Iran Lawmaker Lashes Out At Raisi: Change Your Economic Team

Minister Bahram Einollahi said on Sunday that manufacturers will no longer receive cheap dollars from the government to import raw materials, meaning they should buy dollars at a fivefold higher rate on the exchange market.

The public relations manager prof the ministry said, however, that the change hasn’t been finalized yet and the supply of medicine with cheap dollars is still going on.

Social media users say such a decision would be “an obvious and deliberate act of mass murder!”

Earlier in March, Iran’s parliament decided to scrap an annual subsidy of up to $15 billion for essential food and medicines, despite warnings of more inflationand hardship, but there were speculations that the government would make an exception for medicine.

The idea to eliminate the subsidy emerged after hardliner president Ebrahim Raisi (Raeesi) assumed office in August and could count on backing from conservatives and ultra-conservatives in control of Iran’s parliament.

The subsidy was introduced in April 2018 when former US president Donald Trump signaled his intention to withdraw from the Obama-era nuclear agreement with Iran known as JCPOA, and Iran’s national currency began to nosedive. Prices for imported goods skyrocketed and the government decided to provide cheap dollars to importers of essential goods to keep prices low.

"Our strategic reserves are finishing, and we won't be able to replenish them," Jalal Mahmoudzadeh, a member of the parliament's Agriculture Committee, told Shafaq News Agency on Friday.

According to Mahmoudzadeh, the war in Ukraine, the government's decision to scrap cheap dollars for importing essential commodities, and mismanagement are the three factors that will affect the availability and prices of essential goods.

Mahmoudzadeh predicted that prices of commodities such as sugar, oil, and rice in the Iranian market will rise considerably in the coming months due to the elimination of subsidies.

Iran decided to end a costly subsidy for importing food and animal feed recently, raising fears of rising prices in the new year that started on March 21. According to a report by ISNA on March 19, out of about $19 billion worth of basic goods imported in the past 12 months nearly $15 billion was subsidized with cheap dollars provided to importers.

Animal feed, much of the grains imported from Russia and Ukraine with cheap dollars until now would also become scarce and prices of red and white meat will therefore rise considerably, he said. Importers might be jittery about making commitments given the unpredictable foreign currency rates in Iran and government price fixing.

Last week it was announced that Iran’s agriculture minister, Javad Sadatinejad, had signed an agreement during a recent visit to Russia to import 20 million tons of basic goods, including vegetable oil, wheat, barley and corn. The report said the deal is to address concerns about shortages of basic goods and livestock feed in the coming months but did not mention the monetary value of the deal.

Iran is under US sanctions, but the government of President Ebrahim Raisi insists that it has succeeded in blocking their effect on the economy and neutralized the sanctions to a great extent. "The biggest achievement of the government in Vienna [nuclear] talks has been greatly reducing the strategic value of sanctions for the other side through the strategy of neutralizing sanctions," the official news agency (IRNA) wrote Friday.

Recent news about higher oil exports coincides with the most critical phase of indirect nuclear talks that the Biden Administration started with Iran almost a year ago. If talks fail, sanctions will continue.

Reuters reported on February 10 that daily illicit shipments of crude oil had surpassed one million barrels a day in the previous two months. This was the highest since May 2019 when the Trump administration imposed full sanctions on Iran’s oil exports.

Between May 2019 and late 2020, Iran’s clandestine oil exports hovered around 200,000 bpd, or 10 percent of its sales before Donald Trump withdrew from the Iran nuclear agreement, JCPOA, and imposed sanctions. The exports increased in 2021, but it is not clear how much cash revenues Iran receives, given the illicit nature of the shipments primarily going to China.

Oil exports may have increased but the government coffers appear to be still empty. The value of rial remains near its all-time lows at 260,000 to the US dollar, while liquidity keeps rising as the government prints more money.

Just before the Iranian New Year earlier this week, for the first time in over four decades, the Islamic Republic's government failed to make the monthly payments of millions of pensioners. Payments had regularly been made even during eight years of war with Iraq (1980-1988) under difficult conditions.

Brigadier-General Qasem Rezaei told the ILNA news agency Friday that housing units and other facilities would be provided for officers to improve their living conditions. Rezaei also said that salaries paid to police were not in a par with the important services they provided.

Late in January, dozens of members of the armed forces and retirees protested in several Iranian cities over living and working conditions. Teachers, nurses, firefighters, prison guards, and employees of the judiciary have all held protest rallies or strikes to demand higher salaries.

