Iran tightens grip to stem currency fall

Associated Press Modified: October 3, 2012 at 3:16 pm •  Published: October 3, 2012
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Meanwhile, anti-riot police patrolled streets in central Tehran where freelance money dealers work. Police units also were deployed in key shopping areas.

Iran's economy minister vowed to break the black market, which effectively sets the exchange rates. The unofficial market will be "rounded up," Shamseddin Hosseini was quoted as saying by Mehr.

The news agency also reported that some arrests were made for attempts to "disrupt the economy" and that at least two "foreigners" were detained for trying to "gather information" about the police action.

There were no further details. Iran has placed broad restrictions on foreign media that severely limit the ability for firsthand reporting on the streets.

In Washington, Secretary of State Hillary Rodham Clinton said Iran's leaders deserve responsibility for what is going on.

"They have made their own government decisions, having nothing to do with the sanctions, that have had an impact on the economic conditions inside the country," Clinton told reporters. She said the sanctions have had an impact as well, but that could be quickly remedied if the Iranian government were willing to work with the international community "in a sincere manner."

The West suspects that Iran is using its civilian nuclear program as a cover to develop the capacity to build nuclear weapons. Iran insists its program is peaceful and geared toward generating electricity and medical radioisotopes to treat cancer patients.

The U.S. and allies say sanctions and diplomacy remain the best routes to leverage nuclear concessions from Iran even as Israeli Prime Minister Benjamin Netanyahu is appealing for a "red line" that could trigger possible military action.

Netanyahu argues that the sanctions have hurt Iran's economy and curbed its oil exports but have not changed what he says are Tehran's intentions to develop nuclear weapons.

The causes for the rial's fall draw from many roots.

The Western sanctions include blocking Iran from the main international banking networks, which made it difficult for Iranian businesses to borrow money and forced many firms to pay with cash for imports.

At the same time, Iran's Central Bank began facing increasing troubles meeting demands for dollars. Sanctions on Iran's oil exports have cut into its foreign currency revenue, and banks in Dubai and elsewhere closed off transactions with Iran.

Critics of Ahmadinejad also say his government added to the frenzy to dump rials with policies such as limiting bank interest rates, which led depositors to pull their cash in fear it wouldn't keep pace with inflation.

But the intangible elements — the idea that even leaner days are ahead — appeared to kick in this week with consumer prices continuing to rise and rumors abounding that banks would limit withdrawals from dollar accounts.

In a sign of the multi-layered theories swirling in Iran, some economists and experts have accused the government of trying to devalue its currency in order to meet its own budget deficit.

The government earns more than 90 percent of Iran's overall foreign exchange revenues as a result of oil sales. Higher dollar rates bring more rials into the treasury to pay salaries and fund state programs, such as guarantee stipends to compensate for the withdrawal of fuel and food subsidies last year.

Hosseini, the economy minister, challenged the government's critics to provide more than just claims.

"We are not after devaluating rial," the semi-official Fars news agency quoted Hosseini as saying. "Those who make such claims better offer evidence."

___

Murphy reported from Dubai, United Arab Emirates. AP writer Bradley Klapper in Washington also contributed.



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