Iran’s economy is in need of making critical and prompt decisions.
Gasoline and diesel consumption has increased to such unprecedented levels that some government officials say we’ll soon have to import them. Mousa Ghaninejad, veteran economist, began his article for the Persian economic daily Donya-e-Eqtesad with this note. A translation of the text follows:
Government-mandated, extremely low fuel price is the main reason behind its excessive consumption and outbound, organized smuggling to neighboring countries. However, those in charge don’t dare to acknowledge this reality, given the events of November 2019 [protests fueled by the rise in gasoline prices]. It is three years now that inflation in Iran has doubled compared with the four-decade average, reaching 40%; there is no prospect of improvement, either.
Double-digit inflation rate is a thing of the past for almost all countries. Only a handful of countries, namely Venezuela, Zimbabwe and Iran, ignore economics and its achievements, and have yet to solve this issue.
One of the main tools to control inflation is the interest rate. What central banks have done, which even Russia’s central bank did amid the war with Ukraine, is to control inflation by increasing the interest rate. You can hardly believe that the Central Bank of Iran would follow Russia’s model.
As CBI lacks independence, this institution does not have the necessary legal autonomy; only the Money and Credit Council can make a decision in this regard.
The composition of the Money and Credit Council shows a majority of its members have no desire to modify the interest rate unless a higher power were to coerce them into doing so.
Reforming the fuel price and the interest rate can help the economy get out of the impasse entangling the policymaking system. This impasse is the product of the buildup of anti-economics mistakes that some populist politicians insist on committing. Notably, according to the Third Five-Year Development Plan [2001-06], the price of fuel [gasoline and diesel] had to be raised annually in line with the inflation rate. This was a good measure that could have prevented excessive and sudden pressures on the consumer.
But in the fiscal 2005-06, hardliners in the parliament opposed this move and fixed the price of fuel with the flawed argument that the annual increase in fuel prices is the main cause of inflation. With the inauguration of the conservative president [Mahmoud Ahmadinejad] in the fiscal 2006-07, this misguided and destructive policy continued until years later the government was forced to increase the price of fuel by introducing another destructive populist policy called the distribution of cash subsidies coming from reforming energy prices — giving rise to a sudden increase in fuel prices.
It was clear from the very beginning that such populist gimmicks, which were made possible thanks to oil export windfall in the second half of the 2000s, were not sustainable. As such, the fate of fuel prices was tied to multi-year stabilizations and then overnight increases, the last of which was the disastrous case of November 2019. Parliamentarians, including some fundamentalist “economists”, blocked the wise and scientific way of reforming fuel prices and were never held accountable for the subsequent disasters caused by their so-called anti-inflationary decision.
Inflation not only failed to decrease, but kept increasing with tenacity in the following years, but none of these economists were willing to own up their mistake and apologize to the people; they continued their quixotic fight with the findings of economics with a pathological self-confidence. Sadly, the key economic responsibilities have been handed over to the representatives of this anti-scientific thinking, the peak of which is the 13th government [the current government of Ebrahim Raisi].
This is no time for trial and error with false “indigenous” theories; the Iranian nation has paid enough for the theories of anti-science claimants. The time is right to entrust economic responsibilities to experts, not to those who provide false justifications to win over their superiors. What can be said about all these prominent economic scholars who have been marginalized?
Some might say that the time is not suitable for righting the ship and carrying out important economic decisions with unknown consequences now that the society is witnessing protests; that we should wait until peace prevails in the society. In response, it should be said that the persistence of economic problems, especially the runaway inflation, adds to dissatisfactions. Therefore, you cannot wait for a day when everything is back to normalcy.
A significant part of protests have been prompted by cultural and social policies, finding solution for them does not require economic costs. On top of that, they will produce quick results. The wisest and least costly way to get out of the current impasse is for the country’s decision-making system to put meeting the cultural and social demands of people alongside economic reforms, containment of inflation in particular, on top of the agenda with the help of economic findings. In doing so, a relative calm might return to the society and the stage will be set for more, deeper reforms in economic policymaking.
