The Workers’ House has strongly warned against the government plan to abolish the subsidized import regime at the rate of 42,000 rials per dollar in a declaration.
The plan is part of the upcoming fiscal year’s (March 2022-23) budget bill recently submitted to the parliament by President Ebrahim Raisi.
Based on the budget bill, the government will pay the $3.3 billion “to offset price rises of basic goods, pharmaceuticals, bread and guaranteed-purchase of wheat”, local media outlets reported.
The measure must first be approved by the parliament before it is passed into law.
Noting that the bill’s implementation would give rise to inflation even higher than the current rate and lead to further depreciation of the national currency, the declaration stated: “The path taken by the government is thoughtless; it will fan the flame of economic instability… It may serve as an excuse for the government to fill the budget deficit,” ILNA reported.
The $3.4 billion will likely be channeled to the low-income strata in the form of cash subsidy.
Denouncing the government’s promise to increase cash subsidies to compensate for consequent rise in prices as a result of scrapping the subsidized regime, the declaration described it as “distribution of poverty”, stressing that even increasing the amount of cash subsidies by 100-fold will not be efficient and “exacerbate the economic quagmire facing the country”.
The Workers' House is the Iranian de facto national trade union affiliated with the World Federation of Trade Unions (WFTU) and a registered reformist workers’ political organization/labor union. It oversees and coordinates the activities of Islamic Labor Councils. Formed in 1958 by the merger of some workers' guilds, the union has been historically a worker wing affiliated with various parties.
Arguments for Abolition
Despite outcries against the bill’s removal, many experts are unanimous that the two-tier foreign currency regime is a breeding ground for corruption and must eventually end.
Since mid-2018, the government has subsidized currency for importing basic goods ($1=42,000 rials). The highly subsidized rate is less than a seventh of the real prices in the open market and provides a fertile ground for rent-seeking by some big import companies, vested interests and state cronies.
Subsidized forex is received from oil export and used only for importing essential goods, pharmaceuticals and machinery to avoid price hikes in food and raw materials.
While successive Iranian governments have subsidized food imports, cheap currency in its current format was first given after the steep rise in foreign exchange rates in the spring of 2018 soon after the United States abandoned the Iran nuclear deal and reimposed tough economic sanctions.
Flaws in the apparently ill-advised policy emerged in the first few months after inception and the government was compelled under pressure to slash the list of goods eligible for subsidized currency.
Prominent economists, academicians and socioeconomic experts strongly believe that the forex subsidy policy never achieved its intended goal of supporting the downtrodden, and greedy middlemen and cronies in the distribution chain have benefited the most.
On many occasions, consumers of imported essential goods must buy their needs at prices equaling open market forex rates, thanks to the gross mismanagement, inefficient distribution system and absence of viable government oversight.
In short, a significant portion of the cheap forex is pocketed by major importers and distributors instead of end customers, which ostensibly means millions of Iranians at the lower-end of the economic ladder receive no benefits.
Some in Tehran’s politico-economic circles have claimed that in the past three years, billions in subsidized currency were given to selected companies to import food and medicine, but some of these companies did not bring anything into the country.
Some of the firms who took the scarce forex resources were reportedly shell companies. Few, if any, have paid for the thefts, or faced the full force of the law.
Essential Imports on the Rise
Iran is increasingly importing essential goods entitled to subsidized currency amid a decline in production.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
A total of 20.32 million tons of essential goods worth $12.43 billion were imported into Iran during the current Iranian year’s first eight months (March 21-Nov. 21), registering a 30% and 62% rise in weight and value respectively compared with the similar period of last year, according to the spokesperson of the Islamic Republic of Iran Customs Administration.
“The essential imports accounted for 75% and 38% of the tonnage and value of total imports during the eight months under review,” Rouhollah Latifi was quoted as saying by Mehr News Agency.
The official noted that seven types of goods weighing 17.84 million tons and valued at $9.87 billion were imported using subsidized foreign currency at the rate of 42,000 rials per dollar.
These commodities included 6.15 million tons of corn worth $2.11 billion, 1.37 million tons of unrefined and edible vegetable oils worth $1.76 billion, 13,844 tons of pharmaceuticals and medical equipment worth $1.47 billion, 4.29 million tons of wheat worth $1.45 billion, 1.88 million tons of oilseeds worth $1.31 billion, 1.78 million tons of soymeal worth $983.09 million and 2.35 million tons of barley worth $685.02 million, registering a respective rise of 32%, 259%, 34%, 118%, 83%, 151% and 123% in value compared with the corresponding period of last year.
