Wednesday, September 29, 2010

Shortwave America Special Focus: Shabnam Assadollahi - How Will Iran Fare Under Sanctions? (Part Two Of A Three Part Series)

In the first part of this series focusing on the control of the Iran government over it's people in the context of communications, Shortwave America interviewed Shabnam Assadollahi of Radio Hamseda aired weekly at CHIN Radio Canada. This second installment in a three part special focus on the condition in Iran and how a lack of freedom to receive and send communications impacts the people of that region, brings Shabnam Assadollahi back again as a guest writer with an interview of Dr. Mehrdad Emadi, Senior Economic Advisor to the European Union. This is a key piece in telling the world, as well as those interested in world communications into and out of Iran what the road to economic growth will look like for business to flourish in Iran, and what it means for Iran altogether.

Without the leadership making the right decisions, without the proper economic growth, there can be no freedom for anyone; just a slave-master relationship in which the people suffer at the hands of an unrepentant regime. Without further delay, Shortwave America Presents Shabnam Assadollahi in her guest role for this series: 
Interview with Dr. Mehrdad Emadi, Senior Economic Advisor to the European Union
Translated by : Aita Eraani
Hamseda Radio, CHIN Ottawa
~~~ How will Iran fare under the yoke of Sanctions? ~~~
Host, Shabnam Assadollahi – Welcome to our program Dr. Emadi.
Mehrdad Emadi – Thank you, I'm glad to have another opportunity to speak with you and your listeners.
Shabnam – Our listeners have called in from all over the globe with questions for you and they are tuned in now for this important discussion.  The first question is: Given the stiffling sanctions and the expansion of doing business with the private sector, do you think it would be possible now to reduce people's financial dependence on the regime and maybe even abolish this slave-master relationship between the government and the people?

Mehrdad Emadi – Yes, anytime the main goal for the economic growth allows a space for the private sector to expand beyond the fields of government control; the short term effects of that would catapult the private sector into a gradual growth process that can help it move from always depending on the government, to a self reliant, productive and job producing entity that can instead generate revenues for the government by paying taxes.  Therefore, we can transform the system from the slave-master condition – as accurately described by your listener – into a carrier of regulations willing and able to pay the cost of the regulations, as exemplified by the behavior of more developed countries.

Host – The next question.  Rather than a gradual pressure, is it possible to apply an economic shock so as to eliminate the chance for regime's capitulation as well as to reduce the consequences on ordinary people; since the gradual pressures in the last 30 years have not been effective?

Mehrdad Emadi – Well, yes, there is that hesitation about whether or not to enforce the sanctions in a sudden and physical move, bringing all trade of merchandise and financial transactions to a halt; or to apply them in a step by step manner in order to show the regime that continuing its behavior can only increase the cost of the sanctions.  Of course an economic shock would initially have a stronger effect and it will show the regime that the situation is serious; besides, the administrators of the sanctions intend to impose maximum limitations on Iran.

However, since we are utilizing the best non-military and most effective tool we have, there is no reason to worry.  This is to some degree against the diplomatic language the EU wishes to use.  We do not wish to adopt a confrontational manner, but rather a methodology that can effect change in the behavior of the regime.  And should we see that change in behavior, we are very much willing to normalize the relations.  I also must point out that the strong and sudden move with the sanctions, right from the beginning, will make it easier for the regime to drop the sudden and huge cost on the people in one fell swoop.  The step by step and gradual application of pressures will also serve as a message to Iran's leaders that it is them who are forcing us to make such moves that are necessary to protect our own economic and geographic security.
We can already see that the Iranians are assessing and recognizing the source of the problem as their own leaders, whose illogical behavior has put their country at, adds with the rest of the world.
Host – The next question also presented by a listener from inside Iran asks: "Since much of Iran's current imports of products come from the neighboring countries, particularly the United Arab Emirates; how close and precise is the EU's observation of these trades?"

