General

Iran’s Economic Collapse

Iran’s Economic Collapse

For many years, corruption, fraud, nepotism, and squandering national resources in irresponsible projects pushed Iran's economy to the brink of collapse. Iranian officials attempt to tie the current financial troubles to recent U.S. sanctions.

However, Iran’s economy already suffered from mismanagement and unreasonable policies since the Islamic Republic founder Ayatollah Ruhollah Khomeini said, “Economy belongs to a donkey.” 

While Iranian officials pursue to cover up their failures and deceive the people by blaming everything on sanctions, the reality is, they imposed hardships and trouble on the people through unwise adventures in the region and across the globe. Their destructive policies have earned Iran the title of the world’s worst state sponsor of terrorism

On December 9, 2013, Javad Mansouri, the first commander of the terrorist-designated Revolutionary Guards (IRGC), points out that the economic troubles are due to internal issues and said, “Even if it rains gold, … nothing will be solved.” (Fars news agency)

 Later, even the Supreme Leader Ali Khamenei admitted, “The country’s economic problems were the result of internal mismanagement by the government and not just because of US pressure.” (Daily News, August 13, 2018) 

In these circumstances, many Iranian economic experts are expressing concern about the country's bankruptcy. “These days, the turbulent and confusing conditions of Iran's economy have raised the question for many people: who is really governing the country these days, weeks and months?” Khabar Online news agency wrote on October 27. 

The author also points to the economic competition between the officials for seizing the lion's share of national wealth. Then he concludes that the turbulent political condition is the basis for the wasting of capital in the country, saying: “Investments that should be spent on constructing the nation and huge infrastructure are disappearing every day. Investors are always looking for a safe and secure place, and we cannot force them to enter into any market.” 

The truth is that 

a large portion of national assets is not being invested in the production sector. Instead, this wealth is spent on sectors that do not engage in the production cycle, such as importing goods, the foreign exchange market, etc. The reason is that in such businesses, capital can quickly be turned into liquidity. In contrast, investing in the production sector has a long-term return on investments, and in the current situation, it bears high risks for the investor. 

In March, the State-run Alef news website quoted a member of the Expediency Discernment Council Ahmad Tavakkoli as saying, “Production costs have increased due to rising prices for raw materials and importing machinery. The result is a decline in production and investment. Many manufacturing and commercial firms have shut down. Tens of thousands joined the army of the unemployed. Therefore, the rate and severity of poverty have increased, and the crisis shifted from the financial economy to the real economy. It has left a negative impact on the motivation and confidence of domestic and foreign investors. This issue caused to exacerbate the depart of capital by Iranians and foreigners.”  

The authorities would always like to defer economic problems to the future; however, the reality is that the country long suffered and suffers from increasing and severity of poverty rate, financial crisis, capital flight, etc. The Iranian media speak about the capital flight while tens and even hundreds of billions of dollars were drained from the country over the past years. According to the International Monetary Fund's report, around $27 Billion left Iran from March 2017 to March 2018. 

In the past March, the “Toseh” newspaper mentioned the country’s economic bankruptcy and systematic corruption and fraud.  Based on the Central Bank of Iran’s stats about the capital flight, Toseh wrote, “A review of central bank statistics reveals that about $180 billion worth of assets left the country's economic cycle over the past decade. However, this figure is only a preliminary estimate of the capital exodus.” Notably, this figure is approximately equal to the sum of oil and gas condensate exports in the first four years of Hassan Rouhani's government. 

It is worth reminding 

that capital flight is taking place while the majority of Iran's population suffers from poverty. Therefore, the ordinary people, who need only 45,000 tomans as monthly subsidies to make ends meet, are unable to save up their payments, let alone think about transferring their capitals elsewhere. Meanwhile, the capital flight is indisputably controlled by the ruling elite and their relatives, who enjoy unrestrained nepotism in the ruling system of Iran. On the other hand, economic turmoil and instability have diminished foreign investors’ motivation. On April 23, Fars news agency underlined insecurity and high risk of investment, referring to a report by the parliament research center, and wrote, “The overall index of investment security in Iran in the summer of 2018 was rated at a score of 6.32 out of 10 (10 is the worst rate). The numerical value of this index was calculated at 6.15 in the spring of the same year, indicating that the quantity of investment security in the summer has increased, which means that the investment security has worsened by 0.17." 

Regrettably, the departure of Iran’s wealth is not limited to capital flight or brain drain alone, and these days “more than 1.5 million people requested visas to relocate to Australia or Canada,” the deputy of Iran-China Chamber of Commerce Majid Reza Hariri told the “Javan” newspaper in April. 

In conclusion,  

with every passing day, the Ayatollahs’ rule loses its credibility inside the country and beyond. The Iranian people have been well aware that the rulers don’t care about the current troubling conditions in society. Instead, each of them either styles himself as a “reformist” or “hardliner,” and only seeks to find new methods to further line his pockets with the national capital.

 

 

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