Economy, Business And Markets

Dual Currency Rates Not Helpful

Dual Currency Rates Not Helpful Dual Currency Rates Not Helpful

Subsidizing hard currency to import goods cannot curb illegal imports but rather creates the groundwork for corruption and waste, director for Money and Capital Market of Tehran Chamber of Commerce, Industries and Mining said Sunday.

Ali Sanginian argued that it is “difficult to efficiently allocate resources in a dual foreign exchange rate system while categorizing imported goods eligible for subsidized hard currency creates the ground for corruption,” Fars News Agency quoted him as saying.

“If the government really wants to improve and expand domestic production, banning some (unnecessary imports and raising tariffs on such items can be effective” he said.

Sanginian noted that illegal import of consumer goods like clothes is not a threat to the economy and the government is indeed capable of handling it, the official said voicing support for subsidizing foreign exchange to help “restore stability to the market.”

Prolonged sanctions also have the effect of pushing foreign investors to believe that economic opportunities in Iran are not devoid of high risks, he said referring to the years of economic and banking sanctions imposed on Iran due to its nuclear energy program.

“It takes time to channel direct foreign investment for the retail sectors where the path is not yet paved for domestic investments. However, this is so not so for key industries like oil and gas because investing in these sectors is largely the function of the government.”

The CBI first introduced the dual exchange rate system in 2011 to protect higher risks to the economy as the nuclear dispute with the West worsened and the sanctions were tightened to force Tehran to compromise on its nuclear activities that the western powers claimed was geared to a weapons program. Iran has always strongly denied the allegations.

Illegal imports has emerged as one of the major challenges to domestic economy and wiped off billions of dollars from the treasury not to mention its drastic impact on GDP growth.

Consumer goods like clothes and cosmetics are almost always on top of the hot smuggling commodities’ list and reportedly account for 90% of the market for such items in Iran.

The market, businesses plus the Ministry of Industries do not have the same views as the TCCIM’s Sanginian. They believe strict import regulations and high tariffs are hurting the market and encouraging the flow of contraband. The market welcomed the ministry’s recent decision on cut tariffs on apparel from a whopping 150% (including customs duties and profit margins) to 75%.