Islamic Republic of Iran
Jomhuri-ye Eslami-ye Iran
LOCATION AND SIZE.
Iran, a country slightly larger than Alaska, is located in the Middle East, bordering the Gulf of Oman and the Persian Gulf in the south and the Caspian Sea in the north. It covers an area of 1.648 million square kilometers (636,296 square miles) and is edged between Iraq, with which it shares a border of 1,458 kilometers (906 miles), and Pakistan and Afghanistan in the east, with which Iran has 909 kilometers (565 miles) and 936 kilometers (582 miles), respectively, of common borderline. Iran also shares 499 kilometers (310 miles) of borderline with Turkey, 992 kilometers (616 miles) with Turkmenistan, 432 kilometers (268 miles) with Azerbaijan, and some 35 kilometers (22 miles) with Armenia, the latter 3 states formerly being part of the USSR.
Most of the 2,440 kilometers (1516 miles) of coastline are on the Persian Gulf and the Gulf of Oman. The 2 gulfs are connected by the strategic strait of Hormuz. Iran has dozens of islands in the Persian Gulf, many of which are uninhabited but used as bases for oil exploration. Those that are inhabited—notably Qeshm and Kish—are being developed, attracting investors and tourists. The Iranian coast of the Caspian Sea is some 740 kilometers (460 miles) long. Apart from being home to the sturgeon that provides for the world's best caviar, the Caspian Sea is the world's largest lake, with an area of some 370,000 square kilometers, and is co-owned by Azerbaijan, Russia, Kazakhstan, and Turkmenistan.
In general, Iran consists of an interior plateau, 1,000 meters to 1,500 meters (3,000 feet to 3,500 feet) above sea level, ringed on almost all sides by mountain zones. The Elburz range with the Iranian capital, Tehran, at its feet, features the country's highest peak, the snowcapped volcanic cone of Mt. Damavand, at 5,604 meters (18,386 feet). To the north of the range there is a sudden drop to a flat plain occupied by the Caspian Sea, which lies about 27 meters (89 feet) below sea-level and is shrinking alarmingly in size. The larger Zagros mountain range runs from north-west Iran down to the eastern shores of the Persian Gulf, and then eastward, fronting the Arabian Sea, and continuing into Pakistan.
The interior plateau of Iran is mostly desert, and the settled areas are generally confined to the foothills of mountains, though oasis towns, such as Kerman, are growing in size. Major towns and historical centers are spread all over the country, such as the country's largest cities of Tabriz (1.2 million) in the far northwestern corner; Mash-had (1.9 million) in the far northeastern corner; Esfahan (1.3 million) to the south; and Shiraz (1.1 million) to the distant south of the capital, Tehran (6.8 million).
Iran's population was estimated to total 65.6 million in July 2000 according to CIA figures. Almost two-thirds of Iran's people are of Aryan origin— their ancestors migrated from Central Asia. The major groups in this category include Persians, Kurds, Lurs, and Baluchi. The remainder are primarily Turkic but also include Arabs, Armenians, Jews, and Assyrians. Iran's
Iran's population is approximately 99 percent Muslim, of which 89 percent are followers of the state religion, Shi'a Islam. Some 10 percent are followers of the Sunni branch of Islam (mostly Turkomen, Arabs, Baluchs, and Kurds living in the southwest, southeast, and northwest). Sufi Brotherhoods (mystical religious orders) are popular, but there are no reliable figures available to judge their true size. Baha'is, Christians, Zoroastrians, and Jews constitute less than 1 percent of the population. The largest non-Muslim minority is the Baha'i faith, estimated at about 300,000 to 350,000 adherents throughout the country. Estimates on the size of the Jewish community vary from 25,000 to 30,000. These figures represent a substantial reduction from the estimated 75,000 to 80,000 Jews who resided in the country prior to the 1979 Revolution. The Christian community is estimated at approximately 117,000 persons. According to government figures the size of the Zoroastrian community was estimated at approximately 35,000 adherents. Zoroastrian groups cite a larger figure of approximately 60,000. Zoroastrianism was the official religion of the pre-Islamic Sassanid Empire and thus has played a central role in Iranian history. Zoroastrians are mainly ethnic Persians concentrated in the cities of Tehran, Kerman, and Yazd. In general, society is accustomed to the presence of Iran's pre-Islamic, non-Muslim communities. However, the government restricts freedom of religion, creating a threatening atmosphere for some religious minorities, especially Baha'is, Jews, and evangelical Christians.
