Iran and the Global Financial Crisis

The global financial crisis is set to depress oil producing economies. As the crisis is already pushing down oil prices, a firm response to the fallout of the crisis from governments and central banks is expected. Oil prices have tumbled more than 70% since their July peak and there are fears they could continue their plunge because of diminishing demand caused by the current financial meltdown. Though, the Iranian government does not seem to be greatly concerned about the ongoing global situation, although many Iranian economists believe that sanctions and the international financial crisis will soon be taking their toll on Iran’s economy by unfavorably affecting oil, trade, and trade financing. Even if the relative isolation from the world’s economy may seem to protect Iran from the negative impact of the global financial crisis to a certain extend at least for now, plunging oil prices and a massive credit deterioration suggest otherwise.Iran; Financial Crisis; Oil Revenue; Currency Exchange; Currency Crash

Iran’s Banking and Monetary Problems

Iran has had many self-imposed economic crises. Many of which relate to the poorly managed banking system as well as flawed monetary and fiscal policy. Inefficiency of the banking-monetary system in Iran is a well known fact. A complete overhaul of the current system should be one of the essential priorities of any economic reformation and development. The banking-monetary system of any country has a key role in its economic efficiency and strength, price stability, production, and economic growth. The main functions of a banking-monetary system are to provide fiscal resources, to prepare ground for optimal allocation of capital in the economy, to distribute the wealth in the best possible way, and to ease economic development. This is particularly important in Iran because capital markets are underdeveloped.Iran; Banking; Monetary Policy; Fiscal Policy

Financial Crisis, Iranian Style

A steep fall in crude prices allied with lower output will decrease the Iranian government’s foreign revenues significantly. The Tehran Stock Exchange (TSE) has lost 30% of its value in the last four months, which points to a sizable economic slowdown in the near future. Perhaps Iran is among a handful of countries that has not properly planned to combat any potential economic crisis in the face of lower oil prices and the global financial meltdown that began to show its visage in the middle of 2007. The substantial inflow of petrodollars to the government’s account coupled with the faulty assumption that the oil prices will continue to rise triggered the government to infuse billions of dollars into the economic and banking system. Iranian officials have just begun to accept the new global circumstances and are after drafting a budget for the next Iranian year to ride out the financial turmoil. The administration is planning to eliminate energy subsidies and reduce its price controls in the new fiscal budget planning in order to reduce the massive deficit. It is indeed ironic from a government that has no belief in principles of a free market economy and denied it in the past to draw such a plan, many economists have stated. Whether the government has realized its past mistakes, is unknown and whether the new budget and policy will ease the current economic problems, remains to be seen! A more important question is whether the central bank and the administration will be able to employ the available monetary and fiscal tools to tackle the profound upcoming economic challenges, since they already tied their hands by their past mistakes and beliefs. Overall, the next few months or perhaps years will undoubtedly be very challenging times for the system.Iran; Budget Deficit; Economic Policy; Credit Crisis

Iran and the Global Financial Crisis

The global financial crisis is set to depress oil producing economies. As the crisis is already pushing down oil prices, a firm response to the fallout of the crisis from governments and central banks is expected. Oil prices have tumbled more than 70% since their July peak and there are fears they could continue their plunge because of diminishing demand caused by the current financial meltdown. Though, the Iranian government does not seem to be greatly concerned about the ongoing global situation, although many Iranian economists believe that sanctions and the international financial crisis will soon be taking their toll on Iran’s economy by unfavorably affecting oil, trade, and trade financing. Even if the relative isolation from the world’s economy may seem to protect Iran from the negative impact of the global financial crisis to a certain extend at least for now, plunging oil prices and a massive credit deterioration suggest otherwise

Financial Crisis, Iranian Style

A steep fall in crude prices allied with lower output will decrease the Iranian government’s foreign revenues significantly. The Tehran Stock Exchange (TSE) has lost 30% of its value in the last four months, which points to a sizable economic slowdown in the near future. Perhaps Iran is among a handful of countries that has not properly planned to combat any potential economic crisis in the face of lower oil prices and the global financial meltdown that began to show its visage in the middle of 2007. The substantial inflow of petrodollars to the government’s account coupled with the faulty assumption that the oil prices will continue to rise triggered the government to infuse billions of dollars into the economic and banking system. Iranian officials have just begun to accept the new global circumstances and are after drafting a budget for the next Iranian year to ride out the financial turmoil. The administration is planning to eliminate energy subsidies and reduce its price controls in the new fiscal budget planning in order to reduce the massive deficit. It is indeed ironic from a government that has no belief in principles of a free market economy and denied it in the past to draw such a plan, many economists have stated. Whether the government has realized its past mistakes, is unknown and whether the new budget and policy will ease the current economic problems, remains to be seen! A more important question is whether the central bank and the administration will be able to employ the available monetary and fiscal tools to tackle the profound upcoming economic challenges, since they already tied their hands by their past mistakes and beliefs. Overall, the next few months or perhaps years will undoubtedly be very challenging times for the system

