The cutting of fuel subsidies by Rouhani's Government

ChaharMahal

ChaharMahal

Elite Member
#21
Oct 18, 2002
16,563
261
#21
Flint said:
How does devaluing toman any more than it is now help anything? 5 years ago one $ was about 1000 toman. It is now triple that. What problem did it solve? If your theory were correct we'd have seen something by now. A cheap Rial can only help non-oil exports but those exports play a minor role in Iran's economy.
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They play such a minor role because the Rial is artificially overvalued against other currencies.

Artificially High means this: The Central Bank is bringing Tons of Foreign Currencies into Exchanges and sells them way below the Bid Price.

This means the following: since ten years ago an average Iranian worker salary has nearly gone up by 8-10 folds.

This means that if you wanted to export say Persian carpets your cost (let's just say it is labor) has nearly gone up by 8-10 folds.

but the amount that you can sell this product for in the foreign markets has increased only by 4 Folds.

That's because The dollar is now traded at 3200 Toomans and back in 1998 it was traded at 800 Toomans.

That is precisely why the Chinese do not allow their currency to float. Because if they allow it to float it will
trade at much a better premium than it is today which really hurts their exports.

This is exactly why Germany is willing to subdivide countries like Greece, Portugal, Spain and Italy issues. Because if they left the EU
the Euro will become overvalued and thus hurt German exports.


Non-Oil Exports had reached the 8-9% mark during early Khatami administration. But now it can hardly reach 1%.
 
ChaharMahal

ChaharMahal

Elite Member
#22
Oct 18, 2002
16,563
261
#22
Bi-honar said:
Really bro, I'm not talking German. For the number of times I have already said it, I don't know why you don't understand what I'm saying. Here's as simple as I can make it:
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مگر بلدی؟
:)

Bi-honar said:
Subsidies are bad > Removing subsidies when inflation is 30-40% is even worse > Having removed them when inflation was 8% was not ideal, but it was better. We are now at the highest end of the inflationary curve in Iran in the past two decades, therefore this is the WORST TIME to remove them.
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Inflation in Iran is caused by far more many factor than just fuel Prices.
The number one cause of inflation in Iran was Ahmadinejad's injection of money supply into the economy.
One of the way he did it was instructions to bank to relax loan grants which increased the money supply significantly in the society.
That in Turn increased the property prices because nearly 40-50% of Iranian private investment happens in real estate.
That in Turn increase rent ....

One of the other inflationary pressures was the cash payments of subsidies.

Fuel Prices increase are not necessarily hyper inflationary. That's because the government can contract the money supply
in the economy by selling more expensive fuel. People will in turn convert some of the higher costs into services they render.
But not all the costs will be passed on, people will come up with creative ways to use the energy more efficiently.

All that said, currently loan standards in Iran have been toughened.
new Maskan mehr has Projects have been suspended.
the Cash Subsidy has not been increased.
government is decreasing the financing of its debt by borrowing from central bank.



Similarly,

Bi-honar said:
Artificially high Rials are bad because they discourage domestic production and exports > Keeping them artificially high while unemployment is high and export revenues are low is even worse. A floating currency is good > Letting it float at this point will also raise inflation as Soroosh already mentioned and that's also bad.
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Precisely why it needs to happen gradually and not delayed indefinitely due to political risk.

Bi-honar said:
All this sums up to an economic death spiral created by Akhundist/Donkey Economics which outside those circles is called Stagflation - high inflation and a stagnant economy. That's economists' worst nightmare and nothing that can be fixed without a looming socio-economic disaster.
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I have no problem calling what is happening in Iran StagFlation.
Because that's what it is by definition.

I think the issue here is not inflation or growth.
We keep having economic discussions. and you oppose policies which you yourself identity as better than the current policy in place.

I can only conclude that your opposition is a visceral reaction and mainly based on ideological politics.
 
tajrish

tajrish

Elite Member
#24
Oct 18, 2002
3,037
197
57
San Diego, California
#24
There is an economical factor, which is obviously important, but then there is the psychological effect of oil prices in Iran.
Traditionally, Iranians have been extremely sensitive to two key numbers, the price of bread and the price of oil. Ergo, the subsidies for both, in Pahlavi's era as well as IR.
You touch those subsidies and you are asking for trouble. People are used to have their bread and gasoline provided to them by the Government at a well-below-the-market rate.
I am not saying that this will necessarily result in the downfall of the regime, but it could provide the spark needed as a wake-up call for people to take matters on their on hand.
Whether it happens or not, time will tell. I haven't been in Iran for over 30 years and do not know the mental state of the collective society to pass an educated statement on its future course of action.
 
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