Iran has a relatively young population, with 34 percent of the population under the age of 14 and 61 percent between 15 and 64 years of age. Thanks to a family planning program, population growth decreased from 3.2 percent in 1984 to 1.7 percent in 1998 and further to 0.83 percent in 2000. Of the population, an estimated 38 million Iranians (or 60 percent) live in urban areas, while approximately 27 million live in rural areas. The population density was 37.6 inhabitants per square kilometer (97 per square mile) in 1998, though many people are concentrated in the Tehran region, and other parts of the country (especially deserts) are basically uninhabited. Basic literacy rates are above the regional average, although uncertain reporting standards give a wide margin for error. In 1997-98 the central bank estimated literacy at 80.5 percent in those over 6 years old, with 75.6 percent of women and 85.3 percent of men judged to be functionally literate, i.e. they were taught to read and write at some point.
Between 1920 and 1960 Iran's population doubled to 23 million, and by 1979 the equivalent to the entire population of the country in 1920 had been added. Most of the increase in population migrated to urban centers and found jobs in industry and services, as opposed to agriculture. In 1960, about one-third of the population lived in towns; by 1979 nearly half the population was urban. Tehran became the center of government, higher education, and industry; in 1976, it contained two-thirds of all university students, and nearly one-third of high school students; about half of all factories were in or around Tehran. After the Islamic revolution of 1979, this trend continued. Currently, around 60 percent of the Iranian population lives in towns. Tehran remains the principal political, economic, and industrial center, with a population of 6.8 million, according to a 1996 census, although it is very likely that the metropolitan area accommodates some 11-12 million people, or 20 percent, of the country's overall population.
The civil war in Afghanistan, the Iran-Iraq war of the 1980s, and Iraqi policies in the aftermath of the Gulf War in 1990-91 have caused a constant influx of refugees to Iran. The country hosts the largest refugee population in the world. According to the government, the total refugee population counts 2 million—1.4 million Afghans and 580,000 Iraqis—while a smaller number have been driven into Iran by the conflict in the Nagorny Karabakh region in Azerbaijan. The Iraqis include Kurds from the north and Arab Shiites from the south. Only 5 percent of refugees live in 30 designated camps, while others are scattered among cities and villages throughout the country. The increase in unemployment and deteriorating economic conditions have somewhat eroded the Iranians' so far rather tolerant and welcoming attitude toward refugees, and more pressure is being exerted for refugees to return to their countries of origin. The Iranian government feels it bears a heavy social and economic burden and believes the international community should share more of this burden.
Although briefly occupied during World War II by Soviet and British troops, Iran is 1 of only 2 countries in the Middle East that were never colonized (the other being Saudi Arabia). However, the country's geopolitical significance—Iran has the longest Gulf shoreline and is a vital link between Asia, the Middle East and Europe—has made it of central concern to the world's most powerful empires and a target for frequent political manipulation. Following the occupation of Iran by allied forces during World War II, Iran's Pahlavi ruler, Reza Shah, was forced to abdicate in favor of his son, Mohammed Reza.
