In our Working Paper we argue that the accelerated international integration of the Iranian economy is putting increasing pressure on the conservative political establishment. A gradual liberalization of the economy and opening up of the country has become more likely. On the domestic front high unemployment (unemployment rate: 17 %) is the greatest challenge for the government. Progress on urgently needed structural reform, such as the privatization of state-owned firms, which will initially release workers, is therefore likely to be slow.
Iran: Growing integration into the world economy
Nonetheless, the reforms enacted to date have been a notable success. The merging of the two exchange rates helped curb the chronic capital flight seen in the 1990s. Indeed, the fugitive capital is now gradually returning and is driving up real estate prices and shares. Iran’s reliance on oil and gas exports and hence on oil price trends is likely to remain unchanged in the next five years. However, slowly but surely the investment backlog will be worked off, allowing a further expansion of the manufacturing sector.