By Majid Mohammadi
There is no longer any need to cite alarming data such as hyperinflation, chronic unemployment, negative growth, non-existence foreign trade, and endemic corruption to prove that Iran has been in the grip of an economic crisis for the past few years. There is a wealth of information about various problems facing the country. Also, there is ample evidence showing that the rift between the Islamic Republic regime and the Iranian public has been steadily widening in recent times.
Desperate measures taken by the government institutions and the private sector to rescue the economy show how critical the situation is in Iran. For instance, Tehran City Council recently considered a proposal to rent out the city’s sidewalks to generate revenue — a sign of the dire state of the economy, given that Tehran is the wealthiest city in the country. Most development projects have been halted in major urban centers, with many selling city properties to make payroll and maintain essential services such as collecting trash.
Shrinking foreign currency reserves have forced the Iranian government to limit the volume of imported essential goods — bought at the official low rate of 42,000 rials to a dollar — to $8 billion, half of the amount spent in previous years. It is doubtful that the government can even afford that, given the sharp drop in the price of gas, oil and petrochemical products. Prices of some essential goods have quadrupled in the past few years.
President Hassan Rouhani recently said that listing state-owned companies on the Tehran Stock Exchange (TSE) would boost the public trust in the government. While he believes that the measure will generate much-needed revenue to cover government spending, people will invest their precious savings in the market in the desperate hope of safeguarding their hard-earned cash against runaway inflation. Iran Heavy cost $12 a barrel to extract and distribute, but it is sold for $11 a barrel, showing a loss of $1 per barrel.
There is also no chance of taxing the three power centers in Iran that control the country’s economy, namely the regime’s elite, the Islamic Revolutionary Guards Corps (IRGC), and state-owned companies. Meanwhile, the government continues to list state-owned companies on the TSE to make up for its budget deficit and spending.
Iranian banks are all but bankrupt, and the government cannot bail them out as it did a few years ago. It cost the IRGC and the government’s supporters around $12 billion to rescue the economy during the last banking crisis in 2018.
In an interview with the Tehran-based Etemad Online newspaper in December 2019, Ahmad Hatami-Yazd, the former manager of Bank Saderat of Iran (BSI) said: “Under international trade laws, most if not all Iranian banks should have filed for bankruptcy by now, given that they lack the minimum cash reserves required to meet international banking requirements. The problem started when ‘cronyism’ replaced ‘competition’ in the Iranian economy. Private and public banks, or I should say private-public banks in Iran, should have already filed for bankruptcy under the trade laws because none of them have the required minimum cash reserves.”
Although the economic crisis had started long before the coronavirus outbreak, the lockdown has exasperated the situation. The apparent telltale sign of a bankrupt country is when it liquidates its assets to offset the sharp drop in investment, which the Iranian government did between 2012 and 2019. Except for senior Iranian officials, no one else knows how much is in the country’s foreign currency reserves and the National Development Fund of Iran (NDFI).
The NDFI is Iran’s sovereign wealth fund, established in 2011 to supplement the Oil Stabilization Fund, and is independent of the government budget. The government has withdrawn cash from the NDFI several times in the past few years. However, it is unclear how much has been added to the reserves during the same period. The NDFI’s 2013 annual report showed that $55 billion was deposited into, and $20 billion withdrawn from, the fund between 2011 and 2013. According to a recent estimate, which contradicts previous reports, $100 billion had been deposited into and $19 billion withdrawn from NDFI since 2013.
The NDFI rightfully belongs to the Iranian people, who, curiously enough, have not known the exact amount of the reserves for the past seven years. The country cannot depend on the NDFI to plug the holes in the Iranian economy, given that it is more of a slush fund for the regime than a public fund. It is difficult to determine how much money is left in reserves, given the regime’s massive spending in Iraq, Syria, Lebanon, and Yemen and on many religious institutions inside and outside Iran.
The Islamic Republic’s apologists are doing their utmost to paint a rosy picture of the situation in Iran, declaring to the international community that all is well in the country despite the crippling U.S. economic sanctions. They argue that not all officials are incompetent; that the situation is under control, and that Iranian society is not facing a singular problem. They are trying to give false hopes to the nation and convince everyone that the situation is normal in Iran.
Although the Iranian people have endured an incompetent and corrupt governing system for decades, they are acutely aware of the dire conditions in the country, and in every opinion poll and survey have overwhelmingly shown that the regime’s lies and deceptions do not fool them. Despite being systematically weakened through the years, Iranian society remains resilient. It has shown its resolve during the nationwide protests in December 2018 and November 2019. However, as conditions continue to deteriorate in the country, more Iranians lose hope for a better future.
The country will experience more protests soon, given that many members of the ruling elite have taken advantage of the COVID-19 lockdown to line their pockets through lucrative deals with China, Russia, North Korea, and Iraq. Under the current conditions, the Islamic Republic’s security apparatus can only delay the eventual demise of the regime by raising the stakes for a fundamental change of the Iranian society, but it cannot escape the inevitable.
This article was translated and adapted from Persian by Fardine Hamidi.