U.S. President Donald Trump’s decision to impose new sanctions on Iran – this time against the country’s Supreme Leader Ali Khamenei raises two questions: Why were such sanctions never imposed before? And how can they be enforced? American estimates say Khamenei controls a $200 billion fortune – not private assets (Khamenei is known for his modest lifestyle), but a vast financial institution founded decades ago by Ayatollah Ruhollah Khomeini, the leader of the Iranian revolution.
SETAD (Executive Headquarters of Imam’s Directive) was founded to finance the revolution by confiscating and stealing property that belonged to the Shah and his supporters, and to opponents of the revolution.
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An investigative report published by Reuters in 2013 found that the representatives of this institution used to enter the homes of Iranian citizens and demand to see documents of ownership. If they were not produced on the spot, the house would be immediately confiscated. The confiscated property was then sold, with the proceeds going into the fund.
Six years ago, the fund’s holdings were estimated at $95 billion. The fund invested huge sums to build factories and communications systems, while some went into infrastructure and to pay for Khamenei’s army of aides, who numbered 500 at the time.
Given that some of the money was likely invested secretly, as the fund was legally exempted from parliamentary oversight, the Reuters investigation presumed that the actual figures were much larger than what was listed in the official documents and in the data collected by the stock market. Hence, the difficulty today as well in tracing just where these funds have been invested, and how sanctions may be placed on them. Meanwhile, the very existence of a fund with assets and capital totaling $200 billion, in addition to other funds and financial institutions, indicates that Iran has the wherewithal to cope with the American sanctions for quite some time.
This financial cushion could also, if needed, be used by the government as it tries to cope with the existing sanctions and maintain a “resistance economy” that will enable the country to stall for time until something changes – Trump loses his bid for reelection, the European countries establish a trade mechanism that excludes dollars and circumvents the sanctions or conditions emerge for new negotiations to be undertaken.
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But the immediate problems cannot wait for a miracle to occur. To ease the housing crisis, at least, the Iranian government announced a new plan to fund public housing. It calls for 400,000 small and mid-size apartments (70-100 square meters) to be built over the next two years for those of limited means.
The land for the apartment buildings , half of which will be built in Tehran and the surrounding area, will be given to private contractors for free by the government, and the contractors will also be given favorable loan conditions along with subsidies for the purchase of building materials. As part of the plan, contractors will receive purchasing cards they can use to buy building supplies directly from manufacturers, cutting out the middle man and avoiding extra fees.
This plan reminds Iranians of the fiasco introduced by former president Mahmoud Ahmadinejad, when he also intiated the building of 400,000 new apartments under the MEHR plan. People were not keen to buy poorly planned apartments that were hastily built from cheap materials, and more than 100,000 remain unsold. But even if the new plan is a success, it won’t be nearly enough to alleviate the housing crunch, with demand now at 800,000 apartments per year. With housing costs having soared by more than 200 percent over the last six years, and apartments in Tehran selling for more than $2,900 per square meter, the poor and middle class have no option but to continue living in rented apartments, which are also becoming more expensive.
One problem is that homeowners are holding on to thousands of empty apartments, in anticipation of their price increasing, given the unstable political conditions – so this pool of potential housing is also not being used to ease the crisis. This will only change if the government adopts an aggressive stance and imposes heavy taxes on owners of investment homes, but that is highly unlikely given all the internal political rivalries.
The government is pinning all the blame on the sanctions that were not lifted as required by the nuclear accord, but the supreme leader actually refutes this argument, and he is right to a large degree. Khamenei points out that the management failures and lack of proper planning predate the signing of the nuclear accord. Last month, he noted that the government failed to carry out its own economic plans – privatization, bank and capital market reforms, reducing oil dependency and easing the unwieldy bureaucracy that impedes private initiative. Khamenei called on the government to quickly execute its decisions and not blame everything on the sanctions.
However, the government’s hands are also tied by the dictates it receives from the supreme leadership, by the fact that the Revolutionary Guards control more than half of the Iranian economy and by the stiff resistance of tycoons who fear that economic reforms will hurt them. There is no dispute in Iran that the sanctions are hurting the Iranian economy, for one thing due to the difficulty of importing components and materials needed for industry, but smarter, more efficient management could presumably extend the period of time that Iran is able to remain self-reliant despite the sanctions.