July 12, 2006

Iranian workers still waiting for better times

By Edmund Blair

ALBORZ, Iran (Reuters) - Outside the gates of Tebed
Spinning Company in this industrial town west of the Iranian
capital, a group of laid-off workers grumble that the
president's vow to slash unemployment did not save their jobs.

Mohammad Bozorgi Alamuti and fellow workers, laid off three
months ago, listened intently when President Mahmoud
Ahmadinejad spoke in the town in June, delivering the usual
pledges to protect workers' rights and revive the economy.

But the workers say their employers did not pay attention.

"The president said some beautiful words but practically
nothing has been achieved. The government, the officials, the
managers don't listen," Alamuti said outside the plant where he
waits to plead his case when company executives enter or leave.

The president has grabbed headlines in the West for his
defiance in a dispute over Iran's nuclear program, tough talk
that plays well at home. But what ultimately matters to
Iranians like Alamuti is whether he delivers on economic

Ahmadinejad swept to power in the Islamic state last year
pledging to spread Iran's oil wealth more fairly -- a message
he hammers home at regular rallies. But many economists say his
policies aren't working.

The world's fourth largest oil producer may be enjoying an
oil windfall, but economists say the government is fuelling
inflation by priming the economy with petrodollars and
undermining private business with interventionist policies.

"At this time, there is a high possibility that the
economic conditions get worse, while the people's expectations
have risen because of the slogans about welfare from the
government," 50 economists wrote in a bluntly worded, open
letter in June.


"If the promises of the government do not come true, the
people's confidence in the government will fall and, faced with
international threats, our national security will be
endangered," wrote the economists, mostly university

Trade unions exist in Iran but their power is limited and
authorities quickly snuff out protests over living conditions.

But while workers may not take to the streets if
Ahmadinejad does not deliver, some analysts say any
disappointment could come back to haunt him in the next

The authors of the letter also said officials were being
appointed with little regard for qualifications and complained
about poor budget planning. Some critics say Ahmadinejad, a
pious revolutionary, has been pushing extra funds to
conservative religious bodies

One of the authors' major concerns was a possible surge in
inflation, which now stands at about 10 percent.

Economists and the central bank say the government is
firing up inflation by dipping into an oil dollar fund designed
for investment or budget support in times of hardship but which
is now being tapped for current spending despite record oil

"Inflation ultimately hurts the people that the new
president is trying to help. He is a populist but if inflation
takes off, then he is not going to be very popular," said
Richard Fox, a senior director at Fitch Ratings in London.

Rising prices are a common gripe. In the bazaar of Qazvin,
a city near Alborz, stallholder Ali Akbar Mohammadi, an
Ahmadinejad voter, says higher prices are hurting his turnover.

"People don't have enough money and things have become
expensive," said Mohammadi, 60, standing beside a rickety cart
where he sells sandwiches. "(Ahmadinejad's) promises were great
but so far we haven't seen any result."

The central bank has limited ability to control prices. It
needs parliament's approval to issue paper to soak up liquidity
and, in April, was ordered by lawmakers to cut lending rates to
single digits by 2010 despite warnings about inflation risks.


The government blames businesses for seeking inflated
profits. Businesses say they are passing on new costs,
including a more than 20 percent hike in the minimum wage to
over $160. The figure rises depending on experience and the job

Some businesses laid off workers because of the rise and
say it is getting tougher to compete with foreign firms.

"Our industry is not competing with China on technology it
is competing on labor costs," said Siamak Namazi, managing
director of Tehran-based Atieh Bahar Consulting.

At the Tebed Spinning Company in Alborz, the management
says it laid off about a third of its 400 workers temporarily,
while it installed new equipment to compete with Chinese
imports. Alamuti and his friends fear their jobs have gone for

Economists say Iranian businesses are wary of investing in
what they see as an unpredictable policy environment. This
slows job creation in a country where official unemployment is
around 12 percent. Unofficial estimates are much higher.

Many foreign investors are also steering clear for fear a
nuclear dispute with the West could escalate and lead to U.N.
sanctions, a step threatened by the United States and

"Western investment obviously has taken a hit," Namazi

For the time being, economists say Ahmadinejad and his
government have a cash cushion to meet the investment
shortfall. The central bank, for example, lends foreign
currency to Iranian firms importing goods when they cannot find
Western creditors.

But, even with the oil windfall, economic growth of 5.4
percent in the year to March was lower than forecast.

Alamuti and other Ahmadinejad voters are still waiting for
the good times the president promised.