Mohammed Reza Pahlavi sought to ally Iran closely with Western powers and particularly with the United States. However, growing nationalist sentiment in Iran forced him to appoint the nationalist Mohammed Mossadeq as prime minister in 1951. Prime Minister Mossadeq nationalized the Anglo-Iranian Oil Company (AIOC) the same year, sidelining the shah politically. Alarmed at the threat the nationalist leader posed to their position in the Gulf and the broader Middle East, the Western powers imposed an oil embargo on Iranian exports, crippling the government. This was followed in 1953 by support from the U.S. Central Intelligence Agency (CIA) and the British counter-intelligence agency, MI6, for a successful coup, which overthrew Mossadeq and returned authority to the shah. Mohammed Reza subsequently initiated a massive modernization program, known as the "white revolution," accompanied by a greater centralization of power and increased use of repression to subdue political dissent. In 1964 the government exiled the cleric Ayatollah Khomeini after a series of his speeches led to widespread rioting.
The oil price explosion of 1973-74 fueled rapid economic growth, but at the cost of increased volatility in the Iranian economy and high levels of inflation. Economic hardship, the growing dominance of Western culture—which traditional Iranians found offensive—and the government's repressive security methods brought about an increasingly determined collection of opposition groups. Unifying into an anti-monarchist coalition with Ayatollah Khomeini as their figurehead, these activists organized nation-wide demonstrations and strikes, culminating in the overthrow of the Pahlavi dynasty in February 1979 and the return of Khomeini from exile. Following a popular vote, Iran became a self-styled "Islamic Republic" in March 1979.
International opinion turned strongly against the new government in November 1979, when militant students seized the U.S. embassy in Tehran and held 52 people hostage for more than a year. In September 1980, Iraqi forces invaded Iran, hoping for an easy victory that would allow the annexation of Iranian territory around the strategically important Shatt al-Arab waterway. While remaining neutral, the Western powers, together with many Arab states, assisted Iraq in order to suppress Khomeini's Islamic state. Until August 1988, when Iran finally accepted a U.N. cease-fire resolution, the 2 countries engaged in one of the bloodiest wars of the century, suffering widespread human and economic losses. Ayatollah Khomeini died in June 1989, and the Council of Experts, a clerical body empowered to choose the next Supreme Leader, selected Hojatoleslam Seyyed Ali Khamenei as Khomeini's successor, rapidly promoting him to the clerical rank of Ayatollah (literally: Sign of God). Hojatoleslam Ali Rafsanjani won the presidential election in August of the same year.
Since the amendment of the constitution in 1989 the president has appointed the government, though all ministers must be approved by the parliament before taking office. Iran's domestic politics have since evolved into an increasingly bitter power struggle between conservatives and reformers within the regime. From 1989 to 1997, President Rafsanjani sought to implement a program of gradual economic and political reform, but his more conservative rivals frequently blocked his policies. In 1997, the reform-orientated cleric, Mohammad Khatami, was elected to a 4-year term as president in a landslide victory and is set to stand a second term in June 2001 after winning the election with a great majority, almost 77 percent of the votes cast. Though with a turnout at the polls of only 65 percent of eligible voters, after 90 percent in the 1997 election, people seem to be disillusioned by politics and the pace of reform. Mohammed Khatami's reform-orientated supporters also defeated the conservatives in the parliamentary election held in February 2000, gaining majority control. Nevertheless, the power struggle with the conservatives continues. Through their control of various oversight institutions, the judiciary and state-run broadcasting, they manage to contain power.
INFRASTRUCTURE, POWER, AND COMMUNICATIONS
Iran's infrastructure is relatively poor and inadequate. Part of this stems from the fact that the vast country was never fully developed, but it also experienced considerable setbacks during the Iran-Iraq war of the 1980s, and restoration since then has been slow.
Iran has a network of 140,200 kilometers (87,120 miles) of roads, of which 49,440 kilometers (30,722 miles) are paved. The 2,500-kilometer (1,553-mile) A1 highway runs from Bazargan on the Turkish border across Iran to the Afghan border in the east. The A2 runs from the Iraqi border to Mirjaveh on the Pakistani frontier. Tehran is linked to major cities in the vicinity by 470 kilometers (292 miles) of express-ways. A heavy expansion of car use has led to increased demand for fuel, severe overcrowding of roads in metropolitan areas, and mounting pollution problems. Government estimates put the average annual increase in domestic fuel consumption at 5.5 percent, well above the real economic growth rate. The government has sought to limit motor use by raising domestic fuel prices, but petroleum products in Iran remain heavily subsidized and among the cheapest in the world.
