China’s Sputnik Moment?
How Washington Boosted Beijing’s Quest for Tech Dominance
If you want to die, go to Gilan. This old Iranian proverb does not actually warn people against travel to Gilan, Iran’s beautiful, green, and lush Caspian province, though today that meaning may be more apt. Gilan is the province of Iran most infected with the novel coronavirus after Qom, the city from which the pathogen spread to the rest of the country. (The proverb is actually advising anyone who has had a long, happy life to top it off by dying in Gilan, where neighbors feed the deceased person’s family for a week, instead of the bereaved feeding the neighborhood, which is the custom in the rest of Iran.)
The people of Gilan are paying a high price for the province’s status as a tourist destination. In recent weeks, thousands of Iranians have taken advantage of school closings to go to Gilan, bringing with them the deadly new virus. Gilan’s governor and its parliamentary representative have been pleading on national television for people not to come to Gilan. They also pleaded with the government to restrict travel so as to contain the spread of the virus, but so far, authorities in Tehran have been steadfast against any such restrictions.
To the surprise and dismay of people in Gilan, on February 25, two weeks after the crisis had become national news and top health officials began asking people to stay in their homes, President Hassan Rouhani inaugurated the first segment of a much-anticipated highway that links Tehran to Gilan’s resort towns and cuts the 180-kilometer distance by a fourth. Mercifully, as thousands were driving the new route, the prayers of the locals were answered and a landslide closed the highway, at least for the time being.
Gilan’s predicament demonstrates two vulnerabilities that have hobbled the government’s response to the COVID-19 epidemic: the bureaucracy is unprepared to respond in a coordinated and coherent manner to a public health emergency; and trust between the public and the government, especially the state-owned media, has ebbed to an all-time low.
Unfortunately for Iran, the COVID-19 outbreak comes at the worst-possible time. In May 2018, U.S. President Donald Trump imposed punitive sanctions on Iran that have seriously hurt the country’s economy, depleted its foreign exchange reserves, and severely limited its ability to respond to a health crisis. To complete the perfect storm, this month the price of oil fell by 25 percent, to $35 per barrel. Iran’s budget for next year assumed $50.
As a result, last week, for the first time in its 41-year history, the Islamic Republic of Iran requested $5 billion—its full quota—from the International Monetary Fund. Pending the IMF board’s approval, and assuming that the U.S. Treasury Department does not block the actual transfer of funds to Iran, the money will ease the pain somewhat. In 2012, when Iran exported $120 billion worth of oil, $5 billion would have been a drop in the bucket; but this year, with oil exports below $10 billion, the same amount can make a difference.
Iranians were already hurting. The U.S. sanctions had cut the purchasing power of the average Iranian by nearly 20 percent since 2018. The health crisis will lower that figure some more. Iran’s middle class prospered during the oil boom of the 2000s, accounting for 60 percent of the total population in 2012. In 2018, however, the middle class shrank to 53 percent of the population. It probably accounts for less than 50 percent today.
U.S. sanctions had cut the purchasing power of the average Iranian by nearly 20 percent since 2018.
For those who work for the government, the squeeze is easily measurable. Some two million to three million middle-class families employed by the government have seen their real incomes fall by about 15 percent this year and will likely expect a similar decline next year. The current draft of the budget allows for government salaries to increase by about 15 percent—at a time when prices are likely to increase by 30 percent. The entire government wage bill is projected to go up 22 percent, well below the expected rate of inflation.
Unemployment has put Rouhani under still more pressure, as his administration must contend with three million to four million unemployed workers, with more likely to lose their jobs if the outbreak lasts much longer. Rouhani has turned to the cash transfer program that his nemesis, former President Mahmoud Ahmadinejad, established in 2011 and which he had vehemently criticized. Most Iranians now receive monthly cash transfers.
Over the previous six years, the Rouhani government had allowed inflation to erode the real value of the transfers by more than two-thirds. But last November, Iranians protested hikes in gas prices, and the protests turned into national unrest. Rouhani responded by doubling the amount paid in cash transfers. Still, in 2011, the transfers amounted to 26 percent of the median household income, while today, with the doubling, they account for about eight percent. For the poorest 20 percent of Iranians, however, the transfers still account for 24 percent of income.
