Market Focus : Iran Fighting Growing Pressure on Economy : Inflation, joblessness and falling oil earnings are outpacing efforts to turn things around. Experts say the president has a limited time to succeed before political problems explode.

Beneath the browned peaks of the Alborz Mountains, this city of 7 million spreads like a griddle in the 100-degree days of summer, sizzling with signs of economic desperation.

One out of five in the work force is jobless. Inflation stalks the rial, the national currency, and private investment has been chilled by political disputes over government policy.

The future is entwined with the slippery fortunes of oil, and plummeting export earnings have shaken the foundation of Iran’s new five-year economic plan just four months after its hard-won acceptance by the Majlis, the national Parliament.

Deterioration of living standards is outstripping the efforts of President Hashemi Rafsanjani and his economic pragmatists to block the erosion.

“Oh, I should have bought, I should have bought,” lamented a Tehran hotel executive of his lost opportunity to purchase a home two years ago. Instead, he leased an apartment for his family of four and the rent has quadrupled, he told an American reporter who came to Iran to cover last month’s earthquake.

Wringing his hands, the executive said he is at the end of his earnings rope. He’d looked for a cheaper flat, but none was on the market. “Bad as things are in Tehran, they’re worse in the countryside,” he said. The capital is flooded with rural Iranians looking for work.

Other Tehranis told similar stories. “This is my second job,” said a taxi driver named Ali, taking a nighttime fare. “I do the books for a company downtown during the day, and still it’s not enough.”

Like many drivers, he carried a briefcase stuffed with high-denomination rials in the trunk of his car, ready to play a currency black market that has seen the illegal level of the bank notes reach 15 times or more the official exchange rate. Government crackdowns on illegal money changers have not visibly checked their activity.

“The trend is upwards” in offshore trading of rials for dollars, said Ali Pakpour, a London dealer, “and the government’s decision to arrest unauthorized money changers has led only to panic. People with hard cash are hanging on to it in anticipation of higher rates.”

Officially, the inflation rate is placed at 20% to 25%, but Iranian clerks and blue-collar workers say the prices of food and clothing have at least doubled in the past year.

Tehran-based diplomats say Iranian wage-earners have been pushed to their limits. “There’s a sense of fatigue,” one said, noting that the hard years of patriotic sacrifice during the eight-year war with Iraq have drained personal resources. “Now, they’re tired of the economy not working, they’re tired of slogans.”

Along the tree-shaded streets of North Tehran, well-to-do women challenge conformity inch by inch. The voluminous black chadors worn by poorer women trudging the sidewalks in search of bargains have been replaced in wealthy neighborhoods by somewhat stylish ankle-length coats, with a French silk scarf covering the hair, and not all of it.

By some estimates, the Tehran merchant class is sitting on $10 billion or more in financial reserves. They dabble in commerce but are hesitant to make major industrial investments until foreign money comes in, stamping a vote of confidence on the regime.

Rafsanjani came to the presidency a year ago on a pledge to make war reconstruction and economic revival his top priorities. And he has continued to press his program despite opposition from political xenophobes who reject the president’s proposals to do business with Western nations. But the political struggle has made it slow going. “He (Rafsanjani) is moving ahead--glacially,” a Western diplomat noted.

The problems are immense:

* The Iranian Chamber of Commerce, a government organization, has placed the war damage to industry, oil installations, the power network and related facilities at more than $100 billion. Factories are running at no more than 40% capacity, Rafsanjani has conceded. Revenues--and the budget is in deficit--cover only normal programs. Reconstruction funds will have to come from other sources.

The obvious source is foreign investment, and Rafsanjani has won approval to seek $27 billion in foreign loans (although they will not be called loans) under the new five-year plan. But Islamic radicals in the Majlis are expected to put each one to the political test.

“He is restricted by extremists,” the Western diplomat said. Business with American or British banks, for instance, is politically out of bounds.

Even more acceptable sources--including West Germany and Japan, Iran’s top trading partners--appear reluctant to plunge in while the combination of economic distress and political divisions raise the specter of instability.

* Oil is almost the sole source of Iran’s hard currency. The current budget (the Iranian fiscal year begins in March) anticipates annual oil revenues of $12 billion, which foreign oil analysts said seemed reasonable when the figure was first factored last fall. But with export prices slumping, new estimates put the annual income from oil at $9 billion, a severe dislocation for the budget.

The economic planners talk hopefully of increasing non-oil revenues, but so far they account for only 5% of the total and comprise a short luxury list of caviar, pistachios and Oriental carpets--none a prospective growth industry.

In the past quarter-century, Iran, like most developing nations, has experienced an internal migration to the cities, where more than half the population of 55 million now lives, and labor-intensive industries like textiles have been mentioned by some planners. But countries worse off than Iran will likely hold an edge on labor costs.

“Eventually, there’s minerals,” said an economic analyst at one Western embassy. “The vast majority of Iran is desert land, and that’s a good place to look for minerals. They’ve found some coal and iron deposits.” But mining is a high start-up investment, and the analyst said there had been little interest so far.

* Whatever their programs and wherever the price of oil, outside experts give the Iranian president and his technocratic ministers only a limited time to turn the economy around. Fuses are already burning on political and population bombs.

Vahe Petrossian, a respected analyst of Iranian affairs for the London-based Middle East Economic Digest, says: “The authorities know they have at best one or two years grace before economic problems produce dangerous political dissatisfaction.”

Deprivation has already triggered dark rumors of corruption among the political elite, said the Western diplomat here. “There’s been back-alley talk that some of the members of the Majlis have European bank accounts, that sort of thing,” he explained. “Nothing has come out in the open, but this sort of talk is dangerous.”

Political pressure has made the government hesitant to bite the bullet on revenue-draining food subsidies for the poor, a contentious issue with food prices rising on the open market. Instead, it has doubled the fund for subsidizing such staples as sugar, flour and cooking oil.

The inexorable pressure on the economy is the population growth rate, estimated at nearly 4% a year. Representatives of the U.N. Fund for Population Control visited Iran earlier this year to discuss programs to check the birthrate, and the late Ayatollah Ruhollah Khomeini, before this death just over a year ago, gave religious sanction to the use of contraceptives.

“But a lot of families lost sons in the war, and they want to replace them,” said the economic analyst.

Meanwhile, with the infant ranks burgeoning, the quality of the work force is being depleted by a brain drain. According to government figures, less than one-sixth of the country’s university graduates can find jobs. For physicians, still under-represented in the countryside, the answer is overseas. An estimated 70,000 Iranian doctors have found work abroad.

An emphasis on traditional professions in the universities has left Iran with a surfeit of doctors while jobs for trained industrial managers go begging.

A Decade’s Wear and Tear

Iran’s economic picture has changed since the reign of Shah Reza Pahlavi, who was overthrown in 1979 by followers of the Ayatollah Ruhollah Khomeini. Khomeini ruled until his death in 1989.

GNP (in billion of dollars) 1978: $93.5 1988: $88.2

Unemployment rate (in percent) 1978: 30% 1988: 20%

Inflation rate 1978: 30% 1988: 5%

Imports (in billions of dollars) 1978: $11 1988: $17.7

Exports 1978: $9.4 1988: $21.7

External debt (in billions of dollars) 1978: $4.3 1988: $8.3 SOURCE: CIA World Factbook; U.S. Statistical Abstract