An important transportation link is the railway constructed with great effort before World War II between the Caspian Sea, Tehran, and the Persian Gulf. Other rail links with neighboring countries already exist or are under
|Country||Newspapers||Radios||TV Sets a||Cable subscribers a||Mobile Phones a||Fax Machines a||Personal Computers a||Internet Hosts b||Internet Users b|
|a Data are from International Telecommunication Union, World Telecommunication Development Report 1999 and are per 1,000 people.|
|b Data are from the Internet Software Consortium ( http://www.isc.org ) and are per 10,000 people.|
|SOURCE: World Bank. World Development Indicators 2000.|
der construction. Recently the long-closed link to Van in Eastern Turkey reopened, enabling passengers and goods to travel from Tehran to Istanbul and on to Europe. Overall, the Iranian railway network covers 5,600 kilometers (3,480 miles).
The Shatt al-Arab, the main waterway shared by Iran and Iraq on the Persian Gulf, is navigable by maritime traffic for about 130 kilometers (81 miles). Ports include Abadan/Khorramshahr, which was largely destroyed in fighting during the Iran-Iraq war, and has been overtaken by Bandar Abbas as the country's major port. About 12 million tons of cargo pass through Iran's Gulf ports each year. Smaller ports at Bushehr, Bandar Lengeh, and Chah Bahar have also assumed new importance. The 1998 Lloyd's Register of Shipping lists 382 Iranian merchant vessels.
The 3 major international airports of Tehran, Bandar Abbas, and Abadan, have recently been joined by the international airports on the free-trade islands of Qeshm and Kish. Most domestic and international flights go through Mehrabad international airport in Tehran. The huge Imam Khomeini international airport to the south of Tehran, currently under construction, is going to take over operations in a few years with a projected capacity of 30 million passengers a year. The state-owned national carrier, Iran Air, serves 15 Iranian cities and runs scheduled routes in the Gulf, Asia, and Europe. In 1997 it carried 907,000 international and 6,240,000 domestic passengers.
Electricity generation was severely restricted by Iraqi attacks on power stations during the Iran-Iraq War, reducing available capacity from 8,000 MW to 5,000 MW, according to estimates. In December 1988, the Ministry of Energy stated that the general capacity of the national grid was deficient by at least 2,500 MW, owing to war damage, lack of fuel, and inadequate rainfall. At the beginning of the 1990s, residential consumption accounted for about 40 percent of total consumption, and industry for about one-quarter. However, industrial demand rose dramatically and accounted for almost half of total consumption in 1998. Overall consumption reached 90 billion kilowatt hours (kWh) in 1998, up from 73.4 billion kWh in 1994. Installed power production capacity had reached about 24,000 MW, with another 4,600 MW coming from private generators.
Iran plans to increase this capacity to 96,000 MW by 2022. Power plants currently under construction, and due for completion by 2002, will add about 13,000 MW to the national grid. Some 8,000 MW of this will come from hydroelectric (turbines powered by water that generate electricity) dams, although the proportion of hydroelectricity will fall in subsequent years. The balance of 5,000 MW under construction comes from gas-fuelled plants and other facilities. Currently, some 89.5 percent of electricity is produced by thermal power plants (using fossil fuels like coal, oil, or gas) and the rest by hydro-electric stations. Recent years have seen Iran advancing on a nuclear power program of 3,000-5,000 MW. The United States stated that nuclear cooperation and the transfer of technology to Iran was dangerous, as it would accelerate a secret program to develop nuclear weapons. Nevertheless, Chinese and Russian officials have expressed their determination to proceed with deals aimed at selling nuclear reactors to Iran.
