Iran International
Employers in Iran say the recent unprecedented 57-percent minimum wage increase may backfire on workers by reducing demand for labor, while boosting inflation.
During four years of high double-digit inflation and the devaluation of Iran’s currency, wages have become a fraction of what workers need to survive. People’s basic needs have become expensive because imports are more expensive. A worker now earns around $100 a month, woefully inadequate even for food.
Last week, the government and labor representatives decided to increase minimum wage by 57 percent, but many warn that this will just lead to more inflation.
Hossein Salahvarzi, deputy chairman of Iran's Chamber of Commerce, in a tweet on March 12 called the increase "nominal" and said it would not help people's livelihoods. "Financial improvement in the lives of the members of the society requires stability in production and trade," he said and argued that the government should "reduce political risk", among other things such as better economic management, to provide economic stability.
Pundits say political stability and improved international trade require reducing tensions with the international community. When production goes up, demand for labor will increase too and workers' wages will rise. The increase in minimum wage under current circumstances would only cause higher prices, ruin a wide range of small businesses, and cause further unemployment as employers will not be able to keep up with the higher costs of production and transportation of goods.
Expectations of more inflation are also based on other factors including large government's budget deficits and a decision to stop subsidies for imported food and other essential goods to save around $8 billion for the government.
Some experts say a higher minimum wage will not boost inflation. "The increase in minimum wage has no inflationary effect at all," Saeed Laylaz, economist, told Khabar Online Tuesday. The root cause of inflation growth in Iran is firstly the government budget deficit, and secondly, corruption in the banking system which reveals itself in disequilibrium.
The Supreme Labor Council which consists of representatives of workers, employers, and the government last week agreed to raise the minimum wage from 26,550,000 rials to 41,790,000 rials, which is nearly $170 in today’s exchange rates.
With the monetary allowances for housing, food and children, the final wage will increase to 62,000,000 rials – almost $240 a month, before $24 is withheld for payroll taxes.
The 57 percent increase was unprecedented in the past three decades. Labor groups say it is difficult to say whether the increase will have a lasting impact in workers' lives. They argue that the rate of inflation, already above 40 percent, may rise to new heights and soon reduce the purchasing power of their wages.
Labor groups also insist that the poverty line in Iran is now around $400 a month for a family of 3.3 people, so the proposed minimum wage is half of the needed money just to be able to survive. Some 60 percent of Iranians have fallen into what government officials describe as poverty and can no longer afford red meat and even fruit and vegetables the consumption of which has hugely dropped in the past few years.
Iranian workers were earning more than $400 a month before the United States imposed sanctions in 2018, which pushed Iran’s currency almost ninefold lower, creating inflation that wages have not kept up with.
Rising prices and economic hardship have led to repeated labor strikes and nationwide protests since 2017, even before the imposition of US sanctions. Iran’s centrally controlled economy is inefficient and not conducive to foreign investments, with high reliance on oil exports.
Edalat-e Ali group has provided a copy of a highly confidential letter to Iran International which includes a list of 37 mid-level officials of ex-President Hassan Rouhani’s administration, including 16 oil ministry officials and six working in the gas field, that the IRGC wants to be banned from leaving the country.
The letter dated September 6, 2021, with an attached list from the Revolutionary Guards (IRGC) Intelligence Organization to the Revolutionary Prosecutor of Tehran Ali Alghasi-Mehr also cites reasons for the bans. In the case of most oil officials the reason is preventing them from revealing "secret information" on how Iran manages to circumvent US sanctions to sell crude oil.
IRGC revenge
Nicosia-based oil and gas reporter Behzad Ahmadinia told Iran International that Iranian officials in sensitive positions are commonly banned from leaving the country after the end of their tenure or must get permission to do so. However, he said, the fact that the IRGC has taken extraordinary action in this case is significant.
The IRGC forced the Rouhani administration to give up the government monopoly on oil exports during US sanctions, Ahmadinia said, explaining that they went as far as confiscating tankers belonging to the oil ministry under the pretext of seizing "smuggled oil" to get control of the profitable illicit oil sales.
"This is part of settling accounts with officials who resisted surrendering oil and oil products exports to the IRGC which they eventually had to do … This is revenge … Otherwise information on circumvention of sanctions is no longer secret," he said.
In recent weeks, Iran’s hardliner dominated parliament at least twice decided to give oil to the Guards to “sell” and use the money for their projects.
