Hadi Salehi Esfahani, an academic with Illinois University at Urbana, Champaign, has predicted that all major foreign currencies will lose some value against the rial in the medium run once Iran’s funds frozen overseas start entering the country.
Salehi’s view comes in contrast to domestic economists who believe the removal of sanctions and opening of the Iranian market to the global markets will boost demand for foreign currencies, leading to appreciation of major foreign currencies, including the US dollar.
Addressing a group of specialists in the Planning and Budget Organization this week, the visiting guest speaker elaborated on the “main challenges” Iranian businesses and society may face at macroeconomic levels, Bina news website reported.
He expected that competitiveness of domestic production will fall against foreign rivals once sanctions are removed. This is likely if the economics professor’s prediction about the weakening of major currencies against the rial comes true, as it facilitates cheap import and eventually hinders competitiveness of domestic products, the report said.
In his opinion, the scenarios will lead to a rise to “unemployment in the short to medium run” as lower competitiveness of Iranian products increases the consumption of foreign goods, which in turn reduces domestic production and investment and consequently the demand for labor force.
The rise and fall in petrodollars have been major issues facing the Iranian economy in recent decades. As long as foreign currency revenues rely on oil exports the problem will persist, according to Salehi.
Meanwhile, gas condensate and petrochemicals, which are deeply reliant on the oil sector, account for the major part of non-oil exports. In addition, as the price of Iran’s oil export is determined in global markets, profitability of non-oil export is under real impacts.
“Inflow of foreign currencies into the Iranian forex market and their wise spending” are a fundamental solution to the problem. In particular, the second part of the solution has always been influenced by political issues.
Better management of central bank’s foreign currency reserves is another solution, the academic said. “But wrong policies of the previous administration have significantly reduced the reserves.”
Proper management of resources held by the National Development Fund of Iran and leaving them for emergency situations constitute another primary solution that can help stabilize the economy when forex markets fluctuate, according to Salehi.
In the meantime, investment aimed at improving productivity in local production is an old problem that needs to be duly addressed, Salehi noted during his speech.