Mehrdad Emadi – This is an excellent question.  We do know that over the last six months, the rate of trade between Iran and UAE, as opposed to the EU, has doubled; meaning that it has gone from direct to indirect and through middle men and brokers.  As for having these trades under a microscope, the sanctions are no longer administered solely by the EU and the US.  There are now several nations involved in overseeing of proper management and application of the sanctions, through a collaborative effort.  These tri-level sanctions are strongly affecting the country's foreign trade, as confirmed by the Bazaaris and the merchants we have spoken with.

First, we look at all the banking and financial transactions, more specifically at what bank accounts and what trade credits are being used which reveals the type of activity and, or the intention behind it.  The second level investigates all imported merchandise by others, a historical record of which - particularly in the case of the UAE – shows the average annual volume of imported industrial products.  And any excess to that trend, would point at purchases made from Iran, as our natural conclusion.  The third level provides the easiest audit trail; and that is all the ships at sea, the point of origin of which is known to us.  This quickly reveals the two sides of the deal which is now even easier to recognize due to the wide range of cooperating nations.  A review of the ships' records can tell us whether one side is merely a broker functioning on behalf of the Iranian banks or the Sepaah itself; or the main part and parcel in the deal.  This means that all cargo upon unloading at the UAE or any port in the southern Persian Gulf would be subject to inspections; which can also lead to two other major issues.  One is the substantial increase in the cost of shipments between Iran and the UAE, and the other, the increasing reluctance of the international insurance companies in providing coverage for such shipments.

Host – Which would also take their toll on social and economic lives of the people; should the sanctions continue this trend.  Let me ask you this: How have the sanctions affected the regime so far and how will they in the future?

Mehrdad Emadi – A cursory review of all the statements made on the subject, by the office of the president and the Parliament alike, shows a relentless denial and dismissal of the impact or effectiveness of the sanctions.  However, in reality, regime officials in their discussions in private meetings with the members of the Parliament or the merchants, or the recently formed special committee for resisting the impact of sanctions, or even the various committees within the framework of the Parliament whose function is to control the impact of the sanctions in order to minimize the economic turmoil; prove that these government officials are fully aware of the impact of the sanctions.  Even the situation with the Iranian banks and merchants whose regime-related bank accounts were recently frozen by European authorities; and even the two banks currently under a microscope for having violated the sanctions; has made the regime realize the seriousness of the issue facing the regime as a whole.

The continuity of Iran's foreign trade and the very strength of the regime itself ride on this issue, especially an economy so heavily dependent on Imports, particularly in the area of industrial goods.  Almost 88% of Iran's industrial production depends on the imported unfinished goods.  They are fully aware of this fact. Weekly reports from the factories reflect a continuous drop in production as a direct result of reduction in imports.  Therefore, the government's denial of the sanctions' impact is completely disingenuous.

As I've always said, even though the regime's analytical views, its values and beliefs are vastly different from ours; but it's not stupid; and its conclusive analysis of the outcome of economic market performance is the same as ours.  They are aware of the deep and far reaching impact of the sanctions.  The production of oil/gas alone in the next 6 months will be almost crippled as all the tools, such as power compressors, pumps, and other instruments necessary for production, are becoming increasingly difficult to obtain.  And these two are the main sources of revenue, making up over 85% of Iran's income.  And thus we conclude that the effects of the sanctions have been enormous, both on the people and on the regime.

Host – Of course, they must have affected the Sepaah's foreign policy, the most.

Mehrdad Emadi - Yes, in fact prior to aiming at the banking system and the Oil/Gas industry, the sanctions' main target was the Sepaah; so the impact on them is most noticeable.  Those bank accounts recently seized in Germany and those in Austria belonged to certain private citizens who had taken over the management of these accounts from the Sepaah and these individuals and entities are totally crippled now.  In my recent talks with several Iranian merchants in Belgium, Hamburg and Munich, they confided in me that their business activities have reached a near total halt and if this trend continues, they will soon have no choice but to lay off their staff, and shut down the business and maybe even sell the buildings they own.  They said they are unable to just continue absorbing the cost of doing business when such gloomy news about the imminent darkening of foreign trade is looming over head.  This is why I think the businesses owned by the Sepaah or those infiltrated by them, are facing harsher impacts of the sanctions, than those authentically owned by the private sector.

