April 8, 2020 | Insight
Tehran Can Afford to Fight COVID-19 Even Without Sanctions Relief
April 8, 2020 | Insight
Tehran Can Afford to Fight COVID-19 Even Without Sanctions Relief
The Iranian government is leading an international campaign to pressure the United States to lift sanctions. American and European negotiators of the ill-fated Iran nuclear deal, along with dozens of pressure groups, are lending their support. They claim U.S. sanctions have made it impossible for Tehran to fight COVID-19 and are killing the Iranian people. They are wrong.
To fight and control the virus, the Iranian leadership has to do what most governments around the world are doing: Curb its spread by imposing strict social distancing measures and ramping up the capacity to identify and treat the infected until a vaccine is discovered. Social distancing inflicts substantial economic damage, which most governments are mitigating by sharply increasing their own spending. What the advocates of lifting sanctions fail to understand is that the Iranian government can still afford both the public health measures and the economic relief programs necessary to deal with COVID-19.
The Islamist regime’s officials say they have achieved self-sufficiency and face no shortage of testing kits, medicine, or personal protective equipment; this contradicts numerous messages directed at Western audiences, which assert there are dire shortages. Indeed, Tehran claims it is producing testing kits beyond its needs and is ready to export them. What Tehran lacks in domestic production, it can import from other countries, especially China, the largest producer of personal protective equipment – and a close ally. Reports show that Tehran is doing precisely that. European trade data and remarks by Iran’s public health officials confirm that Tehran does not face any significant trouble importing what it needs.
Yet Tehran has so far refused to implement strict social distancing measures, which, as other countries have demonstrated, requires the shuttering of major parts of the economy. This kind of shutdown is always costly, but the last two weeks have coincided with the country’s traditional two-week Persian New Year holiday, during which economic activity is normally limited. This was the opportunity for Iranian officials to impose quarantines and stay-at-home measures on a mass scale. Despite grave warnings issued by Iran’s public health officials, President Hassan Rouhani resisted such measures, and so millions of Iranian traveled across the country during the New Year holiday. Now Rouhani is trying to reopen key sectors of the economy.
To make social distancing affordable, many governments have opted, in effect, to pay citizens to stay home. That is why the United States implemented a $2 trillion emergency rescue package to support its $22 trillion economy. Even without sanctions relief, Iran could implement a package of comparable size relative to its $400 billion economy. Most of the necessary financial resources for such a plan reside in Iran’s domestic currency, the rial, and Tehran has all the rials it needs.
Here is where Iran can find the money.
Based on projections by the International Monetary Fund, Iran’s central bank currently has $75 to $80 billion in foreign currency reserves. The entire amount is permitted to be used for humanitarian trade with any country. According to an FDD analysis, Tehran has an estimated $15 to $20 billion of liquid assets in the National Development Fund, its estimated $91 billion sovereign wealth fund where a percentage of Iranian oil revenues has accumulated over the years. Tehran therefore has $90 to $100 billion of foreign currency reserves around the globe, which it can access to pay for imports of food, medicine, and medical equipment.
Iran’s government should also restructure its budget to redirect funds from non-essential entities to fighting the COVID-19 epidemic. Here is how.
In March, Supreme Leader Ali Khamenei ordered the Majles, Iran’s parliament, to forfeit its constitutional right to discuss and pass the budget, and he transferred this power to the powerful Guardian Council, which Khamenei himself controls. The Guardian Council’s budget doubles down on propaganda, military, and security spending. Planned spending on propaganda includes funding for a dozen organizations, such as Al-Mustafa International University and the Islamic Propaganda Office of Qom Seminary, with a collective budget of $6.5 billion. The Islamic Republic easily could cut this by half and transfer at least $3.25 billion to fighting coronavirus.
The regime should also redirect increased defense expenditures to public health and economic relief. The Guardian Council increased the budget of the Basij, the paramilitary force controlled by the Islamic Revolutionary Guard Corps (IRGC), by 142 percent; Khamenei’s representative at the IRGC got an 89 percent raise; the Army’s political-doctrinal office received a 108 percent bump. The IRGC’s portion of the state budget, excluding the IRGC-controlled conglomerate Khatam-al-Anbia Construction Headquarters, increased from $5.6 billion to $10.7 billion, a 92 percent jump. The authors estimate that Tehran could reallocate $5 to $8 billion from its defense and security programs to economic relief programs.
Tehran also should look into the quasi-public foundations controlled by Khamenei – or by military organizations under him, such as the IRGC – which do not pay taxes and manage 30 to 40 percent of Iran’s economy. For too long, they have looted the country’s wealth, and it is time for them to pay it back to the Iranian people.
Khamenei controls three foundations – Astan Quds, the Mostazafan Foundation, and the Execution of Imam Khomeini’s Order, also known as EIKO – with an estimated $200 billion in assets. The three foundations control thousands of companies across Iran and employ hundreds of thousands of workers. Rather than forcing these employees to go to work and expose themselves and their families to the virus, Khamenei should offer to pay their full salary and allow them to stay at home.
Many Iranian tenants cannot pay their rent due to the economic impact of the COVID-19 epidemic. Astan Quds owns more than 3,000 square miles of land, twice the size of Rhode Island, including 43 percent of the land in Mashhad, the country’s second-largest city. In Mashhad alone, Astan Quds has 300,000 tenants. Khamenei should order Astan Quds to forgive their rent.
Khamenei-controlled foundations have majority stakes in Karafarin, Parsian, and Sina, three major commercial banks in Iran. He can order these banks to give a break to their borrowers; Khamenei can use the capital from his business empire to cover the banks’ temporary losses.
Finally, Tehran can borrow from its central bank and use the funds to deposit unemployment relief money directly into the bank accounts of Iranians. Tehran already has a direct subsidies program, so the infrastructure is already in place and working. The government can also guarantee loans for businesses and order the banking system to provide emergency loans.
Critics of U.S. sanctions will argue that if the Islamist regime follows these suggestions, then after successfully defeating COVID-19 it will be more vulnerable to sanctions pressure. They are right. Social distancing will deepen the country’s economic depression; tapping into its currency reserves will deplete its foreign exchange assets; and borrowing from the central bank will increase inflation. Yet the regime’s own malpractice is responsible for the epidemic’s extraordinary toll, and the regime should be forced to use its funds to address the situation. Why should Washington reward the Islamist regime for lying about the danger to public health and for failing to take appropriate precautions? Why provide billions in sanctions relief to the Islamic Republic so that regime officials have ample resources to continue their regional aggression, nuclear expansion, and domestic repression?
The goal of U.S policy right now should be to help the Iranian people by forcing Khamenei and his officials to use the country’s resources to address the current health crisis. If Tehran wants the sanctions removed, there is a clear path forward to end its destructive activities. Until then, American pressure should be maximized.
Mark Dubowitz is CEO at the Foundation for Defense of Democracies (FDD), where Saeed Ghasseminejad is a senior Iran and financial economics advisor. They both contribute to FDD’s Center on Economic and Financial Power (CEFP). For more analysis from Mark, Saeed, and CEFP, please subscribe HERE. Follow Mark and Saeed on Twitter @mdubowitz and @SGhasseminejad. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.