balance of payments. A publication from Tehran called
Iran Press Digest has a superb weekly update of economic
and political events. Iran Monitor, a monthly publication
based in Switzerland, provides an up-to-date account of international
financial and trade issues. Iran Times, an independent
weekly newspaper with sections in English and Persian, details
current economic developments and statistics. Two other sources
of consistently good coverage of Iran are the Middle East
Economic Digest (MEED), published in London, and Middle
East Research and Information Project (MERIP) Reports, published
in Washington.
Eric Hooglund provides an understanding of land reform issues
in Land and Revolution in Iran, 1960-1980. For concise
reports on the economic situation in Iran, the following sources
are helpful: Patrick Clawson's "Islamic Iran's Economic Policies
and Prospects"; Sohrab Behdad's Foreign Exchange Gap, Structural
Constraints and the Political Economy of Exchange Rate Determination
in Iran; and Wolfgang Lautenschlager's "The Effects of an
Overvalued Exchange Rate on the Iranian Economy, 1979-1984." (For
further information and complete citations, see Bibliography.)
Data as of December 1987
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