Energy prices, foreign exchange rates and the interest rate are economic variables, in which changes influence policymaking but are considered a taboo in Iran’s politics. This was stated by Ali Sarzaeem, an economic expert, in a write-up for the Persian economic daily Donya-e-Eqtesad.
A translation of the text follows:
Policymaking is no easy task in Iran’s economy and that’s not due to the complexity of equations linking economic variables. There’s no denying the fact that understanding economic phenomena is difficult, but what makes economic decision-making even more grueling is that economic policies are tied to the economic interests of different sections of the society; personal interest has become the yardstick to judge an economic policy.
You rarely find individuals support a policy that is against their own interest but is for the common good. People often regard policies that are harmful to themselves as being harmful to the whole economy and try to prevent its implementation.
There are several variables in Iran’s economy whose specific regulation has generated special benefits for different sectors, but at the macro-level, they have been damaging to the larger section of the society. The problem is that beneficiaries have a louder voice while those who suffer from these policies are usually scattered and do not have a united voice.
Only a handful of economists speak for a large segment of the society. Obviously, the beneficiaries work in unison and pursue specific interests.
In my opinion, there are at least three economic variables, in which changes influence policymaking but are considered a taboo in Iran’s politics. They are energy prices, foreign exchange rates and the interest rate.
Senior officials are even sensitive about the mere talk of modifying these variables, while people prefer to turn a blind eye to them. The former government of ex-president Hassan Rouhani was not willing to listen to any other viewpoint; they were forced to change the foreign exchange rate only when they failed to keep it at a fixed rate. Foreign exchange rate is no longer a taboo, thanks to sanctions you are now free to talk about forex policy.
The price of fuel, especially diesel and gasoline, is still considered a taboo. Government officials and the society fear the economic and political consequences of any change in this variable given the events of November 2019. I feel that the taboo regarding energy prices will also be broken eventually and the Iranian society will have to see flexible prices that adjust to global rates; after all, the limitation of supply capacity will force every government to face the reality and swallow a bitter pill in accepting reforms of fuel prices.
The 20% interest rate, the third taboo, has become a golden rate for the economy. It has remained unchanged despite the boom and bust cycles of the past few years. The 20% interest rate vis-à-vis the 40% inflation rate creates a chaos in the economy. This is while in developed countries, the interest rate is a variable that no one considers it a taboo, but instead it is treated as a tool for regulating macroeconomic relations. That’s why they are free to talk about raising or lowering it.
When will this spell be broken? It seems that when the country goes through a more severe inflation. I hope we don’t see such a day but we should not forget that the spell of the exchange rate was also broken in light of the sanctions.
The revival of the Joint Comprehensive Plan of Action is the talk of the town these days. Naturally, you don’t expect to see inflation increase, at least in the short run; the chances of this scenario are low but if, for any reason, inflation rises to higher levels, then policymakers will have to accept higher interest rates. But it is not clear whether those rates will be able to stabilize the economy at that time.
