Sanctions widen gap between Iranian poor and rich

TEHRAN Wed Oct 27, 2010 11:35am EDT

1 of 2. An Iranian woman looks on as she stands next to a Benetton shop window in northern Tehran October 24, 2010.

Credit: Reuters/Morteza Nikoubazl

TEHRAN (Reuters) - While ordinary Iranians struggle to survive international sanctions and deepening economic uncertainty, the gap has widened between the disadvantaged and those who can afford to travel to Paris for a haircut.

The extravagant tastes of wealthy Iranians show no signs of abating in spite of tougher sanctions targeting the Islamic state over its disputed nuclear program.

Several new shopping malls packed with designer boutiques have just opened in Tehran and cities such as Tabriz and the holy Shi'ite city of Mashhad. Shiny vehicles clog the streets.

The "nouveaux riches" live a trendy life in Iran, which is accused by the United States and its allies of trying to acquire atom bombs under cover of civilian nuclear work. Iran says it needs nuclear technology to generate electricity.

The center of power has shifted since President Mahmoud Ahmadinejad's election in 2005 from bazaar merchants and traditionally influential clerics to the elite Revolutionary Guards and businessmen with ties to the government and the Guards.

"Companies with links to the Guards win tenders for big projects," said the chairman of a construction company, speaking on condition of anonymity. "All doors are open for them."

Unlike in other countries under sanctions, the streets of Tehran and other big cities are full of designer stores and advertisements for Rolex and Chanel watches, Dupont pens, Massimo Dutti and Gucci clothes.

"Iran is the best country to live in. I used to travel to Paris and Dubai to do shopping but now I can even buy Louis Vuitton bags here in Tehran," said Samira Shafeghat, 38, whose husband is a foodstuff importer and has developed successful businesses using links to the state.

Sitting in a luxury restaurant which charges a $100 entrance fee -- a quarter of a teacher's monthly salary -- Samira said she was worried that sanctions may make it hard for her to travel to Paris for her monthly haircut.

The government is trying to reform the economy by allowing more private businesses to open.

"We have licenses. We import our products legally and through customs," said the owner of a Benetton clothing shop in central Tehran, who also asked not to be named. "It is nice to know powerful people."

SANCTIONS AND BUSINESS

In a Shi'ite dominated Muslim state with no discotheques or nightclubs, and where alcohol is banned, shopping is a source of fun. But not all Iranians can enjoy shopping sprees.

A shop owner in the northeastern city of Mashhad said some women spend $600 to $900 a month on cosmetics alone, while newspapers report that many Iranians are living on less than $800 per month and are below the poverty line.

While not in yet crisis, the economy faces significant difficulties, said a senior Western diplomat in Tehran.

"Based on economic theory, Iran's economy should collapse," the diplomat said. "I wonder how the country is still standing and working."

Unemployment is officially around 10 percent, while critics say the real figure is closer to 15 percent. Parliament's research center says inflation is running at around 50 percent a year, contrasting with the official figure of 8.9 percent.

"I am a retired employee. I am suffering to live and there are some wealthy people who throw parties spending millions a night," said taxi-driver Mahmoud Taheri, 44.

Iran's rulers have brushed off the economic impact of sanctions but analysts say the tightening restrictions have frightened many western partners, including the oil producer's main petrol suppliers.

A U.S.-led squeeze on banks has constrained Tehran's ability to finance trade or import know-how, and raised the costs of doing business with Iran.

But there are winners as well as losers.

"In a way, the sanctions have facilitated business for Iranian middlemen," said Rasul Farhangian, an Iranian businessman based in Dubai. "They get huge percentages for arranging deals."

RICH BECOME RICHER

Analysts say the gap between poor and rich has widened since Ahmadinejad took office. A former Guards commander, who survived a storm of protests after his disputed re-election last year, he is under fire for his handling of economic problems.

The head of Iran's Chamber of Commerce criticized the government last Friday for interfering in trade.

"We still see ministries and government-linked bodies confronting our private sector...and it means the government is interfering in trade and business," said Mohammad Nahavandian, the semi-official Mehr news agency reported.

The trendy lifestyle of the top 10 percent cannot mask the economic problems most Iranians face. Many middle and lower income earners have to do two or three jobs to survive.

"The rich have become richer. Lower income people are under economic pressure and have become poorer," said an analyst, who asked not to be named.

Faced with the prospect of further hardship, Iranians have begun to show signs of panic, particularly since the government announced plans to cut costly fuel and food subsidies.

Ahmadinejad insists the subsidy cuts will not harm ordinary Iranians. But people are preparing for the unexpected.

"I bought 400 kg of rice and my wife has dried huge amounts of bread. We also have stockpiled detergent before prices go higher," said Reza Khandan, a 47-year-old employee.

Shayesteh Motamed, a tile factory employee, said: "We are selling more tiles than before as builders are stockpiling materials in case of price hikes."

Critics say removing subsidies could worsen inflation and review post-election anti-government protests, which jolted the country and were quelled by the Guards.

(Editing by Paul Taylor and Angus MacSwan)