Sanctions evasion
Iran devised various methods to circumvent international sanctions, first imposed in 2011 by the UN Security Council, by recruiting businessmen, officials and IRGC networks to clandestinely market the crude, often at a much higher cost to Iran. Such methods resulted in several major corruption schemes and misappropriation of billions of dollars in oil and petrochemical sales that came to light after the UN sanctions were removed.
Such methods were employed again after former US President Donald Trump pulled out of the 2015 nuclear deal, Joint Comprehensive Plan of Action (JCPOA) in 2018 and re-imposed sanctions on Iran.
Oil exports dropped to around 200,000 barrels per day in 2019, but in late 2020, Tehran increased its sales through illicit channels. China is the biggest buyer, with shipments disguised as exports from other countries.
Hardliners sell more oil
The Raisi administration and its political allies say his government has a far better record than his predecessor, Hassan Rouhani, in economic performance, including circumventing US sanctions. In a speech in January Raisi said oil exports had increased by 40 percent after he took office, and that Tehran pursued a dual-track policy of circumventing US sanctions and working for their removal.
In the case of some of the officials named in the list, including officials of the Persian Gulf Petrochemical Industries, the IRGC intelligence organization demanded that they be prevented from leaving Iran for involvement in corruption and bribery. The Persian Gulf Petrochemical Industries is a public holding company active in investment and administering natural-gas processing plants, chemical factories, oil and polymer. It is the second-largest petrochemical industries holding in the Middle East.
Other reasons offered by the IRGC intelligence for demanding such a ban also included affiliation of an official's brother to the exiled opposition group Mujahedin-e Khalq (MEK) and his family's residence in Spain.
An official of the oil ministry has also been accused of "multi-layered connections with infiltration networks" and the National Iranian American Council (NIAC), a lobbying NGO based in the US.
Bahonar, who served in parliament (Majles) for 28 years as a conservative, acknowledged that there is a gap between the revolutionaries' slogans and realities on the ground. To fill this gap, it is now time for the revolutionaries to confess that they have made too many mistakes. We need to take what Supreme Leader Ali Khamenei called "the second step," and that is what I call "the second republic," Bahonar told Jamaran website in an interview on March 13, republished by other media in Iran.
Bahonar does not hold any office now as ultra-conservatives and neo-conservatives have swamped the parliament and the government, but he is an influential voice.
The second republic is about a roadmap. He said the Islamic Republic has borrowed democracy from the West and it is based on the people's vote. We cannot separate "Islamic" from "Republic." But unfortunately, we have not adopted democracy in full. Iran desperately needs three or four real and powerful political parties.
Bahonar had first raised the issue of constitutional change and establishment of political parties in early February when he called for Supreme Leader Ali Khamenei’s support. He proposed his idea of "the Second Republic" and stressed that Iran needs to facilitate the rotation of elites to reach this goal and it should set up strong political parties.
The quintessential insider, however argued that political parties should exist and compete but not stand against the regime, adding that "you cannot be part of the system and at the same time act as an opposition to the same system. No regime can allow political parties to clash with the values and principles of the system."
Iran’s clerical system has to over-arching principles: The supremacy of religious laws as interpreted by those clerics who are in power and the un-elected office of the Supreme Leader.
Asked if the presence of a supreme leader is against the party system, he said, "No. The Supreme Leader determines the general policies of the regime," while the parliament and the parties can decide about the day-to-day matters.
However, Bahonar's idea contradicts the fact that Khamenei has weakened the parliament and the government to such an extent that in fact he makes all the decisions and leaves the legislative and the executive branches to be accountable for the fallout.
The most prominent case is the issue of Iran’s foreign policy. Khamenei has stood behind an offensive regional policy, a controversial nuclear program and anti-Western foreign polcy, leaving presidents to struggle with an economy often besieged by sanctions.
Bahonar said when there is no party system, several prominent surgeons and engineers get elected, but we do not need doctors and engineers at the Majles. What we need are individuals who can plan for the country's future and such people are normally trained by political parties.
Asked what the regime’s biggest problem is, Bahonar said: People's participation. "When you have a 48 percent turnout in elections, that means 52 percent have a problem with the way the country's affairs are being managed. They have economic and political problems. I cannot believe we have reached this point in terms of political participation in 40 years."
Meanwhile, he insisted on the need for a change in the constitution to save the Republican nature of the regime and to make things work. "We can amend the constitution and call for two rather than one parliament. Or we can increase its term to 6 years. Only the Supreme Leader needs to agree with this change."