Iran’s economy to grow despite sanctions

President Mahmoud Ahmadinejad predicted on Wednesday that Iran’s economy would grow eight percent over the next 12 months despite severe Western sanctions, as he presented his government's annual budget to parliament. Gross domestic product (GDP) would swell significantly, Ahmadinejad was quoted as saying by the official IRNA news agency, without providing any details on what components of the economy would generate the growth. That would continue a trend seen in recent years as Iran ? OPEC’s second-biggest producer ? profits from historically high oil prices. Ahmadinejad set out a $416 billion (316.6 billion euro) state budget for Iran’s calendar and fiscal year, which runs this year from mid-March. That was 14 percent less than for the 2011-2012 budget, which was set at $484 billion. The president did not quantify the size of the economy. But the International Monetary Fund estimates that 2011 GDP (from January to December) was $480 billion at the official exchange rate, around 2.5 percent higher than the previous year. Ahmadinejad did not refer to the government’s estimated price for oil, which accounts for more than half of budget revenues. The last budget calculated oil revenues at $82 per barrel. Iran gets 80 percent of its foreign revenues from oil exports. Nor did Ahmadinejad mention the exchange rate the government was counting on for the Iranian rial against the dollar. The rial has slipped sharply against the dollar in the past three months, losing around half its value as Western sanctions have piled up. State television, however, reported that the exchange rate would be calculated at 11,500 rials to the dollar. That was stronger than the new official rate of 12,260 rials announced last week ? and far stronger than the 18,500 rate the dollar is fetching on the black market. Iran’s economy has been grappling with ratcheted up sanctions imposed by the United States and the European Union in an effort to pressure Tehran to drop nuclear activities suspected to include research for an atomic bomb. U.S. President Barack Obama said last month the sanctions had reduced Iran’s economy to a “shambles. Iran, which insists its nuclear program is peaceful, has reacted angrily as the West has sought to isolate it by curtailing its oil exports and operations by its central bank. Ahmadinejad, though, has insisted that Iran has sufficient foreign reserves and oil customers elsewhere to shrug off the sanctions. The chairman of Tehran’s chamber of commerce, Yahya Ale-Eshagh, said on Tuesday that Iran’s central bank holds $120 billion of foreign currency reserves, and another 907 tons of gold. The gold is worth some $54 billion at current market prices. Iran’s central bank no longer gives information on its currency and gold reserves. The last official figures, dating from April, said the bank held $74 billion in foreign cash, $64 billion of it in dollars. On January 12, a US official said his government’s aims with toughened sanctions is “to close down the Central Bank of Iran,” thus sinking Iran’s economy. The bank has become the principal clearing facility for Iran’s oil exports. But that role has become increasingly complicated by the U.S. sanctions, which punish any foreign company dealing with Iran that also wants to do business with the vast U.S. financial sector. A consequence of that sanction could be seen in Iran's import of wheat, maize and other grains, which have all but stalled in recent days and weeks. At least 24 cargo ships carrying a total 480,000 tons of grains are sitting off Iran’s coast, unable to offload because suppliers are not able to be paid, and letters of credit are not forthcoming, according to a source in the import sector who spoke to AFP on condition of anonymity. Iran has warned it would take drastic measures, including possibly closing the Strait of Hormuz at the entrance of the Gulf to tanker traffic, if its economy is brought to its knees, or the country is attacked. Parliamentary speaker Ali Larijani again underlined that threat on Wednesday, saying that while Iran considers “the Strait of Hormuz as the strait of peace, it will cut the hands of anyone who seeks (military) adventurism in the Persian Gulf and the Sea of Oman,” IRNA reported. The United States, which keeps warships deployed in the Gulf, has warned any attempt to close the Strait of Hormuz would be a “red line” not to be crossed.