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Insane but Intentional Mistakes in Iran’s Economy

Following the release of the official August inflation rate figures in Iran, Gholam Hossein Esmaeili, the head of the country's presidential office, attributed the recent increase in prices to 'psychological factors'.

‘We must not allow negative news and psychological propaganda to increase prices and hurt people,’ Gholam Hossein Esmaili, Ebrahim Raisi’s chief of staff said at a meeting in Tehran.

He pointed to the rise in commodity prices in Iran in recent days, saying: ‘General experts believe that these price increases are simply due to psychological factors. But the reality is speaking about something else than ‘psychological factors’ that are hurting the people and the economy.

In some macroeconomic decisions, mistakes are sometimes so trivial that economic literacy is not needed to determine if those decisions are wrong. Even common people realize that it is wrong. But statesmen and policymakers insist on implementing it.

Perhaps the biggest and stupidest decision in Iran’s macro-economy is the gold coin auction to reduce its price. It cannot be said that this decision was made of ignorance, but it is a historical betrayal with complete certainty.

In most countries of the world, in such cases, they sell coin bonds to collect liquidity and to control the price of coins, and not the coin itself.

The second big mistake that happened in the Iranian economy and showed that monetary and financial policymakers do not even understand the alphabet of the economy, was the unlimited issuance of checks to facilitate the transfer of money. This unwise move caused a liquidity explosion, and in almost no country has such a large rent been defined.

Iran’s third major economic mistake is an investment in the markets of exhausted buildings, currencies (especially cryptocurrencies), gold, bank deposits, and semi-finished projects in huge and staggering volumes and an absolute zero of value-added.

The fourth mistake is the attempt to treat ‘liquidity disease’ with interest rate ‘sickness.’ The consequences of interest rates, unlike liquidity that only cause inflation, are both stagnating and inflationary. The inflationary recession that has ravaged Iran’s economy for years is the result of unconventional black interest rates. Interest, pyramid companies, cryptocurrencies, investment deviations, etc. have completely ruined Iran’s economy.

The fifth major crisis in Iran’s economy is the use of the debt crisis to treat other crises.

It is absurd that Iran’s economic policymakers, wherever they face a crisis, try to treat it by lending with high and unconventional profits. They lend to stagnating manufacturing units, lend to tenants’ incapable of paying mortgages and rent. This is the ultimate misunderstanding to try to solve the recession crisis or the inflation crisis with the debt crisis.

Sixth, the functions of the tax system are quite the opposite. Taxation in Iran is not a financial instrument. It is a source of extortion and illegitimate earnings. In times of stagnation, taxes increase, and instead of VAT, they get consumption tax. Even the entire tax system of the country does not know or does not want to know that gold does not have added value.

Seventh, the government colluded with exporters who are mainly the regime’s elements against the Iranian economy and formed one of the world’s largest economic rents.

The manipulation of the exchange rate caused exporters to earn a lot of money without an additional value-added in the rial, to the point that the supply of products to the domestic market was not economical and in many items, the country faced a jump of more than 500 percent in the price of goods.

The Iranian people lost their purchasing power in many deciles through this plundering and predatory policy. On the other hand, government exporters, and the government itself, with rial costs and dollar revenues, succeeded in creating dumping in most markets of the world, including the steel and petrochemical market.

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