As a result of heavy investment in the telephone services since 1994, the number of long-distance channels has grown substantially; many villages have been brought into the net. The number of main lines in the urban systems has approximately doubled since 1994, and the technical level of the system has been raised by the installation of thousands of digital switches. Countrywide, there were some 7 million lines in 1998. There is now also a mobile cellular system in place that was serving 265,000 subscribers in August 1998. This figure is up from under 60,000 in 1996 and has grown rapidly since.
Iran has radio relays to Turkey, Azerbaijan, Pakistan, Afghanistan, Turkmenistan, Syria, Kuwait, Tajikistan, and Uzbekistan. The fiber-optic Trans Asia Europe line runs through northern Iran, and the country is also connected to the Fiber-optic Link Around the Globe (FLAG) through a submarine fiber-optic cable link to the United Arab Emirates.
Internet access is increasing. However, price rather than official censorship remains the greatest hindrance to wider use. The state remains in control of terrestrial radio and television broadcasts, but the illegal use of satellite television receivers in urban areas continues to be widespread. There were 82 radio stations in 1998, and Iranians had 17 million radios. Television receivers numbered 4.9 million.
Petroleum and natural gas clearly dominate Iranian industry, which is mostly controlled by the state or run by one of the religious foundations, the bonyad. With the revolution came nationalization, and by the end of 1982, 130 nationalized industries were under the direct control of the 3 ministries that were authorized to conduct industrial policies, and 450 industrial units were placed under the control of the National Iranian Industrial Organization.
Iranians became involved with oil before most of the rest of the world, granting their first exploration concession to British prospectors in 1901. After the discovery of commercially viable deposits at Masjid-e Suleiman in 1908, the reserves were worked by the newly formed Anglo-Persian Oil Company, which changed its name to the Anglo-Iranian Oil Company (AIOC) in 1935 and is now known as BP Amoco. The oil industry's pivotal position in modern Iranian society was demonstrated during the 1979 revolution, when a series of strikes at oil installations culminated in the strikers' refusal to resume exports until the shah left the country. Iran's petroleum industry suffered extensive damage to wells, refineries, and export terminals with the outbreak of the Iran-Iraq war in 1980. Crude oil production recovered to 3.2 million barrels per day (bpd) in 1990 and since 1994 has averaged around 3.6-3.7 million bpd. Proven oil reserves at the end of 1998 totaled 90 billion barrels, representing 8.7 percent of world reserves, and were expected to last about 70 years at current production rates. As of January 2000, Iran possessed 9 operational refineries with an aggregate capacity of 1.5 million bpd, the government's aim being to boost refining capacity to 2 million bpd during its Third 5 Year Development Plan (until 2005).
The dramatic decrease in world oil prices from late 1997, to below early 1973 levels in real terms, prompted the Organization of Petroleum Exporting Countries (OPEC, a cartel grouping together most significant oil producing countries to fix production quotas and attempt to stabilize prices) to decree that its members should reduce production from April 1998 in an effort to boost prices. In March 1999 Iran agreed to cut its output from the benchmark of an average production of 3.6 million bpd by 7.3 percent, to 3.36 million bpd. In their September meeting OPEC countries decided to retain reduced quotas despite the sharp rise in world oil prices. When in March 2000 OPEC responded to what was seen as a dangerously high world oil price of US$30 per barrel by increasing aggregate production quotas by 1.7 million bpd, only Iran declined to accept the plan proposed by Saudi Arabia, on the grounds that OPEC was buckling to U.S. pressure for lower oil prices. However, resistance was short, and the new Iranian production quota had increased to 3.84 million bpd by September 2000. As a result of the production cuts in 1999, exports fell by 10 percent from 1998-99 to 1999-2000, to 2.1 million bpd. Thanks to higher prices, however, oil export revenues increased by 63 percent to US$16.3 billion and are expected to hit the US$20 billion in 2000-01.