Earlier in January, the spokesman for Iran's police said that while salaries for police officers had increased several times in the previous Iranian year (ending March 20, 2021), the government could not afford substantially higher salaries.

Akbar Shokat, head of the construction workers union, recently claimed prices had risen five to ten-fold since 2018, when the United States introduced ‘maximum pressure’ sanctions. The International Monetary Fund gives consumer price inflation of 34.6 percent in 2019, 36.4 percent in 2020, 39.3 percent in 2021 and projects 25.7 percent for 2022 – giving an overall increase to date of over 255 percent since 2018.

Iran Statistical Center and media, however, have reported higher inflation in 2021, especially for food items that increased more than 60 percent.

Cumulative inflation in the construction industry has been 700 percent, while wages for workers has maybe doubled, Akbar Shokat the national chairman of construction workers unions told the Iranian Labour News Agency (ILNA) this week.

Shokat said while each square meter of building construction cost 10 million rials three years ago, now it costs 70-80 million. The same applies to food workers have to buy. One kilo of red meat cost 250 rials in 2018 while now the price has reached 1.6 million rials.

The examples mentioned by the union leader clearly show the impact of ‘maximum pressure’ sanctions imposed by the United States after former President Donald Trump withdrew from the Iran nuclear accord in May 2018. It also shows that inflationary pressures picked up as time passed, averaging above 40 percent in 2021.

While with US sanctions Iran’s currency nosedived in 2018, it took months for annual inflation to increase to above 30 and then 40 percent. The currency, rial dropped from 33,000 to the dollar to the current low of 260,000, or almost eightfold.

The claim about people with capital getting richer is based on the reality that business owners raise prices as the value of Iranian currency falls and maintain a higher margin of incomes than wage earners whose salaries change once a year by a government decision on minimum wage. Salary increases are always far less than inflation.

With the most recent minimum wage hike, an average worker will take home around $200 a month, while labor groups say the minimum needed for a family of 3.3 persons is $450 a month.

People owning real estate, profitable businesses or foreign currencies are by-and-large immune from the perils of a falling currency and inflation, because the value of their capital remains mostly intact. For example, real estate prices calculated in US dollars, have stayed the same since 2018, while salaries have dropped.

Jalal Mirzaee, a former member of parliament, told ILNA on Thursday that without the removal of US sanctions the economy cannot improve, especially that President Ebrahim Raisi in many cases has appointed top managers who are not experts in their fields.

Raisi, for example, has appointed former Revolutionary Guard commander Mohsen Rezaei as one of his top economic aides, but he has never managed a large bureaucracy or a private sector company.

“The root cause of many economic difficulties is US sanctions,” Mirzaee said, but added that this does not mean successive governments have not mismanaged the economy, which is largely state-owned and run by the government. If sanctions are lifted, it would be easier to address Iran’s economic problems, but that would depend on effective management by the government, Mirzaee said, which is doubtful in the current administration.

Hossein Raghfar, a respected economist, told Etemed Online this week that the country’s foreign currency revenues have been mishandled and the rial has fallen so much that economic stability is questionable. The result is capital flight, with most investors shifting their businesses to neighboring countries.

Raghfar criticized the established economic order, saying that the Islamic Republic has created an “oligarchy that benefits most from foreign currency revenues” gained by exporting crude oil and other national resources. He argued that in the first instance, political insiders and the military should exit the business world and allow a real private sector to emerge. Raghfar said, “If there is no private sector, the economy cannot move forward.”

Brigadier General Kamal Hadianfar told Hamshahri Online in an interview Wednesday there were no cars with all components built domestically.

“Why do they import parts from China? Who monitors the quality of these Chinese parts?” he asked. Hadianfar said car manufacturers could learn from the self-sufficiency of the defense industry in making “largest ballistic missiles in the region”.

President Ebrahim Raisi said in October that Iran’s military and nuclear sectors had responded to United States with “great achievements” due to motivation and effort. But, Raisi argued “we have not invested the technology of the missile industries in the automotive industry.”

China has been the world’s largest car maker since 2008, with its output since 2009 higher than US, European Union, and Japan combined. China accounts for 29 percent of world car exports with Saudi Arabia its leading market, and two Chinese electric car manufactures listed on the Nasdaq. But quality of Chinese cars is considered poor, with focus on low prices and high production numbers.

Echoing those in Iran who blame low-quality vehicles for road casualties, Hadianfar criticized January domestic automakers for producing "carriages of death."

A deputy of Iran’s traffic police, Sivash Mohebbi, said Thursday that 322 people had died in the previous week.