This week, the government announced that it would distribute a one-time cash transfer to households without a “regular source of income.” About three million families fall into this category, and they account for some 20 percent of the population. For the poorest families, the transfer will cover about a month’s worth of expenditures. The government is also disbursing low-interest loans of up to 20 million rials (about $1,200 in purchasing power parity dollars) each to another four million families with business losses due to the health crisis.
How does the government plan to pay for these new loans and transfers? Budget deficits are endemic in populist Iran, and now with sanctions, the health emergency, and much lower oil prices, the government is facing its largest budget deficit ever. The budget it sent to the (now outgoing) parliament proposes to address the shortfall in part by sharply increasing the sale of government bonds—by 150 percent, compared with the current year’s budget.
Even in good times, the Iranian public prefers to store its wealth in gold, foreign currencies, and stocks, rather than bonds. In abnormal times such as these, when public trust in government runs low, the government is unlikely to find many buyers. There is plenty of liquid wealth that the government could tap, as evidenced by the booming Tehran stock exchange, but the public may prefer to gamble with its money rather than lend it to the government. And if the public refuses to buy bonds, government-owned banks will have to step in. But when they turn to the central bank to replenish their reserves, the money supply increases, causing inflation.
Trust in authorities has been diminishing over time but plunged after the unfortunate downing of the Ukrainian passenger plane in January. The authorities vehemently denied any responsibility before admitting to having shot the aircraft down by accident. A month later, the Iranian government first denied that there was a COVID-19 outbreak in Qom, then had to confirm the epidemic’s existence when two people died of the disease. This incident further reduced trust.
The Islamic Republic has actively—and fairly successfully—resisted the campaign of sanctions that the U.S. government calls “maximum pressure.” By relying on market forces and letting the Iranian currency devalue, the government spurred the country’s domestic production to substitute for imports. As a result, even though incomes have fallen, employment has risen continuously since U.S. sanctions went into effect in May 2018. Before the health crisis, the economy was relatively stable, as evidenced by the country’s non-oil GDP, which is its best indicator of economic activity. The Islamic Republic had defied the predictions of regime-change proponents who presaged its economic and political collapse.
But the COVID-19 crisis has no silver lining, and the virus is unresponsive to the instruments of power that the Islamic Republic has amassed. Mobilizing large, pro-regime crowds in city streets may be effective in dispelling regime-change speculations. And a show of military strength is good for keeping calculating enemies at bay. But neither move is much use against a pathogen. Instead of attracting large crowds to streets, authorities should want people to stay at home. Instead of ideologically committed, loyal cadres, the government needs to mobilize educated professionals.
Iran’s health sector has a distinguished past under the Islamic Republic. Three decades ago, Iranian health professionals fought to reduce infant and maternal mortality in rural areas. Their success in that endeavor helped raise the country’s life expectancy to levels that more developed countries enjoy. The professionals that generation trained are today on the frontlines of the fight to contain the new coronavirus. Though this fight is by no means over, by all accounts the younger generation of health professionals has performed admirably, treating people in hospitals in every neighborhood and under very difficult circumstances.
The virus is unresponsive to the instruments of power that the Islamic Republic has amassed.
Once the immediate crisis is over—hopefully sooner than later—the Islamic Republic will confront a question that has bedeviled it for years. Will those health professionals, who will have waged this battle and eventually triumphed, have won the right to fully participate in the country’s economic, social, and political life? The conservatives who dominate Iran’s newly elected parliament, and who are poised to win the presidency in 2021, will need to weigh this question carefully. For it is no secret that over the years, in multiple elections, the professional class that makes up the core of the country’s middle class has voted for a vision of Iran’s future that is very different from the one presented by the conservatives.
Professionals in health, as in other sectors, wish for an Iran that respects their expertise and values and that remains connected to the outside world. Their communication with the global health community, especially through the World Health Organization, not only is critical to defeating the novel coronavirus in the coming months but has already won international respect for the country.
As conservatives complete their grip on power, they need to decide what political space they will open for the participation of the professional class. The young revolutionaries who fought off the Iraqi invasion in the 1980s, and their progeny who have so far protected Iran from the mayhem that pervades the region, rightly claim recognition for their effort and have been rewarded for it by ascent to positions of power. Will they, in turn, recognize the contribution of the health professionals who are literally saving the nation today and allow them a voice in the nation’s affairs?
Repression Won’t Solve the Deeper Problems Bringing Iranians to the Streets