Iran's petroleum industry basically works as an extension of the government. The Minister of Petroleum serves as chairman of the 3 main companies, the National Iranian Oil Co. (NIOC), the National Iranian Gas Co. (NIGC), and the National Petrochemical Co. (NPC). The NIOC handles oil and gas exploration, production, refining, and oil transportation; NIGC manages gathering, processing, transmission, distribution, and exports of gas and gas liquids; and NPC handles petrochemical production, distribution, and exports. The majority of Iran's oilfields are concentrated in the southwest of the country, where 90 percent of Iran's total production of crude oil is produced. The state-owned gathering and distributing system for natural gas from Iran's enormous reserves—second in the world only to Russia's—is one of the largest in the Middle East. Other mineral resources are largely underdeveloped.
With proven natural gas reserves of 23 trillion cubic meters (at the end of 1999), Iran is the world's second richest country in gas resources after Russia, with some 15.7 percent of the global total and 46.4 percent of the Middle East regional total. Production increased from 12.2 billion cubic meters in 1989 to 29.5 billion cubic meters in 1993 and to 54 billion cubic meters in 1998, the bulk of which was consumed domestically in line with the government's policy of substituting gas for petroleum. Currently, natural gas accounts for about 40 percent of total domestic energy consumption. Iran plans to construct a 1000-kilometer (621-mile) onshore and 1200-kilometer (746-mile) offshore gas pipeline to India. In 1996, Iran signed an agreement worth US$20 billion to supply gas to Turkey over a 22-year period. With pipeline construction in its final stage, deliveries should begin in mid-2001. In April 2000, the discovery of the country's biggest onshore gas field to date, north of the city of Bushehr, was announced. It is estimated to contain 445,000 million cubic meters of gas not needing to be refined, as well as 240 million barrels of liquid gas. The field is to be brought to production by 2002 and is expected to yield revenue of US$16.5 billion over 20 years.
In addition to the enormous hydrocarbon reserves, Iran has considerable mineral resources. Around 80 million tons of minerals are quarried each year from some 1,500 non-metallic and 50 metallic mines in Iran, with the bulk coming from mines owned by the Bonyad-e Mostazafan (Foundation of the Oppressed). Minerals currently being worked include copper, lead-zinc, iron ore, bauxite, coal, strontium, gold, chromium, uranium, red oxide, turquoise, sulphur, and salt. Foreign investors have concentrated most on Iran's copper-extraction industry, which has taken the lead in moves towards privatization.
Iran's industrial sector is dominated by relatively few but large public enterprises accounting for approximately 70 percent of value added in manufacturing. Steel, petrochemicals, and copper remain the country's 3 basic industries. Other important branches are automobile manufacturing (mainly assembled under license from Western or Japanese manufacturers), construction material, textiles (mainly woven carpets, for which Iran has traditionally been famous), food processing, and pharmaceuticals. Despite large investments in the 1970s, problems persist to this day, including a shortage of skilled labor, insufficient raw materials and spare parts, and an inadequate infrastructure.
After the revolution in 1979, no clear policy was formulated for the industrial sector. Subsequently, then-president Bani-Sadr estimated a drop of at least 34 percent in industrial output in the first post-revolutionary year alone. The manufacturing industries' poor performance continued throughout the 1980s with many factories still operating at only 30 percent of their capacity at the end of the decade. Much of this downturn had to do with the emigration of industrial owners and a resulting shortage of managerial skills. The high degree of Iran's dependency on imports for raw materials, along with the economic sanctions imposed against the Islamic Republic, further increased the vulnerability of the manufacturing sector. Taken together, these factors resulted in inefficiency and low productivity.
