Magazine article Foreign Policy

Trouble in Tehran: Iran Jumped 11 Ranks in the Failed States Index This Year. What Went Wrong?

Magazine article Foreign Policy

Trouble in Tehran: Iran Jumped 11 Ranks in the Failed States Index This Year. What Went Wrong?

Article excerpt

[ILLUSTRATION OMITTED]

When the U.N. Security Council slapped a third round of sanctions on Iran for its nuclear program in March 2008, the country's economy, bolstered by record crude prices, still looked set to roar. Oil revenues had helped Iran grow at a healthy 6.9 percent clip during the previous year. Even poverty levels were down, according to the World Bank. So how could the country jump 11 ranks in the Failed States Index this year?

The index correctly penalizes Iran for macroeconomic mismanagement. Inflation doubled in annual terms from 15 to 30 percent in 2008 after President Mahmoud Ahmadinejad boosted social spending to "bring the oil money to people's dinner tables." As demand expanded, prices for nontraded goods such as housing rose sharply, squeezing the poor and the middle class. A flood of cheap imports kept inflation from going even higher, but jobs were lost as imports undercut local industries. The central bank restricted credit sharply to reduce inflation, hurting businesses further and putting more people out of work. Inflation did come down to below 20 percent by December, but unemployment probably increased. Iran's jobless rate hovers around 12 percent, with three out of four unemployed Iranians under age 30.

Festering discontent about inequality helped inspire Ahmadinejad's drive to redistribute the oil cash. But on this score, the results were also disappointing. Between 2005 and 2007, the income of the top 20 percent rose more than four times as fast as that of the bottom quintile. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.