Host – Let's return to the question about Iranian merchant doing business outside Iran and their future.  This was also a question posed by a listener in Iran.

Mehrdad Emadi -   Yes, this is a legitimate concern, as there are those innocent ordinary people paying a price here, while they have had no involvement in the creation of this problem and the decisions that have brought us to this point.  There are also others who are paying a price here.  There are merchants who had been working for years in various capacities of facilitating Iran's foreign trade, either directly operating as a merchant, or simply managing certain affairs from handling government contracts to translating documents.  And then there were those who strictly had side businesses such as contacting the merchants inside and facilitating the sales or purchases of certain products for which they felt there was a market in Iran.

Something that is troubling me personally as an Iranian is that many of these merchants who had spent 20, 30 years establishing their businesses; but left totally paralyzed, over a few short months.  For example, a prominent merchant of industrial goods, currently living in Germany, whom I had recently spoken with, told me that his business has suffered a 75% drop.  Another one in London told me just last week that over 90% of his business activity has come to a halt and when he requested a line of credit in order to open a new line of business with the UAE, the bank refused to extend credit to him, solely based on his Iranian background.  People like these merchants whose works have been completely free of any political ties; essentially belong outside the parameters of the sanctions.  However, since the Sepaah has infiltrated every sector of Iran's economy, then the sanctions by default apply to all Iran related trade, until every business is investigated and proven to be either connected to the Sepaah or functioning independently.  This is why so many private businesses are also suffering because all banking operations involving trade with Iran are currently closed, in an effort to prevent potential new fictitious businesses and the regime's attempts at circumventing the sanctions.

At this point in time, all merchants' and entities' efforts to continue their economic lives, are under heavy scrutiny, and should these sanctions last for two more years, we might witness total closure or even bankruptcy of over 50% of all Iranian merchants outside the country.

Host – We ask our last question which you pretty much answered in your last remarks.  It also comes from the inside.  How do you see the future of the private sector inside Iran, within the framework of militarization of the economy?

Mehrdad Emadi – See, all these issues are interconnected.  If we look at the combination of factors: The price paid by the merchants in Diaspora, and the significant reduction in business of the merchants inside the country, as well as the ever increasing share of the Sepaah from all sectors of the economy; from construction, to oil and gas production, to energy, industrial productions, transportation, communication and every area of our economy; the more careful implementation of the sanctions, will cover every corner of the private sector.

Unfortunately the truly independent private business that lacks access to vast financial resources and the powerful disposition of the regime that can and will circumvent the sanctions and avoid paying taxes; therefore, the private business will suffer the cost.

Based on our analyses of 2-3 months ago, we believe that over the next 12 months, the private sector will see a 35-55% drop in its activities.  In comparison, during a full blown war in any country, the private sector would typically lose about 40-50% of its income in the first year of war.  This proves the degree of the adverse effects of Sepaah's influence in the economy and its dire consequence on the genuinely and authentically private sector that is totally independent of the government.  We may be reaching a point where in the next 3-4 years we could be witnessing the demise of an economic force with 300-400 years of active and productive history in Iran. 

Host – And again the heaviest blow is felt by the people.  These are extremely painful days, politically, economically, and socially; we are going through very difficult times.  In conclusion, do you wish to add anything?

Mehrdad Emadi – The only thing I would like to add, whenever stress, whenever given a chance, is that the sanctions are not desired by the European Union: nor are they desired by Japan, Korea, Australia or Canada.  The sanctions are the direct result of the wrong policies adopted by the leadership in Iran which is only increasing the daily cost paid by the people of Iran.  Iranians should analyze this for themselves and determine if this cost is justified in anyway, and if not, maybe the time has come to make a wise examination of their lives and to make dramatic amends in the way the country relates to the rest of the world...
Link to Persian:
Part three of this special focus will combine an interview between Dr. Hamid Akbari, David Kilgour, and Mehrdad Emadi, Senior Economic Adviser to the EU with the Author of Shortwave America.

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