The steel industry is one of the few exceptions to Iran's disappointing manufacturing scene. Development began late—Iran's first steel mill was a joint venture with the Soviet Union in the 1960s—and proceeded slowly, with output standing at just 1 million tons per year in 1979. Since the end of the Iran-Iraq war, however, a huge expansion has taken place. New plants have been commissioned in Khuzestan, Khorasan, and Azerbaijan provinces, and Iran has become the world's third largest steel producer, with an output of 6.7 million tons in 1997-98.
In recent years the government has placed great emphasis on expanding the petrochemical industry to generate products of higher value added and higher export earnings. In the medium term the petrochemical industry represents Iran's only chance of diversifying away from crude oil exports. Iranian petrochemical production has more than doubled in the last 5 years, making it the second largest producer in the region, after Saudi Arabia. Total petrochemical output was estimated at about 12 million tons in 1998, compared to 2.4 million tons in 1989. The government plans to triple the annual output to 30 million tons within 20 years, which requires investments of US$20 billion. Government predictions were that Iran's share of the world's petrochemical production would reach 2 percent by 2005 and that the value of exports would rise from US$500 million in 1999 to US$2 billion in 2005. Main petrochemical products are fertilizers, methanol, aromatics, and olefins.
The automotive sector is underdeveloped. The most common vehicle on Iran's roads is the Paykan, the locally produced version of a 1960s British model. The car's old-fashioned engineering makes it inefficient and one of the worst polluters in the country. Since 1989, the industry has enjoyed a modest recovery, as local plants have contracted to assemble Nissan, Peugeot, and Kia models under license. Some manufacturers, such as Iran Khodro, which held the rights to assemble General Motors vehicles until 1985, have begun to modernize and restructure . Local production of cars reached 245,556 units in 2000-01, compared to some 80,000 units in 1995-96, and up 23 percent from the previous year. However, poor access to finance and a shallow inventory suggest that there is further need for improvement.
In 1995, the Chamber of Commerce and Industry reported that Iran's textile mills were operating at an average of 56 percent of their capacity, owing to shortage of foreign exchange and raw material. The textiles industry is partly based on domestic supply of cotton. During the 1970s, European manufacturers purchased Iranian cotton, but as profits fell in the 1980s, most cotton was absorbed domestically. The government hopes to promote textile exports, and some public investment has been devoted to improving production quality. However, the results have been visible only in niche areas, and export earnings in 1997-98 remained below US$100 million per year. Revenues from exporting carpets dropped severely in the 1990s from US$2 billion in 1990 to US$570 million in 1998, rendering it a shaky business.
The services sector is the largest in the Iranian economy and contributed approximately 40 percent to the GDP during 1999-2000. The sector has seen the greatest long-term growth in terms of its share of the GDP, but currency-exchange restrictions, excessive bureaucracy, and the uncertainty of long-term planning have hindered further development.
The Iranian banking sector is dominated by 10 state-owned banks, including the 6 full-service commercial banks, and 4 sectorally specialized ones. In addition, 4 small private non-bank credit institutions have recently been licensed. The total number of state-owned bank branches was 14,518 in 1999, compared with 11,634 in 1995. Commercial banks engage mainly in short-term lending, primarily to the private sector and public non-bank financial enterprises, and act as agents of depositors in the investment of funds. The profits and losses from these investments are then distributed to depositors based on the duration and amount of their investment. Specialized banks lend mainly on a long-term basis (5 years or more) and have investments in various sectors of the economy.
After the revolution, 2 major changes were made in the banking system: one was nationalization and restructuring in the year immediately after the revolution, the other was the introduction of Islamic banking in 1983-84. Islamic banking is characterized by the prohibition of interest on loans, according to Islamic law. Interest on loans, or riba , was replaced by a commission of 4 percent a year compared with the traditional 14 percent, whereas interest on deposits was replaced with profits, estimated at a minimum of 7-8 percent a year. The banks would become temporary shareholders in major industrial enterprises to which they lent money. Unfortunately, the changes to the banking sector were made just when the public sector was relying heavily on the banking system to finance the large deficit, due to low oil revenues. Consequently, the inflation rate accelerated rapidly. While it amounted to only 4 percent in 1985-86, it surged to 21 percent the following year, and increased to 28 percent and 29 percent, respectively, during 1987-88 and 1988-89 and has since remained at a high level.
