Heads of three major business organizations have called on President Ebrahim Raisi to adopt effective measures to unify the forex rates.
In a letter signed by Gholam Hossein Shafei, the head of Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA); Saeid Mombeini, the head of Iran Chamber of Guilds and Bahman Abdollahi, the head of Iran Chamber of Cooperatives, the president has been urged to put a permanent end to the chaotic multiple currency rates and address the economic challenges afflicting businesses across the country.
The signatories named at least four exchange rates, recalling that the present state of affairs is a bane of the struggling economy and serves as oxygen for fraud and rent-seeking, Fars News Agency reported.
“Given the harmful impact of multiple exchange rates on economy, it is crucial to take measures for a unified rate,” the senior business leaders wrote.
They noted that multiple currency rates existed in the past, but recently more were added to the financial cycle. In one recent case, the Central Bank of Iran allowed moneychangers to purchase overseas currency income from exporters at “agreed prices” negotiated between the export firms and authorized moneychangers.
The intention was to boost the supply of currency after forex rates soared in the unofficial market in June, practically leading to the reemergence of “negotiated exchange rates” that continues to the day.
These rates are higher than those quoted at Nima, a CBI-affiliated trade platform that facilitates currency exchange between exporters and importers. The negotiated rates are lower than in the unofficial (black) market.
Nima is an online platform affiliated to the CBI through which exporters sell their overseas currency income in the form of hawala.
Through this platform companies buy currency for importing goods, machinery, equipment and raw material. In this system, importers declare their currency needs, exporters register their overseas earnings and banks and authorized moneychangers are brokers.
Apart from the unofficial, negotiated and Nima rates, currencies are quoted differently by exchange shops working under CBI auspices to apparently regulate the rates.
A regulated forex market also exists operated by selected exchange shops and banks dealing in wholesale currncy.
For more than three years, the government subsidized currency for basic imports setting pegging the US dollar at 42,000 rials. This controversial and corruption-riddled policy ended in May, though it is still allowed for selected imports, namely medicine.
Successive governments in Tehran have intervened in the currency market and as a matter of policy stuck to multiple rates to prop up the national currency. The efforts without exception were in vain.
The dilemma of multiple exchange rates is a decades-old frustration for manufactures, businesses, economists and academia.
Other Economic Challenges
In their letter to Raisi, the senior businessmen said many manufactures are struggling to find funds for their working capital, more so after his government ended the currency subsidy in summer.
They said eliminating subsidized currency understandably gave rise to higher working capital needs for manufacturers who in the past imported raw material at subsidized rates.
On May 10, the government officially put an end to the forex subsidy policy -- the so-called preferential foreign currency.
The cheap currency was used by importers of essential goods, including corn, soymeal, unprocessed oil, oilseeds and barley, in addition to wheat, flour and medicine.
A recent poll conducted by ICCIMA showed that businesses have serious concerns about the high and rising need for liquidity after the government terminated allocation of subsidized currency.
Almost 90% of those polled said the elimination of subsidized currency means much more cash is needed to run businesses, especially those in need of imports. The increase varies across manufactures but on average is 207% higher compared to the past.
For example, edible oil producers' need for cash has shot up by an unprecedented 480%. This rise is 265% for meat producers, namely poultry farms and animal husbandries.
Likewise, dairy producers and pesticide companies have to increase working capital by 219% and 209%, respectively. The list is long and painful.
As for other challenges, the three men pointed to the bloated bureaucracy that manufacturers, exporters and importers have to deal with to be able to function.
Last but not the least, is the inability or unwillingness of some government organizations to make critical economic decisions without considering their negative impact on businesses and not caring to solicit much-needed expertise opinion.