Financial Crisis, Iranian Style

A steep fall in crude prices allied with lower output will decrease the Iranian government’s foreign revenues significantly. The Tehran Stock Exchange (TSE) has lost 30% of its value in the last four months, which points to a sizable economic slowdown in the near future. Perhaps Iran is among a handful of countries that has not properly planned to combat any potential economic crisis in the face of lower oil prices and the global financial meltdown that began to show its visage in the middle of 2007. The substantial inflow of petrodollars to the government’s account coupled with the faulty assumption that the oil prices will continue to rise triggered the government to infuse billions of dollars into the economic and banking system. Iranian officials have just begun to accept the new global circumstances and are after drafting a budget for the next Iranian year to ride out the financial turmoil. The administration is planning to eliminate energy subsidies and reduce its price controls in the new fiscal budget planning in order to reduce the massive deficit. It is indeed ironic from a government that has no belief in principles of a free market economy and denied it in the past to draw such a plan, many economists have stated. Whether the government has realized its past mistakes, is unknown and whether the new budget and policy will ease the current economic problems, remains to be seen! A more important question is whether the central bank and the administration will be able to employ the available monetary and fiscal tools to tackle the profound upcoming economic challenges, since they already tied their hands by their past mistakes and beliefs. Overall, the next few months or perhaps years will undoubtedly be very challenging times for the system

A Review and Analysis of Iran’s Current Economic Status

Mahmoud Ahmadinejad became Iran’s sixth president after winning the 2005 presidential election by popular vote. He placed second after Ali Akbar Hashemi-Rafsanjani in the first round amid rumors surfaced that the Revolutionary Guard and the Basiij Militia had engineered his election. However, in the second round he handily defeated Rafsanjani to become president. Throughout his presidential campaign and after, he resorted to populist slogans such as equal distribution of wealth, economic justice, thoughtfulness and compassion (mehrvarzi), etc., to timely take advantage of people’s emotions during a period of rapidly rising oil revenues and the potential threat of a U.S. invasion was becoming serious after Bush’s notorious State of the Union speech that put Iran a part of an axis of evil

An Estimate for the Real Foreign Exchange Rate in Iran

An examination and close observation of currency exchange fluctuations in Iran reveals that over the years, problems and crises have occurred in connection with the exchange rate, which have brought about complications in the country’s currency exchange market and hence the economy. Such problems and crises continue to exist today. The developments of the currency exchange crisis during the last few months provide clear proof for such contention. Up until the late 90's, currency exchange restrictions and deficits in the balance of payments mainly due to low oil prices laid the ground for surges in foreign exchange rates in the free market. In the year 2000, owing to the improved situation of the foreign exchange market as a result of economic stability due increases in oil prices, the unified exchange rate policy was re-implemented after many years of a multi-rate regime. Over the past decade until Spring 2011, Iran’s Central Bank, which channels more than 90 percent of hard currency into the local market, had employed a “managed float system” to support a single rate against hard currencies, whereby the Central Bank managed the market and pegged the rates to the target rates by relying upon its foreign currency reserves and buying and selling foreign currency in the free market. In the 2000's, after the adoption of this policy, the official exchange rates (the foreign currency sold by the government in the interbank market) and the free market rates (e.g. at currency exchanges) were unified in practice and the slight difference between these two rates reflected the profit margin for the traders of foreign currencies in the free market. Around mid-March 2011, however, due to the pressures caused by rising inflationary expectations created by considerable surges in the amount of liquidity, the targeted subsidy plan and growing international pressures on Iran because of its nuclear program, the tendency to arbitrage in the foreign currency market escalated and for the first time in 10 years, it led to a significant gap between the official interbank exchange rate and the free mark rate, creating polarity in the foreign exchange market. Today, the gap has widened more than a whopping amount of 1,000 tomans per dollar. It should be noted that reviewing the developments of the foreign currency exchange rate over the years shows that many times, there has always coexisted a free market rate along with the official rate announced by the Central Bank. Hence, since a long time ago, the multi-currency regime has always dominated the country’s economy and it is not limited only to the recent years or even months. This further points to the fact that even in those years, the market suffered from instability. In addition to the developments related to the exchange rate, examining the trend of foreign exchange revenues indicate the fact that in spite of huge foreign exchange revenues mainly from oil exports, the Iranian economy has not witnessed any significant improvement in its economic indicators such as GDP growth. Therefore, not having enough economic growth in proportion to the amount of liquidity injected by the government in the economy, inflationary expectations have grown significantly and; therefore, stray capital has been trying to find refuge in other safe assets such as gold and foreign currency in order to safeguard its value. This is the main cause of surges in foreign currency rates in the past 17 months

Iran’s Banking and Monetary Problems

Iran has had many self-imposed economic crises. Many of which relate to the poorly managed banking system as well as flawed monetary and fiscal policy. Inefficiency of the banking-monetary system in Iran is a well known fact. A complete overhaul of the current system should be one of the essential priorities of any economic reformation and development. The banking-monetary system of any country has a key role in its economic efficiency and strength, price stability, production, and economic growth. The main functions of a banking-monetary system are to provide fiscal resources, to prepare ground for optimal allocation of capital in the economy, to distribute the wealth in the best possible way, and to ease economic development. This is particularly important in Iran because capital markets are underdeveloped

A Review and Analysis of Iran’s Current Economic Status

Mahmoud Ahmadinejad became Iran’s sixth president after winning the 2005 presidential election by popular vote. He placed second after Ali Akbar Hashemi-Rafsanjani in the first round amid rumors surfaced that the Revolutionary Guard and the Basiij Militia had engineered his election. However, in the second round he handily defeated Rafsanjani to become president. Throughout his presidential campaign and after, he resorted to populist slogans such as equal distribution of wealth, economic justice, thoughtfulness and compassion (mehrvarzi), etc., to timely take advantage of people’s emotions during a period of rapidly rising oil revenues and the potential threat of a U.S. invasion was becoming serious after Bush’s notorious State of the Union speech that put Iran a part of an axis of evil