The Tehran Stock Exchange (TSE) benefitted from a wave of privatization during the early 1990s. Stock market capitalization of IR38 trillion at the end of 1999 corresponded to about 9 percent of the GDP, although relatively few of the shares are routinely available for purchase by the general public. The ownership of stocks is highly concentrated. The largest 5 shareholders account, together, for more than 82 percent of company shareholdings. A small handful of institutional investors dominate the market as a whole. These are all either government institutions or state-owned banks or their subsidiaries, but nevertheless operating on a market-oriented basis.
Iran has traditionally been an agricultural nation populated by traders. With the exception of the carpet industry and a tiny jewelry industry, the Iranian economy was essentially agrarian until the time of Reza Shah Pahlavi. Despite the crash industrialization program launched by the Pahlavi regime in the 1960s and 1970s and the necessity for self-sufficiency during Iran's 8-year war with Iraq, the country retains its preference for trade over production.
The merchant, or bazaar, classes had profited from the economic boom Iran experienced under the shah in the 1970s. Many had amassed fortunes in these years. Yet, the bazaar provided valuable support to the revolutionary movement, contributing generously to the clerical cause in the lead-up to the revolution. The bazaar merchants had several grievances against the shah, whose policies favored a new industrial and entrepreneurial elite, and import licenses made life difficult for the smaller merchants. The bazaar was relegated to secondary status, especially after some of the major industrial families started combining interests in industry with interests in banking, insurance, and trade by the mid-1970s; several of the largest trading companies developed alongside major industrial enterprises. These new trading companies threatened to drive the bazaar merchants out of wholesale trade, and then, by establishing new retail networks and outlets, out of retail trade as well.
After the revolution, the trading sector achieved positive growth, and this sector absorbed most of the new entrants into the job market. In the absence of a properly functioning banking system, demand for capital has been frequently met from moneylenders in the bazaar. Indeed, currency exchange and money lending has become a major source of business for the bazaar's traders in Iran's distorted economy. This further intensified a tendency among Iranians to invest in businesses with a cash-based return, such as constructing homes for the rental market or the import of consumer goods .
Before the revolution Iran had begun to build a reputation as an exotic holiday destination; its ski resorts at Shemshak and Dizin, north of Tehran, attracted international celebrities. After 1979, the Islamic government discouraged tourism, leaving many renowned archaeological and historical sites, including Persepolis, Pasargard, and Esfahan, barely visited by foreigners. Although hardly a booming sector, visitor rates are beginning to rise. The government has begun to issue visas more freely to non-Muslim individuals and groups, and the country is appearing with greater frequency in tourism brochures, but still only around 320,000 foreign tourists actually visit, bringing in revenue of US$170 million. The bulk of tourism remains to be founded on Shia pilgrimage centers such as Mashhad and Qom. The Bonyad-e Mostazafan (Foundation of the Oppressed), which owns most of Iran's large hotels, plans to increase the number of hotel beds from the current 34,500 to 59,500 by 2002.
Iran has no territories or colonies.
—Markus R. Bouillon
Iranian rial (IR). One Iranian rial equals 100 dinars. There are coins of 1, 5, 10, 20, and 50 rials and notes of 100, 200, 500, 1,000, 2,000, 5,000, and 10,000 rials.
Petroleum (80 percent), carpets, fruits, nuts, hides, steel.
Machinery, military supplies, metal works, foodstuffs, pharmaceuticals, technical services, refined oil products.
GROSS DOMESTIC PRODUCT:
US$347.6 billion (purchasing power parity, 1999 est.).
BALANCE OF TRADE:
Exports: US$12.2 billion (f.o.b., 1998). Imports: US$13.8 billion (f.o.b.,1998).